Latin American Capital Markets

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8 KENROY DOWERS, FELIPE GOMEZ-ACEBO, AND PIETRO MASCIDecline in Local Capital MarketsThe improving macroeconomic situation has not grown in tandem with activity in theregion's financial and capital markets, which have been marked by numerous marketcrises, weaknesses, and volatility. We use size and liquidity indicators to measure thedevelopment of stock markets. Market capitalization equals the total value of all listedshares in the market at market prices. It is assumed that the size of the stock marketis positively correlated with its ability to mobilize capital and diversify risk.Secondary market liquidity shows roughly the capacity of the market to fulfillthe roles of attracting capital inflows and providing allocation efficiency, risk diversification,information, and price discovery. Without liquidity, the markets lose thetransformation function, lessening the interest of potential investors who might notbe able to access their funds quickly. In addition, without liquidity, primary markets donot develop efficiently.The diversity of the instruments used also represents an indicatorof market development.Emerging financial markets are small relative to mature markets and generallysmall relative to GDR In the year 2000, around half of the $2.7 trillion in emerging marketcapitalization was in Asian markets; the Latin American share was about 20 percent.As figures I -1 to 1-5 show, relative to other countries, domestic capital markets in LatinAmerica and the Caribbean are underdeveloped with respect to market depth, quality,and ability to attract domestic and external resources. 2 Box I -1 compares traded activityfor selected countries in Latin America and the Caribbean with countries withmore advanced capital markets. After the emerging market crises of the late 1990s,Latin American exchange problems have tended to worsen rather than improve.A number of factors have caused the decline of local markets in Latin America.The cost of operating in the stock market (for example, measured by fee levelsor time for liquidation) is proportionately higher in Latin America and the Caribbeanthan in other regions. The region's stock exchanges do not substantially affect largecompanies that are able to raise funds abroad. However, small and medium-size startupcompanies, which generate new employment, are not able to obtain financing. Evenwhen money is available locally, taking a company public in Latin America is often notconsidered worth the effort because local exchanges lack capital, liquidity, and risktolerantinvestors.This is especially true for new economy or Internet companies, whichdo not become profitable for several years.These factors have led a growing numberof Latin American blue chip firms to delist their shares on local stock exchanges.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub2 On the size and scope of financial markets in developing countries, see Levich (2001).
DEVELOPING A STRATEGY FOR REFORMING CAPITAL MARKETS 9Figure l-lSource: IFC (Various years).Figure 1-2quity Capitalization in the World,1991-2001(Trillions of U.S. dollars)GDP per Capita and MarketCapitalization in Selected Countries, 2000(Percentage of GDP)Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pubSource: IFC (Various years).
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Page 3 and 4: FOCUS ON CAPITALNew Approaches to D
Page 5 and 6: ContentsForewordAcknowledgmentsAbou
Page 7 and 8: ForewordDuring the past two decades
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•CHAPTER 3Internet Technology and
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INTERNETTECHNOLOGY AND THE DEVELOPM
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INTERNET TECHNOLOGY AND THE DEVELOP
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INTERNET TECHNOLOGY AND THE DEVELOP
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INTERNETTECHNOLOGY ANDTHE DEVELOPME
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CHAPTER 4The Impact of the Macroeco
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THE IMPACT OF THE MACROECONOMIC ENV
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CHAPTER 5Institutional Investorsand
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INSTITUTIONAL INVESTORS AND CAPITAL
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PART IIIISSUES IN THE IMPLEMENTATIO
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CHAPTER 6Promoting Regional Capital
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PROMOTING REGIONAL CAPITAL MARKET I
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^CHAPTER 7Accounting andAuditing St
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ACCOUNTING AND AUDITING STANDARDS 2
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Puerto Rico Colegio de Contadores P
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Financial statement formats Specifi
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CHAPTER 8Enhancing Market Infrastru
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ENHANCING MARKET INFRASTRUCTURE IN
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•CHAPTER 9Demutualization of Exch
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DEMUTUALIZATION OF EXCHANGES 271int
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DEMUTUALIZATION OF EXCHANGES 273and
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DEMUTUALIZATION OF EXCHANGES 275as
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DEMUTUALIZATION OF EXCHANGES 281tha
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DEMUTUALIZATION OF EXCHANGES 289Ams
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DEMUTUALIZATION OF EXCHANGES 291to
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DEMUTUALIZATION OF EXCHANGES 293Kah
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CHAPTER 10Developing Bond Markets:A
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DEVELOPING BOND MARKETS: A COMPREHE
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322 CLEMENTE DELVALLEare generally
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•CHAPTER 11Designing a Derivative
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DESIGNING A DERIVATIVES COMPLEMENT
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•CHAPTER 12Access to Financing fo
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ACCESS TO FINANCING FOR SMALL AND M
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•CHAPTER 13Developing Capital Mar
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DEVELOPING CAPITAL MARKETS—ETHICA
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DEVELOPING CAPITAL MARKETS-ETHICAL
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•CHAPTER 14Corporate Governancean
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CORPORATE GOVERNANCE AND CAPITAL MA
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The company's historyof equitable t
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CHAPTER 15Human Capacity Developmen
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HUMAN CAPACITY DEVELOPMENT 465For t
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HUMAN CAPACITY DEVELOPMENT 467• W
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HUMAN CAPACITY DEVELOPMENT 469spect
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HUMAN CAPACITY DEVELOPMENT 471Table
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HUMAN CAPACITY DEVELOPMENT 479struc
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HUMAN CAPACITY DEVELOPMENT 481rapid
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HUMAN CAPACITY DEVELOPMENT 483tate
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PART IVCONCLUSIONCopyright © by th
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CHAPTER 16Pragmatic Issues in Capit
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PRAGMATIC ISSUES IN CAPITAL MARKET
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IndexIn this index, page numbers in
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INDEX 519Bolsa de Valores de Rio de
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INDEX 521Clearing and Depository Co
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INDEX 523costs, financial services
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INDEX 525developing economies (cont
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INDEX 527European Central Securitie
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INDEX 529Global Equity Market (GEM)
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INDEX 531institutional investorsbon
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INDEX 533Jensen, Michael, 216job cr
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INDEX 535margin requirements, 322,
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INDEX 537outsourcing and infrastruc
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INDEX 539prudent investor rule, 141
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INDEX 541Securities and Exchange Co
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INDEX 543technology (continued)self
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Copyright © by the Inter-American
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Latin American Capital Markets

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