In This Review

Finance for Development: Latin America in Comparative Perspective
Finance for Development: Latin America in Comparative Perspective
By Barbara Stallings with Rogerio Studart and the Economic Comm
Brookings Institution Press, 2006, 316 pp.

Why have the economies of Latin America lagged behind those of East Asia? Specifically, why are Asia's savings and investment rates so much higher? A big part of the answer lies in their respective domestic financial systems, argues Stallings, a Brown University political economist. With her characteristic thoroughness and rigor, Stallings compares the credit, bond, and equity markets of the seven major Latin American countries with those of emerging-market countries in East Asia. She finds that the relative shallowness of Latin American financial systems leaves productive firms, especially smaller ones, starved for credit and that Latin American banks' pro-cyclical lending contributes to financial crises. In Stallings' view, there is no magic mix of government-controlled, private, and foreign-owned banks -- it is the soundness of national institutions that matters -- but there is a broad, pressing need to upgrade regulatory agencies and improve the transparency of corporate governance. To increase firms' access to longer-term capital, governments should promote bond markets, including in regional groupings, and facilitate integration, albeit with caution, into the international economy. With its economies more stable and growing, Latin America now has a golden opportunity to tackle Stallings' compelling agenda for financial reform.