Learning Curves

OED
October2008

ADBsAssistanceforDomestic CapitalMarkets

Strategy2020includessupportforcapitalmarketdevelopmentasoneoftheADBscore operationalpriorities,asitcanfacilitateprivatesectordevelopmentandinfrastructure development,whichrelyontheavailabilityoflongtermlocalcurrencyfundsforviable financialstructures. In2008,theOperationEvaluationDepartmentconducteditsfirstevaluation1ofthe performanceofADBspublicandprivatesectorassistancerelatedtothedevelopmentof policy,legal,andregulatoryframeworks,andinstitutionsforstockandbondmarkets.

Background capitalmarketdevelopmentuntilrecently,thetime horizonsofADBassistancestrategiesinthestudy Thisstudycoveredtwodecades(19862006)of countrieswereusuallylimitedtothedurationof sectoroperationswithgreaterattentiongivento individualprogramloans.Inanumberofcases,the assistanceprovidedinrecentyearstohelpidentify selectivityandsequencingofsectorprogramscould lessonsforfutureoperations.Thestudywasprepared havebeenimprovedbyrecognizingthehierarchyof onthebasisoffindingsfromsixcountrystudiesfor financialmarketsandtheirlinkages;thedevelopment Indonesia,Mongolia,Pakistan,Philippines,SriLanka, stageofthecountry;ordeficienciesintheoverall andVietNam,whichhaveaccountedfortwothirdsof macroeconomic,monetary,investment,legal,andreal theAsianDevelopmentBanks(ADB)lending sectorframeworksthathaveabearingoncapitalmarket operationsinthesector. development. SummaryofFindings ADBassistancewasmosteffectivewhenitwas focused,partofalongtermengagement,andintegrated OverallRating.ADBsassistancefordomestic withgovernmentreforminitiativesthatweresupported capitalmarketdevelopmentinthestudycountrieswas byallrelevantstakeholders. ratedasborderlinesuccessful,indicatingthatthereis WhatWorkedandWhatDidNot.MostofADBs scopeforimprovementinADBsfutureoperationsin capitalmarketsrelatedassistancefocusedonthe thesector. developmentofregulatoryframeworks.Themajorityof StrategicPositioning.ADBhasnothadacorporate thisassistancewaseffectiveinestablishingthelegal levelstrategytoguideitsfinancialsectorassistance. basisforsecuritiesmarketoperations,strengtheningthe Operationalprioritieswerethereforedeterminedatthe capacityofregulatoryauthorities,andimprovingthe countrylevel.Whilethissetupfacilitatedclose alignmentofADBsprogramswiththereformpriorities governanceandselfregulationofstockexchangesand securitiesfirms,albeitwithvaryingdegreesofsuccess. ofdevelopingmembercountries(DMC),inthe Allstudycountrieshavemadeprogressinmoving aggregate,itprobablylimitedADBsabilitytoidentify towardsfullcompliancewithinternationalstandards. efficientcorporatelevelresponsestocommonissues Nevertheless,thefulleffectivenessandsustainabilityof facedbyDMCs. improvementsintheregulatoryframeworkwilldepend ADBsregionaleffortstosupportbondmarket oncontinuedinstitutionalincentivesandpolitical developmentwerenotsystematicallytranslatedinto commitmenttoimplementthem. relatedoperationsatthecountrylevel.Also,inthe ADBhasalsobeensupportingtheestablishmentof absenceoflongertermgovernmentstrategiesfor trading,clearing,andsettlementinfrastructure.
6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

