Financial structure and the development of domestic bond markets in emerging economies

In the period from the 1990s emerging market financial crises until the North Atlantic financial crisis of 2008, the development of domestic bond markets in developing economies was a prominent agenda item in international financial reform circles. The crises of the 1990s drew attention to the vulnerabilities generated by frequently occurring double mismatches of currency denominations and maturities in the borrowing of emerging economies. This led to a series of reform efforts targeted at both increasing liquidity and the range of borrowers in domestic bond markets. In the aggregate, these efforts were successful: For emerging market economies as a whole, domestic debt now exceeds international debt. Moreover, domestic corporate bond markets have emerged in many countries, often for the first time. However, the nature of market development has been far from uniform, and often has not been in line with government aims. In this paper, we examine the interplay of government and business actors in market development. Drawing on 155 interviews with policy and market actors as well as secondary data, we show that the main explanation of variation in market development lies in the pre-existing structure of financial markets, conceptualized as a heterogeneous set of interest/influence constellations.