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The Aftermath of the Asian Financial Crisis

When it comes to addressing the policy issues confronting developing markets, it's more useful to switch focus from aggregate data to individual local currency markets.
Successfully dealing with these policy issues will open the developing markets to significant opportunities for bond issuers, investors, market makers, and other providers of market infrastructure.

Any discussion of policy challenges has to begin with the Asian financial crisis of the late 1990s, which became the catalyst for expanding the developing markets. It left many banking systems in need of urgent recapitalization, which was largely financed through increased government borrowing, substantially in the form of domestic bond issuance.

Moreover, the crisis exposed the private sector's overreliance on banks and foreign lenders for debt funding. Both sources can be, and were, withdrawn or limited at short notice, making painfully obvious the need for alternative sources of long-term stable debt funding.

Despite this, the development of corporate bond markets has tended to lag well behind that of government bond markets, except in Korea and Malaysia. As a result, the majority of private sector borrowers remain heavily reliant on their domestic banking systems for funding.

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* Contributed by: -
Philip Bayley is Primary Credit Analyst with Standard & Poor's, Melbourne.