Operations Evaluation Department Asian Development Bank

Assistanceinthisareahasgenerallybeenrelevant, effective,andsustainable.Ithashelpedtoincreasethe transparencyandefficiencyoftradingandtoreduce settlementrelatedrisksandcosts. ADBsassistanceforthedevelopmentof governmentandcorporatebondmarketshasbeenona comparativelysmallerscale,giventhedevelopmentof thefinancialsystemsinmostofthestudycountries. ADBsupportforgovernmentsecuritiesmarkets focusedonaspectsofprimarymarketdevelopment. Effectivenessofassistanceinthisareahasvaried dependingonthelevelofcommitmentbydecision makerstomarketbasedprocessesandthequalityof fiscalanddebtmanagement.ADBassistancehasbeen successfulinanumberofareasthatwillbeimportant forcorporatebondmarketdevelopment,suchasthe establishmentofefficientclearingandsettlement systemsandcreditratingagencies.However,anumber ofotherpertinentissueshavenotbeensufficiently recognizedoreffectivelyaddressed,including disclosurestandardsandpractices;thefinancing patternsofAsiancorporations;anddeficienciesindebt recoveryregimes.Moreholisticandstrategic approachesthatconsiderthebondmarketwithinthe contextofoverallfinancialsystemdevelopmentand fiscal/debtmanagementframeworksarenecessary. Effortstoexpandtheinstitutionalinvestorbasehave generallybeenlesssuccessful.ADBsupported measurestodevelopmutual,insurance,andpension fundshavenotresultedinsignificantincreasesintheir participationlevelsinstockandbondmarkets.Manyof theseinvestorsarestillstateownedandlacksufficient commercialorientationandskills,whichisreflectedin theirpreferenceforinvestingingovernmentsecurities. ADBassistanceintheirrestructuringandin encouragingmoreprivateparticipationhasbeenonly partlyeffective,mainlyduetopoliticalresistance. Impact.Generally,capitalmarketsnowhavegreater depthandliquiditythanatthestartofADBsassistance, althoughinmanycasesonlymodestlyso.Thelimited impactofADBsupporthasbeenduetodeficienciesin theimplementationofagreedreformagendas,and, moreimportantly,unaddressedimpedimentsinthe overalleconomic,business,institutional,andlegal environmentgoverningcapitalmarketactivities;as wellasthelimitedpotentialforcapitalmarket developmentinverysmalleconomies. ADBPerformance.ADBsperformancehas generallybeensatisfactory,butneedstoberaised furtherinlinewithemergingsectorchallengesand
Learning Curves available @ www.adb.org/evaluation/

Strategy2020.Thiswillinturnnecessitategreater strategicfocus,internalcoordination,andchangesin staffandconsultantresourcesonpartofADBincluding theabilitytohirespecializedexpertiseintheseareas. Recommendations AttheADBcorporatelevel,developafinancialsector strategythatprovidesaconsistentanalyticaland operationalframeworkforsectorassistancewiththe aimofimprovingtheresponsivenessofADBsupport torapidlychanginganddiverseclientdemandsand needsincludingviableapproachesforsmallorlow incomeDMCs;strengtheningthecoordinationof variousADBentitiesthatworkonsectorissues;and facilitatingtheavailabilityofadequatestaffand consultantresourcestosupportsectoroperations. Atthecountrylevel,improvetheselectivityand strategicplanningofcapitalmarketassistance throughcarefulassessmentsofmarketdevelopment potential,supportforthepreparationoflongterm strategiesthataddressallbindingconstraintsto capitalmarketdevelopment,andtheinvolvementof relevantstakeholderswithinADBandGovernment inthepreparationofsectorassistancestrategiesand programs. StrengthenthedeliveryofADBsectorassistanceby usingadherencetointernationalstandardsand principlesasindicatorsindesignandmonitoring frameworkspertainingtoassistanceforsecurities market;consideringcostsandbenefitsassociated withcapitalmarketdevelopmentmeasuresby developingandpromotingcosteffectiveapproaches; andinvolvingrelevantprivateandpublicsector stakeholdersintheformulationofreformprograms andensurethatanycapitalmarketreformsare sufficientlydiscussedwithmarketparticipants. Feedback WhentheseLearningCurveswereprepared,ADB ManagementsResponseandtheChairsSummaryof theDevelopmentEffectivenessCommittee Discussionswerenotavailablefordisclosuretothe public.ThestudywascompletedinSeptember2008.
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ADB.2008.SpecialEvaluationStudyonADBAssistancefor DomesticCapitalMarketDevelopment.Manila.Available: http://www.adb.org/Documents/SES/REG/SESOTH2008 36/SESOTH200836.pdf

Team Leader: Henrike Feig; Tel +63 2 632 4104; hfeig@adb.org