By Alison Harwood
Construction neighborhood Bond MarBuilding neighborhood foreign money bond markets has turn into an increasinglyimportant subject for rising industry nations, rather for the reason that theAsian monetary difficulty. This e-book experiences why nations should still consid-er development neighborhood forex company bond markets and the way to evalu-ate what's wanted and what will be constructed. It comprises eightcountry reviews: Republic of Korea, Australia, Malaysia, India, Paki-stan, Sri Lanka, Bangladesh, and Nepal. it truly is in line with the IFC-spon-sored South Asia Debt marketplace Symposium held in October 1999 in SriLanka, which introduced jointly regulators and marketplace participantsfrom round Asia and different components of the globe to debate concerns in de-veloping neighborhood markets. The publication may still offer worthwhile insights forcountries which are addressing those concerns today.•
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Additional info for Building Local Bond Markets: An Asian Perspective
A neutral tax environment is preferable. This means removing a tax that favors another product rather than introducing a new tax incentive for bonds. It also means convincing the tax authorities to make these changes, perhaps by showing them how the market’s growth can generate other kinds of taxes (such as interest income) that may be less distortionary. 21 A L I S O N H A RW O O D Second-Layer Solutions. The main issues “across” the financial system concern building benchmarks and compensating for weak or dominant banks.
Local bond markets can help to separate these links. Second, local bond markets allow borrowers to use capital that is tailored to their assets and operations. Such tailoring may occur in many ways, the most important of which concerns maturity. Banks typically like to lend fairly short because their funding sources are 49 MICHAEL PETTIS very short, but projects are not necessarily short term. That is why maturity mismatches have traditionally been one of the biggest sources of domestic market problems.
One is simply a good old-fashioned insolvency crisis in which a country has borrowed far too much and is unable to pay its foreign lenders. To take a current example, Ecuador has an external debt of approximately 90% of GDP, which is clearly not repayable. The second type of financial crisis is more like a classic bank run. Although it may reflect policy mismanagement, lack of reforms, capital controls, crony capitalism, and other causes, its roots lie in unstable capital structures. This type of crisis is a problem of corporate finance theory more than a problem of economics, although the economic consequences are huge.