Development of Domestic Capital Markets

Abstract

The European Bank for Reconstruction and Development (EBRD or the Bank) was established in 1991 to help build new, market-based economies in the post-Cold War era in Central and Eastern Europe. The EBRD’s regions of operations have since been enlarged significantly to include the Southern and Eastern Mediterranean, Turkey, Mongolia and more. The Bank continues to play a critical role in financing projects and investing in the private and public sectors of its countries of operations and promoting their transition to a market economy. The EBRD’s expertise and deep knowledge of the region has allowed it, in cooperation with other international financial institutions (IFIs), to play a crucial role in stabilizing local economies and helping them recover after the shocks of global and regional economic crises. The current global pandemic and related economic slowdown has presented the Bank with a new challenge to provide specific support to local economies in their recovery efforts. The Bank’s investment and financing projects are supported by expert policy advice, technical expertise, and training. However, during crises, such as the current pandemic, it becomes especially evident, that financing projects and bringing external investments alone is not sufficient. The Bank’s regions need help to build sound local capital markets that will enable countries to channel their resources into domestic, long-term financing and development projects. Many IFIs contribute to the development of local capital markets by being active market participants. The EBRD, additionally, assists with advice and assistance on policy reforms which further help improve the investment climate in its countries of operations. This article focuses on the role of the EBRD in developing domestic capital markets in its countries of operations. It provides examples of the Bank’s regulatory reform projects, aimed at creating a legal framework conducive to domestic bond issuances by IFIs. It also provides an overview of the challenges posed by the securities regulatory framework in various countries of the EBRD’s regions of operations. The article also considers the regulatory gaps for hedging instruments in the Bank’s regions and provides examples of its reform projects, aimed at the development of necessary netting and collateral related legislation in the jurisdictions in question.