Latin American Capital Markets

PRAGMATIC ISSUES IN CAPITAL MARKET DEVELOPMENT IN EMERGING ECONOMIES 489organizations. 3 Although we distinguish between first- and second-generation reforms,the intent is to develop an overall strategy that draws on elements categorized inboth reform stages.Lessons from ExperienceThis section draws some broad lessons from past experience regarding the most effectiveways to promote capital market development.The lessons are divided in twogroups. The first concerns the objectives that capital market development initiativesshould pursue and the manner in which they should be implemented. The secondgroup concerns policy issues that often need to be addressed in capital market developmentprojects.Objectives and Implementation of Development ProjectsThree broad lessons concerning the objectives and implementation of capital marketdevelopment projects are identified here. They concern whether there is a need fora market infrastructure and indeed a market in a particular jurisdiction, the value ofensuring that a capital market development program is consistent with reforms madethroughout the entire financial sector, and the "ownership" of capital market developmentprojects.Market Infrastructure and MarketsA central lesson that may be drawn from past experience in capital market developmentis that building the infrastructure for a market in a country is not sufficient toensure that a capital market actually operates in the country. Although this may nowappear so obvious as to be self-evident, up until recently it was not. In a growing numberof countries, a full market infrastructure has been constructed, but there is no realmarket. 43 Carmichael and Pomerleano (2002) also demonstrate that some key policy issues that could be associated with thissecond wave of reform include e-finance, the role and impact of foreign investors in equity markets, rapidly changingtrading platforms, and the changing nature of financial intermediation.4 Within the past decade, most of the capital markets in Latin America and the Caribbean, including countries in theEnglish-speaking Caribbean, Andean countries, and Central America, have instituted modern technology for tradingclearance and settlement systems. However; there is no evidence to demonstrate that these modern systems havecontributed to increase market liquidity.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub