Latin American Capital Markets

THE IMPACT OF THE MACROECONOMIC ENVIRONMENT ON CAPITAL MARKETS 113Figure 4-1I How Macroeconomic and Structural Constraints AffectI the Development of Capital Marketsand its capital markets and exchanges have suffered in each. In 1982-83, the real valueof bank deposits and credit declined by almost 60 percent, and 20 percent of thebanks were liquidated. In the second major crisis, in 1995, the nominal and real quantityof money was reduced by 20 percent in four months.To put this into perspective,it is noteworthy to recall that in the general economic depression of the 1930s, theU.S. money supply contracted by 33 percent in a three-year period. In Argentina's thirdcrisis, which is still evolving, huge nominal and real devaluation has led to a dramaticand general meltdown of the country's economic and financial structure.During the early 1980s, Chile and Mexico experienced macroeconomic shocksand capital market debacles.The consequence was that both countries reluctantly nationalizedtheir financial systems and have only slowly been able to shed these unwantedinvestments. Mexico did a poor job in privatization and permitted the buildupCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub