• IMF: “ABS in Emerging Markets: Recent Trends and Policy Implications”
• Capital Markets Consultative Group (CMCG): Study about the Impediments to development of emerging capital markets
• IMF: “Derivatives in Emerging Markets: Recent Trends and Policy Implications for Capital Markets”
• IMF and World Bank: Study about Economic Transmission Mechanisms and the impact of the current turmoil on the local bond markets.
• Working Group on Securities Databases: Report about September 2007 Meeting
• World Bank: Study about Regionalisation of East-African Securities

The overview-report looks at the problems identified by the G8 Action Plans, Task delegated to various institutions and results given from the implementation report. It is subdivided into ten sections:

• General Provisions
• Market Infrastructure
• Securitization Markets
• Public Debt Management
• Broadening and Diversifying the Investor Base
• Developing of derivative and swap markets
• Promoting Regional Initiatives
• Broadening the Database
• Developing bond markets in less-developed countries (especially Sub-Saharan Africa)
• Techical Assistance

The G8 Action Plan was mentioned in the recent report of the G8 Finance Ministers Meeting in Osaka, Japan, but also in various other conferences:

• High Level Workshop 2007 Developing Bond Markets in Emerging Market Economies, Frankfurt, May 10, 2007
• G8 Conference on Bond Markets in Emerging Economies and Developing Countries, Frankfurt, 31 January 2008
• Second OECD Forum on African Public Debt Management, 12-13 December 2007, Amsterdam
• World Bank Debt Management Stakeholder’s Conference, Oslo Norway, March 5-6 2008

A list of further documents can be found in the report, further entries will be added in the future.

He outlines the following benefits from having Local Bond Markets:

Foreign versus local currency

• Reduced volatility and easier debt management
• Long-term fiscal budget stability
• Increased investors confidence
• Reduced conflict of interest between devaluation of currency to spur export growth and appreciation of currency to ease debt payment
• Local participation in the debt market

Risk management and investment

• Free capital by providing low-risk local currency government bonds which allow investors with an appetite for medium-risk exposure to invest in high-risk investments, such as SMEs and Startups.
• Lower capital adequacy requirements from banks because of availability of local-currency government bonds
• Allows the operation of enterprises with lower risk appetites –(particular pension funds)

Monetary policy

Shared costs of inflation targeting between public and private sector

Information

• Local bond markets provide key investment information, including interest rate expectations, inflation rate expectations, yield curves.
• Better fiscal and monetary planning because of knowledge about market expectations

Market forces

• Government over-borrowing is restrained by inflation and economic decline and would therefore in theory be restrained, foreign lenders share in the cost of excessive lending.

Debt/investment cycle

• Interest on government debt increases the revenues of the local investors, which in turn can increase the tax revenues of government.

He also describes why Local Bond Markets have not developed in developing countries:

There are many possible explanations why African countries initially chose foreign loans over local bonds – a lack of local capital, an abundance of apparently cheap foreign capital, the lower administration costs of foreign loans over issuing bonds – but once this decision was made, it became a self-reinforcing cycle. As the foreign loans drain local capital and foreign exchange reserves, more foreign capital and currency is required. As the economies stagnate for a variety of reasons, local capital becomes more scarce and more expensive, whilst foreign capital is readily available at cheaper rates. Any weakening of the currency reduces the relative size of local capital and increases the need for foreign exchange. A government eventually has no interest in issuing local bonds at very expensive rates, which will not provide vital foreign exchange. From the foreign lenders’ point of view, they would have no interest in buying local bonds carrying additional currency risk, when they are able to issue debt in the currency of their choosing. As the economic situation declines in the country, the lenders will insist on having their loans denominated in foreign currency so as to limit their risk. Eventually the multilateral institutions are brought in and, in an attempt to help, offer the countries even more foreign debt at even lower rates. A bond issued in local currency at market prices stands little chance of competing against these cheap and relatively freely available loans.

The topic is also discussed at Ecorica.