Competitive Capital Markets: Brazil’s Capital Markets Finally Maturing

Abstract

Over the last 40 years, Latin American countries have tried to reform their capital and financial markets to help underwrite economic growth. Most countries at one point or another have tried to wrest their financial systems away from statutory and structural impediments and toward viable sources of long-term finance for the public and private sectors alike. The route from financial repression has proven a much longer road than originally thought, and different countries have taken different approaches to deepen their financial systems. And the results have not been uniformly successful. One of the first efforts came in Brazil in the 1960s that combined price liberalization with institution building. This was followed by more purely liberalizing efforts in the Southern Cone countries of Argentina, Chile, and Uruguay. These exercises in financial liberalizations met with serious difficulties at the end of the 1970s and in the early 1980s. Although Brazil did not avoid serious financial difficulties with the onset of the debt crisis in the early 1980s, it did not have an all-out collapse. In contrast, the financial collapses of the Southern Cone led Diaz-Alejandro (1985) to conclude that financial development along Brazilian lines might prove more fruitful from the long run.

The opinions in this paper are my own and do not represent those of Lehman Brothers or the sovereign strategy group. I would like to thank Thomas Glaessner for his insight in numerous conversations we have had in recent years.