October 4, 2007, Washington, D.C.
— The World Bank Group today announced it will launch a $5 billion bond
fund to help emerging market countries attract more investment by developing
their local currency bond markets.
“This innovative move should help
drive financial sector development in emerging markets, boost prospects
for growth, and help overcome poverty,” said World Bank Group President
Robert B. Zoellick.
The Global Emerging Markets Local Currency
Bond Fund (Gemloc) initiative has been created by the International Bank
for Reconstruction and Development (IBRD) and the International Finance
Corporation (IFC), members of the World Bank Group.
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 aim of the local currency bond
fund is to establish a clear link between policy reform and investment.
It will help create a virtuous circle so that as developing countries become
easier to invest in and their local market size grows, their weight in
the index will rise and they will attract more investment,” Mr.
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.
Technical assistance 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 towards 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 begins this week with the issue
of a request for proposals, is expected to be completed by late November.
The fund manager will be expected to raise about $5 billion by early 2008.
“Existing impediments have created
severe bottlenecks for funding in sectors such as infrastructure and housing.
Broader and deeper local bond markets will enable the development of longer-term
local currency financial products critical for economic development,”
Lars Thunell, IFC Executive Vice President and CEO, said.
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
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.
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
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,