Session: World Bank Government Bond Market Operations Speaker: Anderson Caputo Silva, The World Bank Group

Session: World Bank Government Bond Market Operations Speaker: Anderson Caputo Silva, The World Bank Group

Increasing Importance of LCBMs Objectives Finance development and growth Promote stability Foster financial sector development Impact of LCBMs Improve and enhance impact of fiscal and monetary policies to sustain growth Finance critical development areas, particularly infrastructure (through 2030, estimated $57tn needed) and housing Provide investment outlets for pensions/insurance funds Reduce reliance on external debt Facilitate counter-cyclical policies Enhance resilience to sudden reversals/stops of capital flows Improve asset-liability matching (currencies, rates, maturities) Provide pricing benchmarks for private sector instruments Enable diversification from bank financing Provide safer, more liquid savings vehicles for individuals and institutions

Agenda Challenges to support LCBM Question 1: How to build a program capable of: Reaching a large number of countries with diverse degree of development and geographic location Advanced EMEs, enhancing the efficiency of LCBMs MICs, implementing comprehensive development reforms LICs, facing small scale and capacity challenge Covering a broad scale of topics Money Markets Primary Markets Secondary Markets Investor Base Clearing & Settlement and Regulatory Framework

Agenda Challenges to support LCBM Question 2: What would the WBG have to add to: existing advisory programs Several IFIs and agencies already provide these programs high level of sophistication and human capital in several EMEs Need to raise the bar of the level of support

Capacity Planning as a first step! Identifying approach to support LCBM And WB Comparative Advantages

GBM Program Approach and additionallity - Answer based on three key guidelines for the program Global Presence: Leverage on World Bank Group s global presence and expertise Global Collaboration: Enhance peer to peer dialogue (country experts, peer countries, WBG consultants and specialists) Project orientation: Focus on implementation (getting things done)

GBM Program: Mission 3 Pillars & Objectives + Innovative Solutions COUNTRY SPECIFIC PROGRAMS Tailored assistance for reform implementation Targeted assistance to address specific bottlenecks, e.g. linking local infrastructure to international clearing and settlement Comprehensive assistance to address broader objectives, e.g. strategies and instruments to build reliable interest rate benchmarks INNOVATIVE GLOBAL PRODUCTS Catalyzing development in a specific area Issuer-Driven Exchange Traded Fund model to improve liquidity in and demand for government securities; pilot in Brazil Treasury Mobile Direct model to facilitate retail distribution of government securities through mobile technology; pilot in Kenya CROSS COUNTRY DIALOGUE Forum for in-depth exchange of ideas, experiences Peer group dialogue offers a cost-effective way to discuss challenges and policy actions on a virtual platform South-South collaboration promotes in-depth engagement by multi-country authorities and WBG experts to tackle common reform priorities Tackling knowledge gaps KNOWLEDGE PRODUCTS Resources on debt market development topics, international experience and best practices (e.g. handbooks, toolkits, surveys) Learning events on technical and policy issues, e.g. training workshops, master classes, conferences

Addressing needs Mission with hands-on & Objectives products and services CLIENT NEEDS Ensuring stable demand for government debt Improving secondary market liquidity and supporting yield curve development Reducing portfolio risk and supporting crisis response Improving capacity for debt management and market development PRODUCTS AND SERVICES Instrument choice Placement mechanisms and auction practices Primary dealer systems Investor base diversification Benchmark building strategy and issuance plan Trading platforms and market-making arrangements Alternate price discovery methods Clearing and settlement infrastructure Repo markets and securities lending programs Liability management operations Cash management Crisis response Peer-to-peer learning Training and conference Handbooks, toolkits, and surveys

Project Portfolio - Overview Approach allowed a growing portfolio of activities Country Operations: comprehensive and targeted support to approximately 18 countries per year. Peer Group Dialogue: 22 meetings to date/25 countries participated. 2 Peer Groups: (i) Largest 10 EM GBM; and (ii) open to all Gemloc-eligible countries Knowledge Products: 6 handbooks, several other publications (books, Euromoney, partnership with academics), training to over 350 government officials from more than 40 countries

Selected Product: Issuance Simulation Tool Helps design and implement an issuance program. Simulate marketable debt issuance: Simulate liability management The GBM Product Line s Role Illustration Egypt: design of 2010 funding plan, appx. US$ 81 billion (~37% of GDP) of Treasury securities and consolidate 3-, 5-, 7- and 10-year benchmark bonds. Support in instrument selection Simulation of funding plan Design of Auction Calendars Training Costa Rica used the tool to design S2/2010 issuance for approximately US$ 1.6 billion (~4.6% of GDP) worth of Treasury securities.

Innovation: Treasury Mobile Direct (Kenya) New Distribution Channel for Government Securities Investors can purchase, receive interest payments and redeem government instruments using their cell phones Investor base diversification by broadening the access of retail investors to the government securities market. Project highlights TMD takes advantage of the already in-place infrastructure for mobile money transfers and a high penetration rate of mobile subscribers in Kenya (74% of the population as of April 2012). The GBM Product Line s Role TA on development of the business model, marketing plan and institutional scheme Advisory on framework agreement between different stakeholders and service providers Support on functional design and technical upgrades Impact Simplifies procedures and provides low cost distribution of government securities through mobile phone technology Increases access to formal savings instruments

Innovation: Issuer-Driven Agenda ETF (Brazil) Issuer-Driven Exchange Traded Fund Program (I-D ETF) new financial product that improves the economic viability of ETFs in emerging markets. WB innovation award (FPD VPU) Ensures availability of the underlying securities for the ETF s launch Examines need for liquidity support Enables to design ETFs that are aligned to development goals. The GBM Product Line s Role Creation of minimum standards Advisory services with respect to implementation Branding Convening power global replication Project highlights This structure is unique in the ETF industry. Key Innovation: Active involvement of a supporting entity in the ETF structure solving the main drawbacks of traditional ETFs. Impact Improves competition in asset management Broadens market access to new investor groups Alleviates main bottlenecks such as liquidity constraints of traditional ETFs Reduces management costs Specifically for Brazil: consolidates long-term benchmark indices

Agenda What s Next? Expanding focus to add more countryoperations in LICs Launch of pilot innovations and replication Additional south-south collaboration projects????

Agenda Thank you! Questions? Suggestions? Anderson Caputo Silva asilva3@worldbank.org