Outgoing Prime Minister Dr Mahathir Mohamad today gave his support to a proposed Asian bond market, saying it would cushion the region against future shocks and cut their financial reliance on developed nations.

The 10-member Association of Southeast Asian Nations (Asean), along with China, Japan and South Korea, is mapping out procedures for an Asian bond market to promote cross-border issuance of bonds and investment.

Mahathir, who is also finance minister, said Asian countries have reserves to the tune of trillions of dollars but their "investment method is wrong" because they park it in developed countries.

With an Asian bond market, countries could bring their reserves back to the region and also help their neighbours who are in need, he said.

"What is wrong with countries which have surpluses, to have their funds placed under one fund, and then lent to other Asian countries through these Asian bonds?" he asked parliament in his last appearance before retiring Friday.

"Asian reserves could also be mobilised for development projects implemented either by governments or the private sector."

Deepening capital markets

Mahathir said the initiative would also prevent the mismatch of resources as experienced during the 1997/98 regional financial crisis when short-term loans has been used to finance long-term investments.

It will deepen regional capital markets and strengthen regional economies to withstand systemic risks in case of future shocks, he said, adding that it was in line with Malaysia's plans to create a regional Islamic bond market.

The Asian bond market is the brainchild of Thai Prime Minister Thaksin Shinawatra.

Central banks in Japan, the Philippines and Singapore have announced they would each provide US$100 million to the fund, while Australia's reserve bank will contribute US$50 million. - AFP