A lesson that we learnt from the 1997-1998 Asian Financial Crisis is the importance of developing a deep and liquid domestic bond market, which can help reduce the corporate sector’s reliance on financing through short-term bank borrowing.
At the same time, a significant part of the high savings in Asia, which are invested in assets of developed markets, have returned to the region in the form of short-term capital inflows, particularly in the form of bank lending and portfolio inflows. These sorts of inflows tend to be volatile. Thus, to improve the efficiency of financial intermediation in Asia and to develop a more stable source of funding for Asian borrowers, the region needs to develop deep and liquid domestic bond markets.
