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...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/08/693246/pension-reform-capital-market-development-feasibility-impact-preconditions http://hdl.handle.net/10986/19799 |
| Summary: | 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. |
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