Latin American Capital Markets

INSTITUTIONAL INVESTORS AND CAPITAL MARKET DEVELOPMENT 145such as investments in infrastructure projects, venture capital financing, and securitizedinstruments (Vives 1999). With limited fund investment options, there is little developmentof local skilled portfolio managers and other securities professionals. Moreoventhe lack of options for professional investors creates a culture linked to "safe"government securities; later, when more instruments are available, such a culture maynot be easy to overcome.Furthermore, with rampant delisting from local exchanges, in some cases securitiesregulators lose a source of funding. Regulators may lack the technical and administrativecapacities for effective regulation because low wage levels and high turnoverundermine the local technical capacity for supervision and regulation of the markets.Weak Corporate GovernanceEmpirical studies show that development of a country's capital markets dependson the quality of its corporate governance rules (Gilson 2000; La Porta and others1997). In large part, the growth of local securities markets in Latin America and theCaribbean has suffered from poor corporate governance. The mistreatment of minorityshareholders and weak investor protection under local legal and regulatoryframeworks have discouraged investors in the region's local securities markets (Lubrano200l).As in Asia, company ownership and management in Latin America and theCaribbean are often concentrated in families, and the development of legislation thatprotects the interests of minority shareholders has been met with some resistance.In Brazil, the concentrated ownership structure acts as an impediment to the developmentof stronger measures to protect minority shareholders. This in turn has haa chilling effect on the development of Brazil's capital markets (Coutinho and Rabelo2001).The growth of the institutional investor sector in Latin America and the Caribbean,particularly pension funds that are significant shareholders in some of the region'slargest companies, should have a positive impact on the future of corporategovernance in the region.Policy RecommendationsLong-term Government Commitment to Sound Macroeconomic PoliciesCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubAs a precondition for all other factors to have an impact, Latin American and Caribbeangovernments must demonstrate a long-term commitment to a sound macro-