Bond market 'can cope'
Finance Minister Thirachai Phuvanatnaranubala yesterday expressed confidence that the government can finance the Bt350-billion emergency decree for post-flood reconstruction.
"Despite this urgency, we expect the Thai bond market to have absolutely no difficulty in providing this amount of emergency funding," he said.
The decree authorises the government to borrow for immediate investment in a rainwater drainage system, he told a national bond-market conference. It will drive up public debt from 42 per cent of gross domestic product to about 45 per cent.
Over the past 15 years since the financial crisis, Asian countries have succeeded tremendously in developing their bond markets in local currencies, Thirachai noted. Excluding Japan, the Asian bond market in 1997 was only US$176 billion, or 9 per cent of GDP. Today, it has grown more than 30 times to $5.5 trillion (Bt175 trillion), or 53 per cent of GDP.
In the case of Thailand, past development of the bond market has paid substantial dividends.
Asian bonds are attractive, especially because of fast economic growth. Asian economies ex-Japan expanded 8.5 per cent in 2010. This high rate was not an exception, but has continued for many years.
Such high growth rates afford Asian countries more comfort in servicing their debts each year, far better than the countries with stagnant growth, he said.
Borrowings in Asia are mostly used to finance infrastructure that will support more sustainable growth and higher productivity in the future. The certainty of payback is more assured than other continents that borrow for state consumption or public welfare programmes.
However, growth alone will not make Asian bonds attractive for long, Thirachai warned. To win the complete confidence of global investors, Asian bonds also need to have proper infrastructure. The system of accounting and auditing must be sound, while transparency must be high.
Governance must be well respected both at the government and corporate levels. The rating process must be reliable. The price-discovery processes must be fair and efficient. There must be adequate market surveillance. Finally, the system for payment and settlement must be convenient and reliable – in short, world-class.
Asia must also set up a good system to prevent the distortion of risks as occurred in Europe, Thirachai said.
