Pension Reform and Capital Market Development : "Feasibility" and "Impact" Preconditions

The link between pension reform, and capital market development, has become a perennial question, raised every time the potential benefits, and pre-conditions of pension reform are discussed. The author asks two questions. First, what are the basic "feasibility" pre-conditions for the successful launch of a pension reform program? And second, what are the necessary "impact" pre-conditions for the realization of the potential benefits of funded pension plans for capital market development? His main conclusion is that the feasibility pre-conditions, are not as demanding as is sometimes assumed. In contrast, the impact pre-conditions are more onerous. The most import feasibility pre-condition is a strong, and lasting commitment of the authorities to maintaining macroeconomic, and financial stability, fostering a small core of solvent, and efficient banks, and insurance companies, and creating an effective regulatory, and supervisory agency. Opening the domestic banking, and insurance markets to foreign participation, can easily fulfill the second requirement. The main impact pre-conditions include the attainment of critical mass; the adoption of conducive regulations, especially on pension fund investments; the pursuit of optimizing policies by the pension funds; and, a prevalence of pluralistic structures. The author argues that pension funds are neither necessary, nor sufficient for capital market development. Other forces, such as advances in technology, deregulation, privatization, foreign direct investment, and especially regional, and global economic integration, may be equally important. But pension funds are critical players in "symbiotic" finance, the simultaneous and mutually reinforcing presence of many important elements of modern financial systems. They can support the development of factoring, leasing, and venture capital companies, all of which specialize in financing new, and expanding small firms.

Bibliographic Details

Main Author:	Vittas, Dimitri
Language:	English en_US
Published:	World Bank, Washington, DC 2000-08
Subjects:	AGENCY PROBLEMS, ASSET MANAGEMENT, ASSET MANAGERS, ASSETS, BANK DEPOSITS, BOND MARKETS, BONDS, BUDGET DEFICITS, CAPITAL MARKET, CAPITAL MARKET DEVELOPMENT, CAPITAL MARKETS, COMMERCIAL BANKS, COMPETITIVE BIDDING, CONTRACTUAL SAVINGS, CORPORATE GOVERNANCE, CORPORATE MANAGEMENT, DEBT, DEBT INSTRUMENTS, DEREGULATION, DERIVATIVE PRODUCTS, DIRECT INVESTMENT, DISABILITY INSURANCE, DISABILITY PENSIONS, DOMESTIC MARKETS, ECONOMIC INTEGRATION, EQUITY CAPITAL, EXTERNAL ASSET MANAGERS, FINANCIAL ASSETS, FINANCIAL CRISES, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL INSTRUMENTS, FINANCIAL MARKETS, FINANCIAL RESOURCES, FINANCIAL SECTOR, GDP, GOVERNMENT BONDS, INDEXATION, INDIVIDUAL INVESTORS, INFLATION, INSTITUTIONAL DEVELOPMENT, INSTITUTIONAL INVESTORS, INSURANCE, INSURANCE COMPANIES, INSURANCE MARKETS, INVESTMENT BANKS, INVESTMENT DECISIONS, INVESTMENT PERFORMANCE, INVESTOR PROTECTION, LIFE INSURANCE, LIFE INSURANCE COMPANIES, LIFETIME EARNINGS, LIQUIDITY, MACROECONOMIC STABILITY, MONOPOLIES, MUTUAL FUNDS, NORMAL RETIREMENT AGE, PAYROLL TAXES, PENSION FUND, PENSION FUNDS, PENSION PLANS, PENSION REFORM, PENSION REFORMS, PENSION SCHEMES, PENSION SYSTEMS, PENSIONERS, POSITIVE EFFECTS, PRIVATE PENSION, PRIVATE PENSION FUNDS, PRIVATE PILLAR, PRIVATIZATION, PROVIDENT FUNDS, RATING AGENCIES, REGULATORY FRAMEWORK, REGULATORY STRUCTURES, RETIREMENT, SECURITIES, SECURITIES MARKETS, SIDE EFFECTS, SOCIAL SECURITY, SOCIAL SECURITY SYSTEMS, SUPERVISORY AGENCY,
Online Access:	http://documents.worldbank.org/curated/en/2000/08/693246/pension-reform-capital-market-development-feasibility-impact-preconditions https://hdl.handle.net/10986/19799
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