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Good Practices in Developing Bond Market: with a focus on government bond market

Beginning in 1997, Asia suffered a dramatic financial crisis. Thailand was first hit, followed by Indonesia and the Republic of Korea. The root cause, which created risks and eventually led to the crisis, was the so-called “double mismatch problem.” That is, businesses borrowed short term bank loans in a foreign currency to finance long-term investments that generated returns in a domestic currency. This problem is structural and differs from a more traditional debt crisis caused by over-borrowing, such as those in Latin America in the early 1980s. Experts inside and outside the region identified the need to develop domestic bond market to address the root cause of the 1997/98 Asian financial crisis. This paper will not focus on examining the behavior of businesses and financial institutions in creating the double mismatch problem. Instead, it focuses on how countries in Asia addressed the problem by developing their domestic bond markets.