The Philippines needs a robust corporate bond market – a critical “spare tire” – to weather future financial storms, according to the country’s central bank governor.
Speaking recently, Governor Eli Remolona, Jr. drew a stark lesson from the 1998 Asian financial crisis. He recalled a warning from Alan Greenspan, then Chairman of the U.S. Federal Reserve, that the crisis was so severe because Asian financial systems lacked alternative funding sources beyond banks.
Greenspan’s point was brutally simple: when banks falter, a functioning corporate bond market is essential to prevent economic collapse. Without it, a “flat tire” in the banking system can bring everything to a standstill.
The Philippines currently boasts a corporate bond market dominated by highly-rated issuers – a staggering 96% hold “AAA” ratings. But the governor cautioned that this isn’t necessarily a sign of strength.
Instead, it signals a surprisingly *thin* market, lacking the breadth and depth needed to truly function as a reliable backup. A truly resilient system requires a wider range of risk profiles among bond issuers.
Thailand offers a compelling contrast. While only 6% of Thai corporate bond issuers achieve a “AAA” rating, a substantial 58% are rated “A.” Remarkably, Thailand’s corporate bond market is five times larger relative to its GDP than the Philippines’.
This is the kind of diversified, substantial market Greenspan envisioned – one capable of absorbing shocks and providing crucial liquidity when banks are under pressure. The governor emphasized the urgent need to cultivate this “real spare tire.”
Deeper, more developed money and bond markets aren’t just desirable; they are vital for navigating economic turbulence and ensuring sustained growth. They provide the resilience needed to steer the economy through challenging times.
The call to action resonated with representatives from key financial organizations in attendance, including fund managers, investment houses, and securities brokers.
