Capital Market Development

Abstract

Local capital market development is a key component of the Inter-American Development Bank (IDB) private sector development strategy. Beginning in the late 80’s, Latin American countries adopted policies to foster economic growth through, among others, capital accumulation. The replacement of the pay-as-you-go pension system by a privately operated funded pension system was adopted in most countries, albeit with different transition mechanisms, to increase domestic private savings. The successive sudden stops of international funds to the region during the 90’s jeopardized its development and stability, and made the need for an internal generation of resources even more evident. The size and liquidity of the private pension funds as well as of other institutional investors has increased exponentially since their creation. However, this pool of capital has up until now been almost exclusively concentrated in the acquisition of government related instruments and only a fraction of these resources has been channelled effectively to productive purposes due in part to a lack of suitable instruments.