ABSTRACT
The nature of Asia’s 1997–98 crisis suggests that the region may become less prone to financial contagion by reducing reliance on its banking sectors for credit and intermediation, and improving efficiency in deploying savings. Asia is generally free from non-cyclical aggregate shortages of capital but its capability to apportion financial resources is pervasively suspect. Liquid debt securities markets exist comprehensively in no economy other than Japan, even though notes or bonds are issued in most and Asian international borrowers are well regarded, though not prolific. This article argues that active debt markets will improve national and regional resource allocation by providing an unbiased, visible price mechanism, widen the choice available to investors and diminish the contagion effects of market instability; results requiring collaborative actions that represent unprecedented economic cooperation and tests of regional and bilateral institutions. Five questions are implicit in any appraisal of the region’s financial infrastructure:
Does Asia’s financial culture make mature bond markets infeasible?
Are weak markets indicative merely of evolutionary underdevelopment?
Can bond markets expand without continuous risk-free benchmark yield curves?
Could new regional structures assist trading, fundraising and impaired asset resolution?
Do potential gains in welfare justify policy engagement to strengthen Asia’s bond markets?
