SEOUL - LOCAL currency bond markets in the emerging economies of East Asia have stood up well to the global credit crisis and can serve as an important source of funding for governments as they boost public spending to battle slowing economies, the Asian Development Bank (ADB) said on Tuesday.

'Domestic borrowing is likely to increase as funding becomes harder to access on the foreign market,' ADB official Jong Wha Lee, said in a release accompanying the bank's Asia Bond Monitor report.

'Already we have seen the People's Republic of China and Republic of Korea unveil fiscal stimulus packages to boost their economies, a part of which may be financed through local debt issuance,' Mr Lee said.

China earlier this month announced a huge 4 trillion yuan (S$895 billion) stimulus package to address a slowdown in Asia's second-biggest economy.

South Korea, Asia's fourth-largest economy, announced a package valued at 14 trillion won (S$15 billion).

The Manila-based Asian development Bank's bond report, issued twice a year, examines local currency bond market developments in the 10-member Association of Southeast Asian Nations, China, Hong Kong and South Korea.

The report said that expansion in the region's local currency bond markets slowed in the first half of 2008, though still expanded. As of the end of June the markets grew 8.1 per cent to US$3.7 trillion from the end of 2007. Government debt accounted for US$2.7 trillion of that total.

In an encouraging sign, the report said that foreign holdings of local currency government bonds have increased as risk aversion has risen sharply.

'Even in this period where foreigners are withdrawing from equity markets they are maintaining holdings of local currency government bonds,' Mr Lee said.

'It shows that if governments in the region can continue to develop their bond markets they will emerge as a prime source of capital to raise funds for the fiscal stimulus packages that will be needed to keep their economies moving,' he said.

The report said that though foreign investors have abandoned regional stock markets amid the global credit crunch, local currency bonds have held up, 'in stark contrast to the wholesale repatriation of foreign investor capital during the 1997-98 Asian financial crisis.'

The Asian Development Bank, established in 1966, helps finance projects aimed at poverty reduction. In 2007, it approved US$10.1 billion in loans and another nearly US$1 billion in grants and technical assistance. -- AP