Latin American Capital Markets

112 VALERIANO F.GARCIA AND LUIS ALBERTO GIORGIOtuning of other market institutions, has also developed three listing tiers.To list in thefirst floor; companies have to pass the test of strict regulations.The companies haveto have reported profits in the last three years; have given out cash dividends orbonus shares at least once over the last three years; guarantee a minimum of liquidity;and publish detailed balance and income statements.The next two tiers have decliningregulatory requirements, catering to more risk-inclined investors and reducingthe transaction costs for SMEs.Lessons and Policy ImplicationsThe development of capital markets in Latin American and Caribbean economiesfaces significant challenges. Countries need to combine sound macroeconomic policies,local structural reforms within a long-term strategy with a regional dimension,and international trends affecting local capital markets.The accelerated pace of technological advances as well as globalization mayallow Latin American and Caribbean countries to leapfrog and avoid several of the intermediarysteps toward capital market development that developed economies hadto take—for instance, taking advantage of dematerialization, promoting common andregional technological bases for trading, and utilizing Internet technology. However, lessonsfrom the past and errors in macroeconomic and structural policies should guidesome fundamental recommendations, which should be implemented with a consistentand patient long-term view.Figure 4-1 shows the complexity of government policies as well as their interactionand impact on several variables. Over time, and if implemented efficiently,government policies should favor capital market development, attract external and internalsavings, and foster private projects.This section lists policy recommendations forovercoming challenges, promoting efficient intermediation of funds in the region, andattracting domestic and external savings.Avoid Unsustainable Fiscal and Macroeconomic ImbalancesMany financial crises have been caused by macroeconomic imbalances, which tend tocome to a sudden resolution with enormous costs, affecting the availability of domesticand external savings to be invested in capital markets, and reducing the demand forresources due to the lack of projects to be financed.These crises have had staggeringcosts. For example, in the past 20 years, Argentina has had three major banking crises,Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub