Second Annual; ‘Gemloc’ Conference
Rabat, Morocco
June 1, 2011

On behalf of the World Bank Group, it’s a great pleasure to welcome you all here this morning.

Thank you for coming to our second annual Gemloc conference. And let me also express my thanks to our host country, Morocco, for so graciously welcoming us.

I’d like to offer just a few opening thoughts to frame our discussions.

The World Bank is pleased to work in partnership with you through Gemloc – the Global Emerging Markets Local Currency Bond Program.

This conference will give us all an opportunity to share some of the lessons we’ve learned, and to engage in problem-solving about the various development challenges you’ve been facing – each of you, in the context of your own country’s economic and market conditions.

Building stronger local-currency bond markets is important for two major reasons: for financial stability, and for economic development.

On the stability aspect: As we approach the G20 summit later this month, we’re all keenly aware that the importance of sovereign bond markets, in the global policy debate, continues to grow.

There’s now a broad recognition that smoothly functioning local bond markets are an essential element in global financial stability.

The G20 has made developing local bond markets a core part of its agenda for strengthening the international monetary system.

And the growing importance of local bond markets has made your role – as leaders in your countries’ debt-market development – more pivotal than ever.

It’s clear why capital flows, and the stability of sovereign bond markets, have become priorities at the highest levels of global financial policy.

Capital inflows to Emerging Markets Countries have been growing steadily since the onset of the global financial crisis.

Just nine or ten countries are receiving the vast majority of these inflows – and those countries are potentially vulnerable to serious macroeconomic pressures.

Concerns about asset prices, exchange rates, and potential instability amid a possible reversal of “hot money” inflows – these are all intensely watched issues.

And, as the U.S. Federal Reserve prepares to gradually phase out its Quantitative Easing program – “Q.E. Two” – we can anticipate that the world’s financial markets will be watching sovereign bond markets more closely than ever.

Emerging Markets Countries have become more attractive investment destinations, amid the “push and pull” of the gradual global recovery from the financial shocks of 2007 and 2008.

Financial systems like yours have benefited from the “pull” of capital into your countries because of your strong economic growth, relative to more advanced markets . . .

and you’ve experienced the “push” of growing global liquidity, as capital from developed markets seeks a profitable home.

Responding to those inflows – and preparing for the eventuality of outflows – will require all of our ingenuity.

People often ask financial-market specialists and regulators – both at the national level and at multilateral financial institutions: “What issues keep you awake at night? What problems do you actually lose sleep over?”

Well, for many of you, here in this room, you’ve probably had some sleepless nights worrying about vast capital inflows, and the possibility of their abrupt, destabilizing outflow.

That’s where Gemloc comes in – aiming to help you deal with the challenges of the capital that is “sloshing” around the global financial system.

Markets will be better-equipped to handle the increasing volume of capital flows if they enjoy an increased supply of bonds; if there is an increased supply of long-term instruments; and if there is a strengthened, better-informed, domestic investor base.

These factors can provide more depth to the market, and more outlets for investing for the longer term.

The ability to have deeper, more liquid, more resilient debt markets can also mean that countries don’t have to resort to direct capital controls – because their markets would have greater ability to absorb and manage the capital flows.

So that’s the first part of the policy agenda: the financial stability side.

Now let’s consider the other side of the coin: the economic development side.

These flows of funds into Emerging Markets Countries can be a boon to development – answering developing countries’ need for vast amounts of financing for such priorities as infrastructure and housing.

If international capital stays invested for the long term, it can go a long way toward meeting those financing needs.

Sovereign debt markets are central to the process, because they can set the standard for non-sovereign markets to follow.

They can indicate what the proper pricing benchmarks should be; they can help create an active fixed-income industry; their securities intermediaries would have stronger capabilities, like more efficient clearing and settlement; and they can help educate consumers and expand the investor base.

Gemloc is now looking at the idea of expanding its program to include additional assets – like corporate bonds and infrastructure bonds – and a concept paper is now being put together.

So there certainly are many important issues on the agenda – from the perspective of both stability and development – as you operate your capital markets, and as we seek to help you in that effort.

We’re very pleased that so many of you have taken the time to focus on these issues by choosing to attend this Gemloc conference.

Maintaining a steady focus on these issues is truly vital:

So often, far-sighted programs like this are center-stage in the policy debate at the time when a crisis erupts – but they tend to fade from view once the crisis has receded.

So I’m pleased to see that, among those of us here in Rabat today, these important concerns have not drifted off our radar screens.

By keeping these issues in the forefront of our thinking, we can help build deeper, more liquid, more resilient capital markets.

Those stronger markets will be able to keep capital flowing to the places where it’s most needed during good economic times – and they’ll be better able to manage smoothly during difficult economic times.

I hope that you’ll have a productive discussion today. I’m looking forward to hearing the insights that will flow from this conference – about how we can work together to build stronger markets that serve all our capital needs.

Thanks to you all for your continued commitment to these issues, and for your efforts with the Gemloc program.