Disclosure and Financial
Information disclosure about issuers is a necessary condition for the effec- tive operation of a securities market. Information—consistent, complete, timely, and comparable—is essential for judging the risks and rewards of investments. While information does not always answer all the questions (and bad information can give the wrong answers), an absence of informa- tion makes it difficult even to know what questions to ask.
Emerging and transitioning economies face particular difficulty with disclosure. Many countries are undergoing dramatic changes in their fiscal structure just as the structure and regulation of financial markets are changing as well. Direct guarantees by the sovereign are being replaced by newly minted local own-source revenue and transfer systems, as well as more specific pledges of assets and revenues. Some countries, such as South Africa, rely heavily on revenues pledged on commercial public utility oper- ations. Other countries, for a variety of reasons, may choose to restrict long-term debt to self-supporting commercial operations.1
The ability of subnational governments to generate resources to support themselves or to generate surpluses for general revenue purposes depends on efficient technical and managerial operations. Even where governments rely primarily on transfer payments, information on trends in transfer pay- ments compared with local expenses becomes vital to determining relative credit quality. Without uniform, regular, and reliable reporting, comparing and tracking the performance of subnational governments become impos- sible tasks, and market decisions are based more on faith than fact.
Disclosure can be required by the central government, by securities market regulation, or as a byproduct of market operations, through contracts and