I. Efforts should focus on the following elements to ensure success in developing and strengthening local currency bond markets:

1. • effective coordination among government agencies and close public-private sector partnership;

2. • simultaneous development of market width (the variety of product types), depth (the robustness of the investor base), and market infrastructure;

3. • enhanced transparency and market integrity;

4. • competition among market participants and openness to many players;

5. • conducive tax regimes for the holding and trading of bonds; and

6. • special measures to support long-term financing, where markets do not have the scale needed to provide liquidity and depth; (measures should be commercially based to avoid pricing distortions and inappropriate risk assessment).

II. Efforts to develop a regional bond market should concentrate on:

1. • moving towards open capital accounts and flexible exchange rate arrangements;

2. • strengthening regional policy coordination and cooperation; and

3. • developing domestic and regional credit enhancement facilities reflecting the market price of capital.

III. To accelerate the development of domestic bond markets and the emergence of a regional bond market, governments should intensify regional capacity-building efforts in partnership with the private sector. Four particular areas where APEC regional cooperation should play a significant role are the following:

A. Expanding the region's institutional investor base. APEC should undertake policy dialogue and cooperation involving the private sector to encourage broader cross-border investment by institutional investors in domestic bond markets. These efforts should focus on helping economies provide an enabling environment with respect to:

1. • government bond issuance programme to support the yield curve;

2. • tax regimes;.

3. • documentation and practices in markets;

4. • the environment for assessing risk and return in traded instruments and

5. • regulations governing markets and settlement systems.

B. Developing a strong regional credit rating industry. APEC should strengthen the credit rating industry in the region and lay the groundwork for the commercial and technical viability of regional ratings.