Financial systems and development

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tion "Risks and costs of finance" draws primarily ports, and contributions from operational staff. on the background paper by Mayer and on Balten- Atiyas 1989 and the background papers by Alsperger and Devinney 1985, North 1987, Tobin Sultan, Antoniades and Kouzionis, Larrain, 1984, and Williamson 1985. The section "Govern- Montes-Negret, Sheng, Silverberg, Sundaravej ment intervention" draws primarily on Bernanke and Trairatvorakul, and Tenconi provided informa- 1983 and Kaufman 1988. Box 2.1 is based on ma- tion on specific countries. The discussion of finanterial supplied by Alan Gelb and Gerard Caprio. cial distress and its consequences draws heavily on Jacques Polak provided useful comments on the Hinds 1988. The discussion of financial restrucchapter. turing draws on the background paper by de Juan and an unpublished paper by Alfredo Thorne. Chapter 3 Veneroso 1986 and de Juan 1987 were also helpful. Box 5.3 is based on de Juan 1987, and Box 5.6 is The discussion of the historical evolution of finan- based on material prepared by Jorge Martins. cial systems in high-income countries draws extensively on Born 1983; Cameron 1967 and 1972; Chapter 6 Goldsmith 1969, 1985, and 1987; and Kindleberger 1978 and 1984. For developing countries prior to This chapter draws extensively on the Bank's operthe 1940s, the discussion is based mainly on Sayers ational experience with financial institutions and 1952, Crick 1965, Newlyn and Rowan 1954, Okigbo systems in developing countries. The discussion of 1981, Diaz-Alejandro 1982 and 1985, Joslin 1963, property rights, contracts, economic institutions, Young 1925, and Fetter 1931. The discussion of and legal systems draws on Williamson 1985, postwar developments in high-income countries is North 1981, Furubotn and Pejovich 1974, Posner based mainly on Vittas 1978, Bank for International 1977, von Mehren and Gordley 1977, and the Inter- Settlements 1986, Watson and others 1988, and Su- national Encyclopedia of Comparative Law (Internazuki and Yomo 1986. Box 3.2 was drafted by Paul tional Association of Legal Science). The discus- Beckerman. Charles Kindleberger provided de- sion of company law and corporate governance tailed comments on the chapter. draws on Grossfeld and Ebke 1978 and Bacon and Brown 1977. Dalhuisen 1986 is the main source on Chapter 4 bankruptcy laws. The section on accounting draws on Nobes and Parker 1985 and a background note This chapter draws heavily on World Bank and by Maurice Mould. The discussion of banking leg- IMF sources. The section "Government interven- islation, regulation, and supervision draws on the tion in credit allocation" also benefited from Vir- background papers by Effros and Polizatto. Box 6.1 mani 1982; Diamond 1957 and 1968; Levitsky and draws on Song 1983, Box 6.2 on Feder and others Prasad 1987; Levitsky 1986; Hanson and Neal 1988, and Box 6.3 on Iqbal and Mirakhor 1987. Box 1987; Nair and Filippides 1988; Von Pischke, Ad- 6.4 was drafted by Akhtar Hamid, Box 6.5 by ams, and Donald 1983; Adams, Graham, and Von Harry Snoek, and Box 6.6 by the Bank's Legal De- Pischke 1984; and Gordon 1983. The section "Mac- partment. Ibrahim Shihata, Ahmed Jehani, Hans roeconomic policies and financial development" Jurgen Gruss, and other staff of the Bank's Legal draws on Hanson and Neal 1987, Easterly 1989, Department and Robert C. Effros and Harry Snoek Fischer 1986, Jud 1978, Hinds 1988, and Polak of the IMF provided valuable comments on the 1989. Box 4.3 is based on Vogel 1984a. Box 4.4 was chapter. drafted by Vincent Rague and Moina Varkie, Boxes 4.5 and 4.8 by Paul Beckerman, and Box 4.6 by Chapter 7 Patrick Honohan. Box 4.7 is based on Cole and Park 1983 and unpublished material by Jia-Dong This chapter draws on a wide range of sources, Shea and Ya-Hwei Yang and by Juro Teranishi. Al- including those cited for earlier chapters. The disberto Musalem provided useful comments on the cussion of business finance draws on the backchapter. ground paper by Mayer and on Aoki 1984, Cable 1985, Corbett 1987, Edwards 1987, and others. The Chapter 5 household finance discussion draws on the background papers by Buckley and Renaud. The dis- The information in this chapter comes primarily cussion of institution building draws on the operafrom World Bank databases, financial sector re- tional experience of the Bank and on the 134
ackground papers by the Capital Markets Depart- benefited from McKinnon 1988a and 1988b and ment of the IFC, de Juan, Ibanez, Polizatto, Reilly, Leite and Sundararajan 1988. The discussion of inand Skully. Other useful sources are Davis 1985, stitutional restructuring and development bene- Hector 1988, Sprague 1986, and van Agtmael 1984. fited from a background note by Alan Gelb. The Box 7.1 is based on Goldsmith 1985 and national section on external financial policy uses data and accounts data; Box 7.2 on the background paper by material from Watson and others 1988. Box 9.1 was Mayer and on Mayer 1987, Modigliani and Miller drafted by Murray Sherwin and Gerald Halliday. 1958, and others; Box 7.4 on the background paper by Buckley; and Box 7.8 on the background paper by Kar. Box 7.3 was drafted by Salman Shah and Background papers Box 7.5 by Brian Dickie. Tarsicio Castaneda and Roland Tenconi provided material for the other These papers are available from the World Developboxes. ment Report office, World Bank, Washington, D.C. Al-Sultan, Fawzi H. "Averting Financial Crisis: Chapter 8 The Case of Kuwait." Antoniades, Dimitris, and Dimitris Kouzionis. "Fi- The discussion of microenterprises draws on pa- nancial Distress of Industrial Firms in Greece pers presented at the 1988 World Conference on and Their Impact on the Greek Banking Sys- "Support for Microenterprises" and particularly tem." on Chandavarkar 1988, Meyer 1988, and Seibel Balassa, Bela. "The Effects of Interest Rates on 1988. Liedholm 1985 also provided background Savings in Developing Countries." material for this section. The discussion of the fi- . "Financial Liberalization in Developing nancial needs of small farmers and of the financial Countries." arrangements