Germans to propose emerging markets initiative at G7 meeting

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The German government will propose an initiative that would help emerging markets build domestic bond markets when the G7 nations meet later this week in Essen, Germany. The plan is meant to build financial stability by encouraging the development of bond markets in local currencies. Such markets are considered to be valuable in protecting currencies from sudden changes in exchange rates and in allowing governments, companies, and banks to find a broader range of sources for financing.While some emerging markets have made progress in developing local markets, such progress has bee hit-and-miss, with the development of local bond markets in Asian nations lagging since the 1997 financial crisis, according to Jrg Asmussen, the head of the international department of Germanys finance ministry. Mr. Asmussen said that while outstanding bonds in industrial nations are at around 140 percent of the gross domestic product, in emerging economies the total is only 43 percent of the GDP.The initiative comes at a time when European officials are increasingly concerned about recent weakness in the Japanese yen, with fears that if the yen strengthened suddenly markets could be destabilized. Such an eventuality would hurt small economies with little liquidity much more quickly and deeply than it would damage larger economies, according to one analyst. The help proposed by the German initiative would be in areas such as establishing supervisory authority in financial markets, establishing common standards, and strengthening legal systems.The upcoming meeting in Essen will be attended by finance ministers and central bank governors from the G7 nations, as well as by the finance ministers of Brazil, China, India, Mexico, Russia, and South Africa.