Asian Development Bank to set up regional credit guarantee fund

14/04/2010
by DPA

Manila - The Asian Development Bank and 13 East Asian countries are to establish a 700-million-dollar credit guarantee facility to encourage long-term investment in the region, the Manila-based bank said Wednesday.

The bank said it would contribute 130 million dollars to the establishment of the Credit Guarantee and Investment Facility, which it would jointly own with the 10 members of the Association of South-East Asian Nations (ASEAN) as well as China, Japan and South Korea.

ASEAN and the three dialogue partners, also called ASEAN+3, would provide a combined 570 million dollars toward the facility, which was due to start operations in 2011.

ASEAN consists of Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand, Vietnam and Myanmar.

The fund "will provide guarantees on local-currency-denominated bonds issued by companies in the region," the bank said in a statement. "Such guarantees will make it easier for firms to issue local bonds and longer maturities."

"This will help reduce the currency and maturity mismatches which caused the 1997-1998 Asian financial crisis and make the regional financial system more resilient to volatile global capital flows and external shocks," it said.The bank said a recent study it financed showed that demand for credit guarantees in East Asia could reach 25 billion dollars by 2020.

It added that providing credit protection to investors should help unlock the region's vast savings for badly needed investment in infrastructure and other key areas."The facility will make it possible for corporations to issue bonds in their domestic markets and in neighbouring markets and across ASEAN+3," said Noy Siackhachanh, an adviser with the bank's Office of Regional Economic Integration.

"Channeling regional savings into regional investments will support economic growth, creating jobs and alleviating poverty," she said.

The bank said the facility would be governed by an eight-member board drawn from contributor countries, including one representative from the development bank. The location of the trust fund has yet to be decided.

It added that ownership rights would be proportionate to the respective capital contributions. China and Japan are contributing 200 million dollars each, South Korea 100 million dollars, and ASEAN countries a combined 70 million dollars.