Intervening in Subnational
A national government has a justifiable interest in subsovereign finances in general and in subsovereign indebtedness in particular.. The kinds of infor- mation required to understand the financial condition of subnational gov- ernments and subsovereign debt are much the same for governments and investors. As a result of this common interest, an active securities market is an important way to stimulate continuing interest in local financial condi- tion. Subjecting governments to continuing scrutiny and applying pressure for greater transparency are viewed as advantages of a securities market sys- tem that relies on private capital. Furthermore, what the central govern- ment is willing and able to do to avoid and cure the financial problems of subnational governments is of fundamental concern to investors.
Financial monitoring may focus only on borrowing localities or on fi- nancial reporting by all localities, including annual budget and expendi- ture reviews. Much of the information needed for local debt monitoring can be generated by an active municipal securities market that demands continuing disclosure and by the availability of audited, standardized fi- nancial statements. The evolution of the credit market may be the major factor in the evolution of the relationship between the central government and its subnational partners. Once market-dictated transparency and regu- lar reporting are achieved, there should be less need for ongoing direct su- pervision or regulation of subnational jurisdictions. Central government leadership in prescribing reporting practices and making reports available to the public can advance the development of private markets.
The political and financial relationships between sovereign and subsov- ereign governments are rich and varied. They are evolving along new lines,