Liberalization or financial development?

The Latin American countries' reorientation towards market economies and their efforts to open their economies up to the international market since the 1970s have given rise to various sorts of financial policies. This article reviews some selected experiences in three areas of the financial sector: i); in the area of banking, eight different cases are examined in which financial liberalization measures led to various problems in terms of bank solvency during the past 20 years; ii); in respect of the capital market, the rapid development of this market in Chile since the start of the 1980s is. analysed; and iii); with regard to inflows of private external financial capital, the high rates exhibited by Mexico since the late 1980s are evaluated. Basing his approach on concepts that place financial liberalization within the context of the types of regulatory systems that establish the ground rules in this sector, the author emphasizes the need to develop the institutional structure of the financial system in a carefully planned manner in order to ensure the solvency and efficiency of financial institutions. Thus, a sharp distinction is made between financial deregulation and controlled financial development.