available to them is based on the Bhatt, V. V "On Financial Innovations and Credit work of Dale Adams and The Ohio State Univer- Market Evolution." sity Rural Finance Group. The discussion of the . "On Participating in the International financial needs of and services to the noncorporate Capital Market." sector draws on an unpublished manuscript by Buckley, Robert. "Housing Finance in Developing J. D. Von Pischke. The material on trader financing Countries: A Transaction Cost Approach." draws on Larson 1988. The discussion of group Capital Markets Department, International Filending and cooperative finance is based on nance Corporation. "Attractiveness of Emerging Wieland 1988 and Vogel 1988. Hans Dieter Seibel Markets for Portfolio Investment." provided material for the section on the links be- . "Debt to Equity Conversion." tween informal and formal finance. Box 8.1 is ."Leasing." based on a background note by Douglas Graham, Cho, Yoon Je, and Deena Khatkhate. "Lessons Box 8.2 on a background note by Dale Adams, Box from Financial Liberalization in Asia and Latin 8.3 on a background note by Richard Meyer, and America-A Comparative Study." Box 8.5 on background notes by Susan Goldmark. de Juan, Aristobulo. "Does Bank Insolvency Mat- Background material was also provided by John ter?" Gadway, Bruce Gardner, Claudio Gonzalez-Vega, Effros, Robert C. "Financial Sector Study: The Re- Mario Massini, H. J. Mittendorf, and Glenn lationship between Law and Development." Pederson. Gelb, Alan. "Financial Policies, Efficiency, and Growth: An Analysis of Broad Cross-Section Re- Chapter 9 lationships." Honohan, Patrick, and Izak Atiyas. "Intersectoral The data used in this chapter were drawn mainly Financial Flows in Developing Countries." from IMF publications and World Bank sources. Ibanez, F. "Venture Capital and Entrepreneurial The discussion of recent experiences with financial Development." reform and the lessons of reform benefited from Kar, Pratip. "Capital Markets in India." Atiyas 1989, Corbo and de Melo 1985, Edwards Larrain, Mauricio. "How the 1981-83 Chilean 1984, Fry 1988, McKinnon 1988a and 1988b, Banking Crisis Was Handled." McKinnon and Mathieson 1981, Velasco 1988, and Mayer, Colin. "Myths of the West: Lessons from the background papers by Balassa, and Cho and Developed Countries for Development Fi- Khatkhate. The discussion of interest rate policy nance." 135
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~~~~/ , -. \-E:-: - :: 0 0 - PUB768
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Oxford University Press NEW YORK OX
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countries' financial institutions i
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4 Financial sector issues in develo
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7.1 Shares of medium- and long-term
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* Fractional reserve banking. The p
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NTB Nontariff barrier * Growth rate
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and grew even faster in 1988 than i
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etter loan recovery procedures, mor
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l~ ~~~ ~ ~~~~~~~~~~~~~~~~~~~ ;:: ;
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The early years of the recovery wer
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Figure 1.4 Growth of export volume
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Figure 1.6 Saving and investment ra
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edly, in Argentina, Brazil, and Mex
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5~~~~ '~ ' S " ''t.*:'.: .:,0!3gft"
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Box 1.2 Debt concepts A variety of
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Table 1.1 Selected economic indicat
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Figure 1.8 Domestic and external li
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Box 1.3 Foreign equity investment E
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j Box 2.1 Life without money "Some
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other ways too. By imposing direct
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Box 2.2 Transaction costs and the s
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Box 2.3 Real interest rates and gro
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I Box 2.4 Swapping risk All economi
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Box 2.5 Deposit insurance Most high
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GOVERNMENT. As well as being regula
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and receivables, whereas developmen
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with the expansion of nonlocal trad
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over. Even so, bankers and industri
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Box 3.3 Financial swindles i Swindl
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Box 3.4 Financial underdevelopment
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Box 3.6 Universal banking One of th
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1960s. They speeded the internation
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4 Financial sector issues in develo
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Box 4.1 Directed credit in Turkey ,
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Box 4.2 Lending program for small e
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Box 4.4 The Botswana Development Co
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markets to finance their deficits,
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0~~~~~ = == X .. _- -- = -_ _ _ __
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Figure 4.3 Financial savings and th
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Box 4.8 Financial indexation in Bra
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Financial systems in distress Not s
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t !< 4> - !: e z u- >as uei- i.e_.S
