KERJASAMA PEMERINTAH & SWATA

PSKPM: “Your Common House for Capacity Building”
 Developing a Government Bond
Market: An Overview

1.1 Introduction
The need to develop domestic securities markets has, following the recent international financial crises, increasingly attracted the attention of national and international policymakers.This has resulted in the issuance of a number of policy recommendations by various organizations, such as the Asia-Pacific Economic Cooperation (APEC) collaborative Initiative on Development of Domestic Bond Markets. The issue of government debt management is intrinsically linked to government securities market development.
Work is currently under way on this issue at the International Monetary Fund (IMF) and the World Bank, where guidelines have been developed to guide government actions as an issuer, thereby steering development of the government securities market.2 This handbook on government securities market development seeks to fill an existing gap between specific technical studies about securities market microstructure and publications that offer general policy recommendations about securities market
development. The handbook integrates these two perspectives by outlining important issues confronting senior strategic policymakers or those implementing policies to support development of a government securities market.

Developing Government Bond Markets

Developing a government securities market is a complex undertaking that depends on the financial and market system development of each country. For many governments, this involves immense challenges, as
the problems that inhibit securities market development run deep in the economy. For example, some governments rely on a few domestic banks for funding, which makes competition scarce and transaction costs high. In addition, a proliferation of government agencies issuing securities can fragment national government securities markets. Absence of a sound market infrastructure may make specific actions to develop a government securities market premature. A paucity of institutional investors, low domestic
savings rates, and lack of interest from international investors can result in a small, highly homogeneous investor group, contrary to the heterogeneity needed for an efficient market. Furthermore, economic instability, often fed by high fiscal deficits, rapid growth of the money supply, and a deteriorating
exchange rate, can weaken investor confidence and increase the risks associated with development of a market for government securities. This overview of the handbook on developing a government securities
market examines some of the policy questions that arise for policymakers seeking to address these and other problems.

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