Private Enterprise and Financial Markets > Infrastructure and Financial Markets
December 1997
December 1997Results of Survey on Western Hemisphere Financial Markets
As the East Asian economic crisis continues to rattle global markets, experts are drawing conclusions similar to those that emerged from the 1994 peso crisis in Mexico. In particular, many observers are stressing the importance of market transparency, including governments' responsibility to provide more detailed, timely and accurate economic and financial information to the market. Commenting on the currency and financial market crisis in Thailand, Michel Camdessus, managing director of the International Monetary Fund, last September said he believed that Atransparency is the best protection for countries against suddenly [negative] changes of perception by the market.@ Recognizing that better information can help to dispel misunderstandings about financial policies and practices, the ministers of finance and their deputies from the 34 countries participating in the Summit of the Americas asked the Inter-American Development Bank (IDB) in December 1997 to publicize the results of a recently-completed IDB survey on the financial systems of the Western Hemisphere. An undertaking unprecedented in scope, the Survey was used to produce a database that provides comprehensive and detailed information on the financial and capital market laws and regulations, financial institutions and instruments in each of the region's countries. By making this data widely available to investors, firms, economic researchers, and regulators, public officials are enhancing the level of transparency in the region and contributing to greater efficiency and effectiveness in the region=s financial markets.
The IDB began designing the Survey in 1995 after receiving a request from the Heads of State at the December 1994 Miami Summit of the Americas. Dedicated to promoting economic development through private sector investment, the Heads of State declared in the Miami Summit Plan of Action that Adeveloping, liberalizing and integrating financial markets domestically and internationally, increasing transparency, and establishing sound comparable supervision and regulation of banking and securities markets will help to reduce the cost of capital by enhancing investor and depositor confidence.@ In support of this position, the leaders of the countries participating in the Summit requested that the IDB prepare a compendium of national capital markets regulations for the Hemisphere. The project was later expanded to support discussions on macroeconomic policy issues, financial system development, measures to liberalize capital movements, and to promote the progressive integration of capital markets.
The Survey of Financial Systems
The Survey consists of three parts, with more than 1,000 questions addressing issues related to financial instruments and institutions, and the laws and regulations of the financial markets of the Western Hemisphere. The first part of the Survey illustrates the distribution and structure of markets and financial institutions that exist in each country, and provides information on residency constraints, equity, debt, commodity, credit markets and instruments, currency operations, foreign direct investment activities in financial sectors, and cross-border provisions of financial services. The second part of the Survey covers the laws, regulations and governing authorities of each country=s banking and non-banking financial markets. Additional information on the size, type, ownership structure and financial composition of financial institutions, product types and tradable activities within each country=s financial markets is provided in greater detail. The third part classifies financial activities into five basic markets, and provides information on the entities permitted to transact in these markets, the currencies accepted for such transactions, and related tax issues.
The Survey has succeeded in gathering a wealth of information regarding the financial systems of the region, which will enable analysts, researchers, and policymakers alike to study the current financial situation by country or field (i.e. law, institution, or instrument). However, the data has some limitations. Most notably, country data is static, and some reporting periods lack uniformity. The responses to the Survey were provided by multiple government agencies (i.e. ministries of finance, central banks, bank superintendencies and securities and exchange commissions) within each country, reflecting the state of the corresponding national financial system mostly as of December 1996. Although the data was carefully reviewed by the responsible government entities, it has not been independently verified. Furthermore, the data reflect what the financial systems are expected to be, given current legislation and regulations, but do not necessarily reflect what actually happens in practice.
In spite of the weaknesses of the data, the results from the Survey provide one of the most comprehensive sources of information on the financial markets of the Western Hemisphere. For example, it is well known that domestic-owned commercial banks in Latin America dominate domestic asset holdings and credit allocation, but the same is not true for countries in the Caribbean which depend upon other resident financial institutions, or for foreign assets or non-commercial domestic banking investments, which are located in different types of asset markets throughout the Americas. Similarly, while most countries state that generally accepted accounting and auditing practices are required for financial reporting purposes, the Survey reveals that more than two-thirds of the countries use more than one type of accounting standard depending upon the type of business activity. This confirms what many financial analysts already know: that financial disclosure is not uniform in the region. Furthermore, while the Survey supports the assumption that some financial services (such as credit rating or credit and default information agencies) are more likely to exist in the region's more developed economies, it also indicates that the presence of certain other financial services, instruments, and systems has less to do with the size or development of a country=s economy than with its legal, regulatory and institutional traditions.
Financial Markets Information on the Internet
In early 1998 the IDB will make the results of the Survey available to the public via the Internet. The Infrastructure and Financial Markets (IFM) Division of the IDB has developed a bilingual (Spanish and English) CD-ROM database that includes the raw data collected from the 29 countries that responded to the Survey and displays the responses of each country through a series of summary tables to facilitate a comparative look at the level of financial development in the region. A report highlighting information by regional trade group is also included in the CD-ROM. The database will be placed on the IFM Division=s home page in a format compatible with the Statistical Package for the Social Sciences (SPSS), which should make it easier for interested parties to download the data for use in individual research. The package also contains a separate report outlining the potential uses of the information collected from the Survey.
The data represents a baseline from which future research can determine trends in the interaction of economic, financial, legal and political variables, including their effect on the evolution of financial markets in the Hemisphere. We hope the Survey data and accompanying reports will be useful to regional analysts, economists, investors and policy makers. Despite the data limitations noted above, we believe the market will benefit significantly from this extensive source of information on the financial systems of the Americas, and will support efforts to integrate the economies of the region.
Alison L. Schulz
Infrastructure and Financial Markets Division
Last updated: 01/16/07
