Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 205portant will be any agreement that is reached. Other factors affecting the choice ofregion might include the cultural affinity between the different countries and the potentialbenefits that could be obtained by more enhanced capital market integrationin the region. It might be appropriate to work on several options, or groups of countries,simultaneously.Barriers to IntegrationWhat are the barriers to integration and, of these, which have the most detrimentaleffects? This requires answering two key subsidiary questions. Where are the costs oftrading on a regional basis unnecessarily high? And are there any restrictions on marketparticipants' ability to undertake their business activities wherever they wish in theregion? Areas where these barriers might arise include the convertibility of currencies,domestic or regional monopolistic or oligopolistic practices, the existence and cost ofmultiple regulators, legislative and regulatory impediments, transaction costs, taxation,accounting, lack of information about aspects of capital markets across a region, andissues related to the region's history and culture. 48Removal of BarriersHow can the barriers to regional capital market integration be removed? What arethe costs and difficulties in attempting to remove these barriers, and which barrierswould it be most beneficial to remove? Answers to these questions will determinehow the second stage of the strategy should be implemented. Among the major alternativesfor removing the barriers to regional capital market integration that willneed to be considered are removing unnecessary legislative and regulatory barriersto regional competition, stopping monopolistic and oligopolistic practices, developingregional cooperative market infrastructure projects by the private sector, establishinga mutual reliance scheme between regulators, establishing home country control, andharmonizing regulation.At this stage, it is important to emphasize the merits of competition. Regulatorydifferences can create significant costs, especially if market participants have tocomply with rules from multiple jurisdictions. However, neither the harmonization oflaws nor of regulations is essential for regional capital market integration. Further-48 Some barriers to regional capital integration in Latin America are noted in Pieper and Vogel (1997).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub