Hal S. Scott, The Development of Asian Bond Markets: The Offshore Option (Harv. Pub. L. Working Paper No. 07-06, June 9, 2007).
Abstract: One of the factors widely believed to have contributed to the Asian financial crisis was the dependence of the region on external short-term dollar-based financing from banks. The Asian Bond Markets Initiative (ABMI) which was launched in Manila in 2003, aims to solve this problem by developing efficient and liquid government and corporate bond markets in Asia. There are two fundamental ways for a group of countries to create an integrated bond market - onshore and offshore. Onshore integration requires that each participating country permit its issuers to raise capital by issuing bonds in foreign countries to foreign investors and to permit its investors to invest in foreign securities in their own countries. In addition, for regional issuance to be efficient, so that issuance in all countries could take place under the same rules, all countries participating in the arrangement would have to have similar securities laws and regulations, or allow a foreign issuer to issue in their markets under its home-country rules. This paper argues that offshore integration provides a better model. Countries must permit their issuers (government or corporate) to raise funds offshore from domestic and foreign investors in participating countries. In addition, participating countries must permit its investors to invest in offshore securities. The offshore model does not require harmonization or deference to the use of home country rules in host countries. Harmonization, and the resulting efficiency, is achieved by issuers and investors operating under the rules of the offshore center.