Asia 'needs more innovative financial products'

"There should be financial products in between bank deposits and stocks," Naoyuki Yoshino, professor of economics at University of Keio, said yesterday, referring to the limited financial products in Asia.

He said that while governments may have limited capacity to issue bonds, due to surging public debts after injecting money to bail the economy out of recession, there should be more municipal bonds or revenue bonds.

Yoshino was speaking at a seminar hosted by the Japan Bank for International Cooperation(JBIC).

He said revenue bonds were one way to utilise private-sector funds. This scheme was suitable for the construction of revenue-generating infrastructure; bondholders would be repaid from the revenue earned by the projects, for instance, toll fees for highways.

He also expressed doubts about the efficiency of public spending without private participation. He said there was usually no transparency in public investment projects. But public-private investment projects would be subject to close monitoring by investors.

"More than 60 per cent of public investment by the Japanese government during 1990s was wasteful," he told seminar participants.

Yoshino also suggested that developing countries in Asia increase pension funds or insurance firms as part of bond-market development.

Hirochi Watanabe, president and CEO of JBIC foresaw the potential of a growing middle-income class in Asia, estimated to be about 700 million people, to sustain the growth momentum and become the core of world growth.

He, however, said the financial sector in Asia was still small due partly to financial nationalism. Recession in the world economy had shrunk trade finance and JBIC was committed to providing trade finance worth US$1.5 billion (Bt51.4 billion) for two years, he said.

Narongchai Akarasanee, chairman of the Export-Import Bank of Thailand, said Asia in the past relied too much on Western financial products, so when the West was hard hit by the financial crisis it affected the credit markets in Asia.

He said he will, in the next few weeks, go to China to talk about co-financing coal-fired power generation in Laos, which has been adversely affected by the global financial crisis.

Narongchai said the crisis would force deeper integration of Asian economies.

He also said oversubscribed government savings bonds suggested a malfunction of banks and a lack of financial products for alternative investment.

Meanwhile, Finance Minister Korn Chatikavanij said that Asean, along with China, Japan and South Korea, is working with the Asian Development Bank on bond-market development to enhance the credit rating of local bonds issued by local firms. Currently central banks in Asia can invest only in AAA-rated bonds, he said. Asean+3 also wanted to draw other investors into local-currency bonds, said Korn.