Latin American Capital Markets

126 KAREN GOLDSTEIN ROSSOTTOBox 5-1 I Structural Reforms in MexicoIn April 2001 ,the Mexican Congress passed wide-ranging reform laws governing the financial sectonincluding the Credit Institution Law, Financial Groups Law, National Savings and Public BankServices Law, Securities Market Law, National Banking and Securities Commission Law, MutualFunds Law, and the General Law on Ancillary Activities and Organizations of Credit The purposeof these reforms is to eliminate legal hurdles and inconsistencies within the financial sector andto grant more authority to the country's banking and securities market regulatory authority, theComision Nacional Bancaria y deValores (CNBV).These reforms are being fleshed out by secondary CNBV regulations, which will provide guidanceon issues such as how to effect prompt corrective actions and rules for public disclosure.New regulations have already made it possible for independent fund managers to offer equityfunds denominated in foreign currencies and are expected to provide for the introduction of mutualfund distributors.This would allow funds to be sold anywhere, including retail stores and cellphone service outlets. Currently, banks are the primary mutual fund distributors.Other developments involve the decision of more corporations and state and municipal governmentsto issue debt securities, whereas investment now is concentrated in federal governmentsecurities, and the decision of banks and brokers to reduce initial investment minimum requirements,some of which have gone as low as $ 108, compared with $54,180 a few years ago.The reforms overall could provide greater investment diversification and make financial servicesmore accessible to average Mexican citizens. It is also expected that Mexico's securitiesmarkets will benefit from reforms that impose clearer and more enforceable fiduciary duties ondirectors and create more effective rights of action for minority shareholders.invested principally in fixed-income securities, and some countries have recentlyshifted further away from the equity markets.The mutual fund sector in Brazil is an exception; it accounted for more than70 percent of the region's total mutual fund assets in 1998 (Yermo 2000). As indicatedin table 5-1, from 1995 to 2000, Brazilian mutual fund assets grew by more than140 percent, to $151 billion, or 25 percent of GDR Although Brazil has had mutualfunds as long as countries such as Chile and Mexico have, Brazil's mutual fund sectorwas given a boost during the country's hyperinflation years when short-term, fixedincomemutual funds presented a means of preserving value (Yermo 2000). As inother Latin American and Caribbean countries, however, Brazilian equity market fundshave relatively low participation because poor stock market performance and high interestrates make fixed-income funds more attractive (FEFSI 2002).Among countries in Latin America and the Caribbean, Chile maintains thehighest regional market capitalization relative to its institutional assets. 5 Due largely to5 The fact that institutional assets in some Latin American and Caribbean countries, such as Chile, Mexico, and Peru,Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubconstitute a lower percentage of GDP than their market capitalization may be due to a large amount of foreign investmentin those markets. The percentages are reversed in the United States, where local institutions invest significantamounts in foreign securities.