Creating Long-Term Mortgage-Backed Bond Markets in Asian Developing Economies: A Postcrisis Reform Agenda

Abstract

Among the many important policy lessons learned from the Asian financial crisis is the need to develop long-term domestic bond markets in developing member countries (DMCs). Despite high rates of national savings, long-term savings have not been efficiently mobilized in most DMCs. Private sector investments in Asian emerging economies have largely been financed by short-term and medium-term foreign borrowing involv¬ing debt servicing burdens and exchange rate risks. It is therefore crucial for the DMCs to diversify the sources of investment funds, particularly by developing long-term domestic bond markets. To this end, several instruments are available, including pension funds, mutual funds or unit trusts, and mortgage-backed securities (MBSs) (Rhee 1999). MBSs are considered to be an increasingly important tool for mobilizing long-term savings, while at the same time stimu¬lating domestic housing markets. This paper, based on an Asian Development Bank (ADB) study (1999), discusses the feasibility of creating MBS markets in eight DMCs.