ADB Approves $300 Million Loan to Develop Thailand’s Capital Market

The Asian Development Bank (ADB) is extending a $300 million loan to Thailand for capital market development designed to boost investment and support long-term, sustainable growth.

ADB’s Board of Directors today approved the loan, along with a technical assistance grant, for the Capital Market Development Program. The loan funds are being released following the completion of an agreed series of measures undertaken by the Government of Thailand between 2007 and 2010.

The Program is anchored to the government’s Capital Market Development Master Plan for 2009-2013, which sets out a roadmap for finance sector development and reforms over the medium term. The master plan focuses on key dimensions of capital markets including developing the equity market, bond market and money market. The goal is to help the country transform from a middle-income to high-income economy through increased contribution of the domestic capital market to financing domestic investment and economic growth.

While Thailand’s financial system was resilient in the face of the global financial crisis, the real sector was adversely affected. The economy shrank by 2.2% in 2009 and the contraction in private investment was larger. The government responded with appropriate fiscal stimulus and measures to maintain financial system stability. The economy has rebounded strongly in 2010 on the back of the surge in exports and the fiscal stimulus. Nevertheless, over the longer term Thailand’s economy faces several challenges to achieving higher and sustainable economic growth.

“Thailand’s capital markets need to be deeper, more diversified and inclusive if Thailand is to avoid the middle-income trap and graduate to a high-income economy” said Kunio Senga, Director General of ADB’s South Asia Department.

ADB’s program supports the government’s agenda in four areas, including the regulatory environment, market efficiency, liquidity and transparency, market infrastructure, and new products and investors. To date, the government has made substantial headway including establishing a timetable for the demutualization of the Stock Exchange of Thailand, strengthening the surveillance and enforcement capabilities of the Securities and Exchange Commission, moves to develop the domestic bond market, and simplifying taxes on financial transactions. It has organized activities to improve public financial literacy. A grant of $900,000 from ADB’s Technical Assistance Special Fund is being extended to help the government implement its capital market development master plan.

The loan has a 15-year term, with a grace period of 3 years, and annual interest set in accordance with ADB’s LIBOR-based lending facility. The Public Debt Management Office is the executing agency for the program. -adb