The Importance of Emerging Capital Markets

cies has turned the so-called lesser-developed countries into emerging markets. In 1982 the thirty-two developing-country stock markets surveyed by the International Finance Corporation (IFC) had a market capitalization of $67 billion, representing about 2.5 percent of world market capitalization. By the end of 1999, the IFC had identified eighty-one emerging stock markets with total market capitalization exceeding $3 trillion, or 8.5 percent of world equity market capitalization. In 1999 the value of outstanding domestic debt securities trading in emerging markets exceeded $1.4 trillion, representing 4.7 percent of the global bond market and a several-fold increase over the total twenty years earlier. However, bank lending to emerging markets in 1999 totaled only $783.7 billion (12 percent of consolidated international claims of banks reporting to the Bank for International Settlements), a relatively small increase over the $517.6 billion (37 percent of the total) in claims held by banks in 1980. Many forces underlie these broad trends. The debt crisis of the early 1980s cooled bankers’ appetite for sovereign loans to developing nations. The financial crises in the second half of the 1990s (Mexico in 1995, Asia in 1997, and Russia in 1998, along with other hot spots) brought a fresh reminder of the perils of cross-border lending. In contrast, public financial markets for equity and debt securities were encouraged by marketoriented policies to permit private ownership of economic activities,