disclosure standards and the establishment of insider trading laws. The resulting legal and regulatory
environment was far more hospitable to the development of capital markets than that which existed
at the onset of the debt crisis.
Measured strictly in terms of growth, the market
reforms of the 1990s were largely successful. Despite
two significant crises, total stock market capitalization in Latin America grew from $200 billion in 1990
to almost $600 billion in 2001. During the same period, bond markets in the leading economies of the
region underwent a similar expansion, with aggregate bonds outstanding increasing from $160 billion
in 1990 to over $500 billion by 2001. As a percentage of
GDP, both stock and bond markets nearly tripled.
Nevertheless, despite the success of the reforms
in facilitating overall growth, many of the challenges confronting Latin American capital markets
were embedded in the region’s broader economic
landscape, beyond the purview of financial market
reforms. Prior to 2003, Latin American capital markets as a whole remained shallow and illiquid.
The number of firms with shares listed in domestic capital markets decreased substantially, from 1,624
public companies in 1990 to only 1,344 in 2001. With
the exception of Brazil, Chile, Colombia, and Mexico,
liquidity worsened in all Latin American markets during the same period. Financial markets also remained
highly concentrated. As recently as 2004, according to
the World Federation of Exchanges, the top ten public companies accounted for over 50 percent of total
market capitalization in Argentina, Colombia, Mexi-
Benjamin D. Wolf is an associate attorney at
Simpson Thacher & Bartlett LLP in New York, where
he is a member of the Latin America practice group.
co, and Peru, and over 50 percent of the
shares traded in Argentina, Chile, Mexico, and Peru.
On the supply side, domestic stock
market illiquidity was fueled by a long-held preference among Latin American issuers to list their shares abroad.
As late as 2001, in Chile, the historical
leader in financial market reform and
one of the deepest markets in the region, nearly half
of the aggregate value of stock was traded in U.S.
exchanges. Demand remained limited by a narrow
investor base that reflected the economic inequality
of the region. By 2000, retail investors in securities
in Mexico, then the eleventh largest economy in the
world, consisted of approximately 1 percent of the
At the end of the 1990s, bond markets also
remained shallow and immature. While Brady bonds
shifted the composition of financing from bank
credit to bond issuance, sovereign bonds continued
to dominate the markets. By 2001, aggregate corporate bonds outstanding represented only 6 percent
of GDP and 20 percent of total bonds outstanding in
Latin America. Furthermore, firms continued to issue
bonds denominated in foreign currencies, increasing exposure to exchange-rate risk. At first blush, the
1990s reform era appears to have fallen short. It nonetheless established the institutional framework necessary for the next period of significant development
in Latin American financial markets.
Between 2003 and 2007, Latin American capital
markets not only went through an unprecedented
expansion, but became deeper, more liquid and more
dynamic. Equity and bond issuance reached $55 billion and $85 billion, respectively, in 2007, greatly surpassing their previous highs. Led by the Brazilian IPO
market with 89 new listings in 2006 and 2007 combined, the number of publicly traded firms in Latin
America increased for the first time in 15 years.
In 2008, Brazil’s stock market (Bovespa) merged
with its futures exchange (Bolsa de Mercadorias
& Futuros), forming the second largest securities
exchange in the Western Hemisphere and the third
largest in the world. The composition of securities changed as well, with corporate bond issuance