RP backs $1-B Asian Bond Fund

Asian central banks announced yesterday the creation of the $1-billion Asian Bond Fund (ABF) backed by 11 Asian economies which will focus on investing in regional government bonds.

The Philippines, Thailand, Malaysia, Singapore, China, Hong Kong, South Korea, Japan, Australia and New Zealand are the participating economies.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura said that members of the Executive Meeting of East Asia and Pacific Central Banks (EMEAP) have agreed to invest in the fund with the Philippines initially committing $100 million.

The creation of the ABF, according to Buenaventura, was an offshoot of the Chang Mai Initiative and would bring the region closer to the proposed creation of the Asian Monetary Fund, an initiative aggressively rejected by the International Monetary Fund (IMF).

The ABF, according to Buenaventura would have an initial $1 billion and it would invest on a basket of dollar-denominated bonds issued by Asian sovereign and quasi-sovereign issuers in EMEAP economies, except Japan, Australia and New Zealand.

The fund will be managed by the Bank of International Settlements (BIS) and Buenaventura explained that it would also develop its own index or benchmark that would determine how much funds would be invested in the individual countries.

The bond fund is the brainchild of Thai Prime Minister Thaksin Shinawatra, who has said he wanted to promote regional financial stability and minimize the risk of repeating the 1997 Asian financial crisis.

The fund is expected to create prosperity for Asian countries, which hold more than half of the world’s reserves, but focus most of their investment outside the region.

Buenaventura said that at present, there is an estimated $1.2 trillion worth of reserves that Asian economies are investing outside the region, mostly the US and Europe.

"The idea is to compel Asian economies to invest part of their reserves in the region itself so that countries here could benefit," he said. "We don’t even know how much of this $1.2 billion is actually being invested here at present."

Buenaventura said multilateral funding agencies are not invited to invest in the ABF because EMEAP members wanted the Asian economies to take the initiative and put some of their reserves in the region instead of taking the money outside.

"As the equities markets deepen and become more developed, ABF will move on to corporate bonds," he said. "This would increase liquidity of the different markets and the fund could also go to the secondary market," he added.

Indonesia is so far the biggest contributor to the ABF, committing a total of $120 million while Japan has announced that it would invest $100 million.

Thailand initially committed $200 million to the fund, but reduced its contribution to $120 million.