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tem. They have succeeded in stemmin
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governments gave too little thought
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Box 5.4 The U.S. savings and loan c
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or take a step in the other directi
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have been even larger. The cost of
Page 98 and 99: ~Foundations offinancial systems If
Page 100 and 101: (an issue closely related to the as
Page 102 and 103: several centuries. The spread of su
Page 104 and 105: Bankruptcy and reorganization monit
Page 106 and 107: Box 6.5 Elements of a bank supervis
Page 108 and 109: they attempted to discipline bank m
Page 110 and 111: Developing financial systems What s
Page 112 and 113: Figure 7.1 Shares of medium- and lo
Page 114 and 115: Box 7.3 The financial history of a
Page 116 and 117: Box 7.4 Housing finance The formal
Page 118 and 119: Box 7.5 Bank modernization: Indones
Page 120 and 121: DEVELOPMENT FINANCE INSTITUTIONS. T
Page 122 and 123: esources in government securities o
Page 124 and 125: strides in recent years in establis
Page 126 and 127: Issues in informal finance Small-sc
Page 128 and 129: Box 8.2 Rotating savings and credit
Page 130 and 131: original amount to the renter by th
Page 132 and 133: cooperatives' managers because it a
Page 134 and 135: Box 8.4 The Badan Kredit Kecamatan:
Page 136 and 137: Toward more liberal and open financ
Page 138 and 139: a brief period firms faced rapid ch
Page 140 and 141: Box 9.2 Financial reform in Korea K
Page 142 and 143: In the next stage, financial reform
Page 144 and 145: industry, policy reforms and the re
Page 146 and 147: Conclusions of the Report challenge
Page 150 and 151: Montes-Negret, Fernando. "The Decli
Page 152 and 153: D.C.: International Monetary Fund a
Page 154 and 155: Harberger, Arnold C. 1985. "Lessons
Page 156 and 157: croenterprises: Programs or Markets
Page 158 and 159: Douglas Graham, and J. D. Von Pisch
Page 160 and 161: Table A.2 Population and GNP per ca
Page 162 and 163: Table A.5 GDP structure of producti
Page 164 and 165: Table A.8 Growth of export volume,
Page 166 and 167: Table A.10 Growth of long-term debt
Page 168 and 169: Table A.12 Composition of debt outs
Page 170 and 171: Contents Key 157 Introduction and m
Page 172 and 173: Introduction The World Development
Page 174 and 175: Throughout the World Development In
Page 176 and 177: Population _ 0-15 million The color
Page 178 and 179: Table 1. Basic indicators __ GNP pe
Page 180 and 181: Table 2. Growth of production______
Page 182 and 183: Table 3. Structure of production __
Page 184 and 185: Table 4. Agriculture and food Value
Page 186 and 187: Table 5. Commercial energy ~~Energy
Page 188 and 189: Table 6. Structure of manufacturing
Page 190 and 191: Table 7. Manufacturing earnings and
Page 192 and 193: Table 8. Growth of consumption and
Page 194 and 195: Table 9. Structure of demand Distri
Page 196 and 197: Table 10. Structure of consumption_
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Table 11. Central government expend
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Table 12. Central government curren
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Table 13. Money and interest rates
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Table 14. Growth of merchandise tra
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Table 15. Structure of merchandise
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Table 16. Structure of merchandise
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Table 17. OECD imports of manufactu
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Table 18. Balance of payments and r
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Table 19. Official development assi
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Table 20. Official development assi
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Table 21. Total external debt Long-
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Table 22. Flow of public and privat
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Table 23. Total external public and
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Table 24. External public debt and
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Table 25. Terms of external public
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Table 26. Population growth and pro
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Table 27. Demography and fertility
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Table 28. Health and nutrition popu
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Table 29. Education Percentage ofag
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Table 30. Income distribution and I
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Table 31. Urbanization Urban popula
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Table 32. Women in development_____
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Technical notes This twelfth editio
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Box A.1. Basic indicators for count
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Box A.2. Selected indicators for no
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from the Food and Agriculture Organ
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Exports of goods and nonfactor serv
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spectively. Since 1987 data are not
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The table reports the value of manu
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teed, and private nonguaranteed lon
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the Demographic and Health Surveys,
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also the one used within the global
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Bibliography Production and domesti
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Country classifications: World Deve
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I i
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