An innovative insurance program is critical in starting a local government bond market.
In the Philippines the Local Government Code of 1991 ushered
in a new framework for intergovernmental relations, extending
more responsibilities and decisionmaking power to local gov-
ernments. It established a system of transfers that has been sta-
ble and predictable and that contributes a large share of local
budgets. The law also opened prospects for local government
financing from private sources, with relatively few restrictions.
Despite growing capital spending needs, however, substantial
barriers remain. Perhaps most important is the restriction of de-
pository banking to government-owned banks, which has effec-
tively limited local governments to two such banks for their
Nevertheless, efforts have been made to expand access to pri-
vate financing. The desire of the private banking system to en-
ter the local government credit market, coupled with earlier