Latin American Capital Markets

DEVELOPING A STRATEGY FOR REFORMING CAPITAL MARKETS 25Box 1-4 I Pension FundsThe growth of private pension funds has been one of the most important developments in domesticcapital in Latin America and the Caribbean.Their resources are rapidly becoming the majorsource of domestic long-term capital and can contribute to the development of financial markets.Latin America's private pension funds are currently estimated to have more than $85 billionunder management. Brazil does not have a private system, but corporate pension funds arevalued at around $75 billion.Pension Fund Assets under Management, 1994-2000(Millions of U.S. dollars)Country 1994 1995 1996 1997 1998 1999 2000 2001ArgentinaBrazilChileColombiaMexicoPeru52555,08122,296382602,49762,69325,1432655835,32373,45427,1988029498,82783,44430,5251,3676151,5101 1 ,52682,02930,8052,1105,80111,734Source: International Federation of Pension Fund Administrators (FIAP).1 6,78771,23034,5012,8871 1 ,5092,40620,38174,75535,8863,58417,0122,75220,78667,95835,4604,95127,1463,622Financial innovation is another key for the maintenance of competitive capitalmarkets.The relatively more developed markets in the region must be able to providenew techniques and a greater number and type of financial instruments. In theseeconomies, there is an important unmet demand for risk management and investmentservices that needs to be addressed. Expanding the use of derivatives and developingnew instruments, such as securitization and guarantees, should be encouraged.Given the increasing importance of small and medium enterprises to economicactivity, efforts must be directed to supporting their growth and developmentby creating suitable market structures to increase their access to financing and capital.These developments could include programs for specific types of initial public offeringsfor these entities, specialized trading facilities (similar to the Nuovo Mercato in Italyand the Neuer Markt in Germany), and government-supported finance programs.Regional Capital Market IntegrationRegional integration is a crosscutting issue that is critical for the development of manysectors in Latin America and the Caribbean. Given the lack of depth and critical massin most of the region's markets, regional capital market integration is an importantCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub