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International Monetary Fund. External Relations Dept.

Abstract

Dr. Yaga Venugopal Reddy was Governor, Reserve Bank of India, from 2003 to 2008. Subsequently, he was a member of the UN Commission of Experts to the President of the UN General Assembly on Reforms of the International Monetary and Financial System. Dr. Reddy was also a member of an informal international group of prominent persons on international monetary reforms (Palais Royal Initiative). He is Professor Emeritus at the University of Hyderabad and Distinguished Professor at the Indian Institute for Technology (IIT) Madras, as well as an honorary fellow of the London School of Economics and Political Science, and is on the Advisory Board of the Institute for New Economic Thinking (INET).

Ms. Alla Myrvoda and Mr. Bennett W Sutton

Abstract

Market capitalizations in the LA-7 (Brazil, Chile, Colombia, Mexico, Panama, Peru, and Uruguay) are moderate in size by emerging market standards; however, continued growth and development will depend on improving liquidity conditions across the region. At the end of 2015, capitalization of LA-7 equity markets was 32 percent of regional GDP, while the value of domestically traded bonds outstanding was about 62 percent of GDP (Figure 6.1). In dollar terms, the largest bond and equity markets are in Brazil and Mexico. Despite solid market capitalizations, low trading volumes are a growing concern. Shrinking liquidity is attributed to deteriorating macroeconomic conditions, high transaction costs, and the outsized role of institutional investors and their buy-and-hold strategies.