Financial Market
Structure, Regulation,
and Operations
Any examination of options for subsovereign borrowing must consider the supply side of the equation. To what extent does a market for subsovereign obligations exist, and how should would-be borrowers access it? Perhaps more relevant in most emerging market economies is the question of where subsovereign securities fit into an overall strategy to develop domestic finan- cial markets. Promoting private capital markets has been a primary objective of financial market regulators and international donor and lending institu- tions that wish to encourage private ownership and functioning markets.
A financial market along the lines outlined in preceding chapters would have some level of effective competition in rates and terms and would in- volve private capital, even though government entities also might supply capital. The financial market would be primarily domestic, with borrowers and lenders (or issuers and investors) subject to domestic rules and dealing in local currency.
A key objective of many governments in recent years has been to create a municipal bond market for subnational securities. Most of the liberaliza- tion and subsequent growth of the domestic securities markets has focused - on privatization and the desire to promote private sector equity ownership. It is in this setting of recasting the roles of the private and public sectors and capital markets that subnational borrowers must navigate.
The topic of financial market structure and development far exceeds the scope of this book, but it is vitally important for judging the various link-
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