Friday, July 01, 2005
Financial Markets, Growth and Poverty Alleviation. Using Financial Markets to Help the Poor in Venezuela
By: Paul Holden, The Enterprise Research Institute
For: The InterAmerican Development Bank, 2002
This paper examines how financial markets in Venezuela have the potential to contribute to poverty alleviation. It describes the structure of the financial system in Venezuela and events in Venezuelan financial markets over the past few years in order to assess its current capacity to promote the growth of the economy. It focuses particularly on developments and institutions that relate to the poorer sections of the community. The paper describes the institutional foundations of the financial system as they relate to the poor, including property rights and the land tenure system. It examines the system of collateralizing movable property and provides some insights into why it is not functioning effectively. The paper then examines how poverty could be reduced more directly through the provision of financial services to the poor including access to loans, access to deposit taking institutions and access to other financial services within the context of the provision of microfinance. It discusses the issues regarding microcredit and poverty and questions whether credit is the main financial product that the poor require. The paper assesses how developments in Venezuela accord with ways that financial markets can assist the poor and places the analysis of Venezuela within the context of policies and developments in other countries. The paper concludes that many of the current initiatives contained in recently passed laws will be counterproductive and damage the development of the financial system in Venezuela without helping the poor or promoting development. The paper does not argue, however that there is no role for the state in financial market development. It suggests that urgent government action is needed to strengthen institutions that are the foundation of financial markets. It also suggests ways in which the state could intervene directly through market oriented initiatives that do not distort the allocation of credit and the structure of interest rates, giving examples of initiatives in other countries. The paper concludes by identifying issues for further more detailed investigation.
For: The InterAmerican Development Bank, 2002
This paper examines how financial markets in Venezuela have the potential to contribute to poverty alleviation. It describes the structure of the financial system in Venezuela and events in Venezuelan financial markets over the past few years in order to assess its current capacity to promote the growth of the economy. It focuses particularly on developments and institutions that relate to the poorer sections of the community. The paper describes the institutional foundations of the financial system as they relate to the poor, including property rights and the land tenure system. It examines the system of collateralizing movable property and provides some insights into why it is not functioning effectively. The paper then examines how poverty could be reduced more directly through the provision of financial services to the poor including access to loans, access to deposit taking institutions and access to other financial services within the context of the provision of microfinance. It discusses the issues regarding microcredit and poverty and questions whether credit is the main financial product that the poor require. The paper assesses how developments in Venezuela accord with ways that financial markets can assist the poor and places the analysis of Venezuela within the context of policies and developments in other countries. The paper concludes that many of the current initiatives contained in recently passed laws will be counterproductive and damage the development of the financial system in Venezuela without helping the poor or promoting development. The paper does not argue, however that there is no role for the state in financial market development. It suggests that urgent government action is needed to strengthen institutions that are the foundation of financial markets. It also suggests ways in which the state could intervene directly through market oriented initiatives that do not distort the allocation of credit and the structure of interest rates, giving examples of initiatives in other countries. The paper concludes by identifying issues for further more detailed investigation.