Asia’s experience for the Russian market

The Asian Bond Markets Initiative is an example of the development of national currency debt capital markets

The Asian Bond Markets Initiative (ABMI; hereinafter, the Initiative) was launched in December 2002 by the member states of ASEAN+3 ¹. The Initiative was created following the 1997–98 Asian Financial Crisis, which was triggered due to the members’ heavy dependence on external borrowing to finance their economic agents and not developing their own capital markets. As a result of the accumulation of substantial external debt, the governments of these countries were forced to weaken their national currencies, which led to capital outflows and declining GDP.

Since the Initiative was created 20 years ago, the bond markets of participating countries have grown considerably. The Initiative aims to reduce dependence on external (i.e. outside the region) sources of capital by effectively using savings through the development of deep and liquid national capital markets. There are four areas (Task Forces) for carrying out the Initiative:

• Promoting the issuance of local currency-denominated bonds;

• Facilitating demand for these instruments;

• Improving the regulatory framework;

• Improving the related infrastructure for bond markets.

In addition, a Technical Assistance and Coordination Team (TACT) was established as part of the Initiative to provide support to individual member states.

Under these areas, the following tasks were implemented, among others ²:

• Launching a centralized website (https://asianbondsonline.adb.org/) to provide comprehensive information on national capital markets;

• Harmonizing capital market regulations;

• Creating standardized debt instruments;

• Creating a mechanism for credit and investment guarantees that supports, among other things, the issue of corporate Eurobonds in the member states’ national currencies;

• Promoting the Medium-Term Note Program;

• Supporting the use of international reporting standards;

• Developing derivatives and repo markets;

• Fostering credit culture, including by creating credit risk databases.

It is important to note that the Initiative is permanent. Roadmaps are approved regularly. For example, for 2019–2022, the Initiative’s goals include promoting the issuance of infrastructure financing and green bonds, further improvement of disclosure of information on local currency (LCY) debt markets, and promoting cross-border bond issuance ³.

The domestic capital markets of the member states have grown significantly (Fig. 1) since the Initiative was launched. In some countries (Thailand) the market has more than doubled, while in others (Vietnam), a market has been created from scratch. National markets have become a full-fledged source of financing for a wide range of borrowers, the liquidity of the markets has grown, and various types of bonds have appeared.

¹ The ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and the People’s Republic of China, Japan and the Republic of Korea.
² https://asianbondsonline.adb.org/
³ ASEAN+3 Asian Bond Markets Initiative Medium-Term Road Map, 2019–2022.

Figure 1. The size of LCY bond markets in certain ASEAN countries has increased significantly, % of GDP ⁴

Development of LCY debt markets in Russia and its trading partners. The availability of developed and efficient domestic capital markets in trading partner countries contributes to their more stable development, reduces borrowing costs and financial risks, and expands the investor base for borrower countries. The growth of the use of national currencies by Russia and its trading partners in trade matches this trend. In part, the development of national capital markets is already taking place within the Eurasian Economic Union (EAEU), one of the purposes of which is to create conditions for increasing the internal stability of the economies of partner states ⁵. The 2025 EAEU Development Strategy provides for the formation of a common financial market, and the EAEU Common Financial Market Concept was approved in 2019. Currently, the domestic debt capital markets of the EAEU countries are small (Fig. 2), and the EAEU countries account for less than 10% of Russia’s foreign trade turnover. In this regard, it is advisable to develop local capital markets together with the EAEU member states and Russia’s other trading partners.

⁴ Government and corporate bonds, outstanding volume.
⁵ EAEU Treaty, Part 3.

Figure 2. The volume of LCY bond markets in EAEU countries in 2021 was less than 35% of GDP

Source: Cbonds

The following instruments may be regarded as potential ways to increase the efficiency of national debt markets:

• Mutual issuance of LCY government bonds will contribute to the growth of foreign currency liquidity in the economy of the borrower country, and will also promote direct (excluding third-country currencies) assessment of the borrower’s credit risks, which will, in the long term, result in lower risk premiums. For example, if a trading partner places RUB-denominated government bonds in Russia, it can sell RUB-denominated proceeds in its domestic market, which will provide additional liquidity in the local market and form a benchmark on the Russian market to evaluate similar borrowings of companies that trade with Russia. Among other things, these instruments contribute to a more market-based formation of currency cross-rates without the need for third-party currencies, and also increase the liquidity of the Russian ruble.

• Formation of mechanisms to support issuance of LCY corporate bonds. An example is the Credit Guarantee and Investment Facility (CGIF), a mechanism that provides guarantees to corporate borrowers in national currencies. Another example is Asian Bond Fund 2, a fund that invests in government or quasi-government LCY bonds.

• Increasing the transparency of information about LCY debt markets by creating a centralized website with a standardized disclosure procedure.

It is worth noting that a comprehensive and consistent approach to the development of capital markets in national currencies by relevant countries will help increase the depth and efficiency of such markets and contribute to reducing currency and credit risks.