Tapping Capital for Water

Abstract

Urbanization, rapid economic growth and increasing populations in Asia pose great challenges on municipal governments to improve their water supply systems. The successful development of municipal bond markets could open new sources for investments into the water sector. There are three basic prerequisites for the successful sale of municipal debt, namely, the development of a modern and diversified financial sector, investor confidence and issuer familiarity, as well as a conducive regulatory environment. The article provides a detailed account of how these factors evolved in the nineteenth century United States and how they provided the basic tenets for the development of the world’s largest and most efficient municipal bond market. It concludes that the development of the municipal bond market was closely linked to the emergence and expansion of public water supply systems. Taking the US experience into consideration the article explores the potential demand for municipal bonds in China, Indonesia and India. The three countries face very different financial, economic and regulatory constraints, yet, all could gain from certain policy interventions geared towards the development of the municipal bond market.