The Role of Foreign Investors in Debt Market Development : Conceptual Frameworks and Policy Issues

Lee, Jeong Yeon

World Bank, Washington, DC

关键词: ACCOUNTING STANDARDS;    AGENCY PROBLEMS;    ANNUITIES;    ARBITRAGE;    ASSET DIVERSIFICATION;   

DOI  :  10.1596/1813-9450-2428
RP-ID  :  WPS2428

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

To take full advantage of foreigninvestors, a host country must provide an appealingenvironment: a stable economic and political environment; afair, rational, and, comprehensive legal system; a fair,reasonable, and, balanced tax program; a fair, productive,and, balanced regulatory system; and transparency ineconomic, financial, legislative, and regulatory systems.The country should also liberalize capital accounttransactions. To do so successfully, and minimize risksassociated with foreign investors, capital accountliberalization must be properly sequenced. The chief dangeris removing most restrictions on capital accounttransactions, before addressing major problems in thedomestic financial system, and hence risking a crisis.Typical major problems include shaky, inconsistentmacroeconomic management; severe asymmetric informationproblems (such as inadequate accounting, auditing, anddisclosure practices) in the financial, and corporatesectors; implicit government guarantees; and inadequateprudential supervision, and regulation of domestic financialmarkets, and institutions. Essential infrastructure must bedeveloped if domestic debt instruments are to be opened tointernational portfolio investment. Developing countriesshould implement well-synchronized settlement, anddepository arrangements. The risks from short-term debt -which could threaten financial stability - are best throughsound financial management, and prudential regulation. Acase could de made for additional policy measures aimed atcurbing over-reliance on short-term debt. (Chile, Colombia,and Israel, for example, have adopted measures to influencethe level, and composition of portfolio capital inflows).Arguably, liberalization of trade in financial services isintegral to full liberalization of capital markets. Foreignfirms operating in a domestic market may transfer usefultechnology, and know-how. Concern that hedge funds candominate, or manipulate markets, can be dealt with throughmeasures to strengthen supervision, regulation, and markettransparency - as well as by strengthening reportingrequirements for larger traders, and positions. The abilityof hedge funds, and other foreign investors to takepositions in domestic financial markets, could also belimited to: a) Taxing short-term capital flows (as Chiledoes). b) requiring banks, and brokers to raise margin, andcollateral requirements. c) Limiting financial institutions;ability to provide the domestic credit needed to short thecurrency, and their ability to loan the securities needed toshort equity, and fixed-income markets.