Capital Markets Development:
A Strategy Proposal

It is well known that savings are crucial for sustainable, long-term growth. In the countries covered by this study, however, low savings in domestic instruments have been in part the result of weak capital markets development. This has led to a greater reliance on external debt, a fact that may trigger several macroeconomic effects in developing economies. Thus, in a world where the speed of innovation and competition is rapidly increasing, the cost of having risky or poorly developed capital markets is too high. Therefore, governments and policy makers must seriously consider capital markets.

Efficient financial markets can improve the allocation of funds to productive investments in the corporate and public sectors while encouraging savings in domestic assets. But for this to happen, several necessary conditions must be accomplished, such as the existence of capital markets that can provide accessible and diverse –in risk and return- financial instruments, lower the costs of financial transactions and provide certainty regarding property and finality of transactions.

Capital markets within the countries of this study differ greatly due to the dissimilar economic, political and social development paths chosen or imposed by history. Therefore, capital markets development strategies must recognize the differing stages of financial development among countries and their impact on capital markets institutions. In spite of this fact, common problems and challenges can still be identified. To accomplish this, it is here proposed that the Inter American Development Bank adopts a capital markets strategy aimed at raising the level of savings and improving the efficiency of its composition.