Raising capital for investment in infrastructure facilities is a universal concern in developing and transitioning economies. These long- lived facilities are crucial for building healthier, better-served popula- tions and for creating competitive economies. Properly planned, op- erated, and maintained, such investments provide benefits for many years. However, in these countries long-term capital is scarce and has many claimants.
The challenge to raise funds comes at a time of transition and un- certainty. Devolutionary changes in the scheme of governance and dispersal of fiscal decisionmaking are pushing down responsibility for meeting capital needs and for subsequently operating facilities to a vast array of provinces, cities, and villages. Concurrently, there is increasing pressure to make government at all levels more account- able to citizens and more attuned to the demands of the market- place. This sensitivity to market behavior in the face of limited re- sources includes the drive to make more activities self-supporting, to curtail the provision of free service, and to shed services that the pri- vate sector can provide better.
A critical issue in this transfer of responsibility and fiscal resources from the center to subnational governments is how to increase the access of subnational governments to financial markets, broadly de- fined as the banking system and the securities markets. The word markets implies a system with a variety of borrowers and lenders and with credit allocation based on pricing decisions that balance supply and demand. It also implies an array of alternatives for accessing cap- ital funds. Accordingly, the development of financial markets is an important objective for developing economies. As economies devel- op and financial markets mature, markets are expected to evolve to bring together subnational needs for investment capital and the sup- ply of funds. Will that happen?