BEGINNING IN January, the Finance Ministry will shorten the approval process for foreign interests looking to issue bonds in baht from three times a year to a monthly basis.
“As a result of shortening the approval process, we hope that CLMV [Cambodia, Laos, Myanmar and Vietnam] countries will raise more funds through this channel,” the ministry’s permanent secretary, Somchai Sujjapongse, said yesterday in his keynote speech at the “International Capital Markets Conference” in Bangkok.
“Nevertheless, we still have to monitor the amount and the timing of the baht bonds that are issued because of the risk of capital outflow,” he said outside the conference, which was held by the Stock Exchange of Thailand and the IMF Regional Office for Asia and the Pacific.
He said Laos was currently the only CMLV country to have issued baht bonds. Its government has raised around Bt9.95 billion worth of sovereign debt from Thailand and will raise more funds by issuing baht-denominated bonds worth Bt12 billion before the end of this year. This is the fourth issuance of baht-denominated bonds by Laos’ Ministry of Finance after the first issue in May 2013.
Laotian state-owned EDL-Generation also floated bonds worth Bt6.5 billion from Thailand in October 2014. Mitsuhiro Furusawa, deputy managing director of the International Monetary Fund, said in his welcoming speech that Asia would remain the fastest-growing region in the world and the continuation of financial integration would unlock its full potential.
“But this process remains at an early stage, and has not kept pace with the integration of the real economy,” he said.
“Because Asian countries are at different stages of development, and face diverse external and home-grown pressures, deepening financial integration across a wide range of countries can help countries insure each other. But there are many challenges ahead,” he said.
Furusawa explained that one of challenges is the matching of the region rapidly evolving saving pools with large investment needs since the investment needs of business will inevitably exceed a company’s own resources, and the traditional recourse to the banks that dominate Asian financial systems may be insufficient.
Channelling funds into long-term investment is another challenge, particularly in developing economies, for many reasons. Investors’ time horizons may not be long enough, legal systems may not be sufficiently robust to settle the disputes that arise, or financial systems may not be able to turn an infrastructure project into a financial product investors will buy, he added.
There are also risks to financial integration, where capital flows can be large and volatile, global credit cycles might not fit each country’s needs at all times, and integration tends to make financial markets move more closely together across countries.
“As we have learned in recent years, the more open a country, the greater the potential risks and benefits,” he said.
To avoid risks, Furusawa recommended that Asian governments build strong frameworks for macroeconomic and financial sector policies with independent central banks, fiscal policies that can operate counter-cyclically while limiting public debt build-ups, strong regulation and supervision.
Countries also need strong macro-prudential policy frameworks. Counter-cyclical macro-prudential policies can reduce the build-up of financial risks while mitigating the fallout when capital flows reverse, credit growth slows and asset prices fall.
Cooperation at the regional level is also essential where financial information needs to be shared openly and rapidly between countries, while regulations should be harmonised as much as possible. This will help level the playing field across sectors and countries, reduce the opportunities for regulatory arbitrage, and lower the cost of financial services across the region.
Meanwhile, Somchai said the newly established Capital Market Development Committee chaired by Finance Minister Apisak Tantivorawong was expected to reveal its master plan for the country’s capital markets by the beginning of next year. The major goal of the master plan is to develop the capital markets as the engine of economic growth and wealth distribution.