Latin American Capital Markets

510 KENROY DOWERS, RUBEN LEE, AND ANTONIO VIVESstrating a keen interest in local issues. The same could be said for lax disclosure requirementsthat fail to convey appropriate market information to current andprospective investors. On the other hand, as factors such as liquidity and corporategovernance move toward acceptable standards, the private sector would likely increaseits involvement in capital market developmentMultilateral InstitutionsMultilateral institutions can foster capital market development in emerging economies,working at different parts of the process. First, they can provide ex ante guidanceto entities to identify specific approaches to capital market development Second,they can partner with policymakers and country officials to shape a holistic andlong-term capital market strategy. Third, multilateral institutions can work togetherwith client countries to provide resources, including finance and advisory services, toimplement a capital market strategy. In this capacity, they can bring together officialsfrom different countries to help broker deals for regional integration and ensure thatthe strategy is consistent with development in other areas.A key ingredient for a successful capital market strategy is to ensure thatthere are viable instruments traded in the marketplace. Multilateral institutions canplay a direct role in creating structures (such as guarantees, advisory services, and capitalcontributions) that facilitate increased trading of financial market instruments. However,there must be clear benefits for the overall market and limited moral hazardproblems based on free riding or heavy risk taking.Multilateral institutions may be able to provide various forms of support tofacilitate capital market development, including assessment programs, technical assistanceprograms (reimbursement and nonreimbursement), and different types of loansfrom multilateral and bilateral agencies, contributing capital and different types ofguarantees to support the issue of capital market securities.There are many ongoingassessment programs relating to financial sector activity, including the World Bank/IMFFinancial Stability Assessment Programs and Reports on the Observance of Standardsand Codes and International Organization of Securities Commission (IOSCO) surveyson country compliance with IOSCO guidelines.Guarantees to Private Sector EntitiesFinancial guarantees can support the development of capital markets.The usual scenariois where an AAA-rated entity (generally an international entity or a governmentCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub