Washington, D.C., October 21, 2007
—The World Bank Group today welcomed the strong support received from emerging markets for its local currency bond fund. The $5 billion bond fund is designed to help emerging market countries attract more investment by developing their local currency bond markets.
The Global Emerging Markets Local Currency Bond Fund (GEMLOC) has been created to help drive financial sector development in emerging markets, boost prospects for growth, and help overcome poverty. It is a joint initiative by the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), members of the World Bank Group.
"The interplay between the fund, the index, and advisory services funded by investors, creates an exciting opportunity for countries to develop their local currency bond markets and attract long-term investment. We particularly welcome the focus on smaller markets, which stand to benefit greatly from stronger debt markets and the increased investment they will attract as they become easier to invest in," said H.E. Dr. Mahmoud Mohieldin, Minister of Investment, Egypt, speaking at a press conference held in Washington, D.C. during the World Bank Group's Annual Meetings.
Jorge Familiar C., Executive Director, Central America, Mexico, Spain, and Venezuela, the World Bank Group, said: "I applaud GEMLOC for its ingenious approach to encouraging financial development through market-based initiatives. This project demonstrates that the World Bank Group has a unique role to play in addressing market gaps, bringing public and private sectors together to meet the demands of both, and meeting the needs of middle-income as well as poorer countries."
"This effort will enhance the ability of governments and other issuers to raise long-term financing in local currencies and attract benchmarked investors to their debt markets. This would contribute towards greater financial stability and economic growth. GEMLOC should encourage a positive shift from short-term inflows towards stable, long-term investment in local bond markets," said Tan Sri Dr. Zeti Akhtar Aziz, Governor, Bank Negara Malaysia.
"We are delighted with the resounding support the World Bank Group has received for this initiative," said Michael Klein, Vice President, Financial & Private Sector Development, WB-IFC and Chief Economist, IFC. "This is testament to the importance of financial sector development as a means to boosting economic growth and reducing poverty. This strategic partnership with the private sector also represents a new business model for the World Bank Group".
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Factsheet: GEMLOC
The $5 billion fund, to be structured by IBRD and managed by a private sector fund manager, will mobilize money from public and private institutional investors. It will provide greater liquidity and depth to local currency bond markets and offer investors a broad, diversified portfolio of local currency bonds.
The initiative includes the Global Emerging Markets Bond Index (Gemx), which will be created by IFC with a leading index provider. The index will establish a benchmark for the asset class and allow a wide range of emerging markets to be targeted by global investors. The index sets out clear and transparent criteria so countries can implement reforms to improve their ranking, attract additional investment, and expand their bond markets.
Advisory services will also be available to help countries meet the goals of policy reform and improved market infrastructure. It will be funded by fee income from the fund and provided by IBRD.
The fund, which will initially invest in 15 to 20 emerging markets, is expected to reach 40 markets within five years. It will channel investment toward middle- and low-income markets that exceed given thresholds for bond market size and ease of investment. Initially, countries that participate may include Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Peru, the Philippines, Poland, Romania, Russia, Slovakia, South Africa, Thailand, and Turkey. The open and competitive process for the selection of the fund manager, which began with the issue of a request for proposals on October 4, is expected to be completed by late November. The fund manager will be expected to raise about $5 billion by early 2008.
Gemloc will also help establish emerging market local currency bonds as an attractive investment asset class for investment. The World Bank Group has identified significant demand among institutional investors for a dedicated fund in emerging market local currency debt.
The initiative includes a sunset provision of 10 years, when involvement of the World Bank Group will cease and the private sector is expected to be fully engaged.
About IBRD
The International Bank for Reconstruction and Development aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. Established in 1944 as the original institution of the World Bank Group, IBRD is structured like a cooperative that is owned and operated for the benefit of its 185 member countries.
About IFC
IFC, a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments. IFC's vision is that poor people have the opportunity to escape poverty and improve their lives. In FY07, IFC committed $8.2 billion and mobilized an additional $3.9 billion through loan participations and structured finance for 299 investments in 69 developing countries. IFC also provided advisory services in 97 countries. For more information, visit
www.ifc.org
.
