Structural Issues and Reforms in Financial (non-bank) Market in Pakistan

In: The Pakistan development review: PDR, Band 41, Heft 4II, S. 915-928

Abstract

A large body of research now links financial sector
development, including the depth of the banking system, liquidity in
capital market, and financial liberalisation to long-run growth and
poverty reduction. According to a recent World Bank report,1 "As the
dust settles from the great financial crises of 1997-98, the potentially
disastrous consequences of weak financial markets are apparent". The
report further states that the importance of getting financial policy
making right has become one of the most critical development issues in
this century. In the past, there have been two extreme approaches
concerning financial market regulation. One clearly supports the central
role of state in the financial markets, whereas, the other sees state
intervention more of a problem than as the solution. Of these two rather
diverging ideologies, the International Financial Institutions (IFIs)
advocate the development of market institutions, more liberalisation and
lesser role of state. Pakistan has been following IFI advice in this
regard. However, after the East Asian Crisis, a strong point of view has
emerged that believes that in developing countries, ruling out state's
role from financial markets is unrealistic. But, the state has to play a
developmental role. According to Stiglitz (1991), "governments have
played a central role—whether good or ill may be debated—in the
development of most of those countries which today belong among the more
developed".