Economic development relies on financing for its stimulation. Both developed and developing countries turn to capital markets to discover new funding opportunities, attract wealth, investment, and specialized knowledge.
To strengthen economic growth and capital market development in emerging economies like Guatemala, certain conditions must be met. It has traditionally been assumed that limited access to capital markets stems from restrictions tied to the economy’s income level, market illiquidity, a lack of legal certainty regarding investment protection, and local investors’ preference for international financial markets. Notably, low liquidity results from (1) the lack of information and access to financial instruments in the capital market, and (2) the low confidence of investors.
To develop the capital market, it is essential to attract investments from those who traditionally do not purchase publicly offered securities or who do so in foreign markets. In Guatemala, efforts are being made to encourage small-scale investments through public bond offerings. The Ministry of Public Finance has invited individual investors to invest in Treasury Bond Certificates. This democratization of public debt has enabled small investors to participate in the financial market with simple, low-risk financial instruments. Active and liquid public bond markets are crucial for effective public financing and the development of efficient fixed-income securities markets that support economic growth.
Encouraging more traditional investments opens the door for more investors to engage in the capital market. Once an investor acquires low-risk securities, they have the opportunity to participate in public stock offerings or other financial instruments. However, for demand and liquidity to exist, the protection of such investments is essential. Guatemalan regulations related to the securities market require market participants to comply with standards of corporate governance, transparency, and accountability. This is and will remain vital for investors to allocate their capital. A country with low legal security and inadequate investment protection will face greater challenges in attracting capital and developing its capital market. Corporate governance and shareholder protection are becoming increasingly important. While Guatemala still needs to strengthen some regulatory aspects, it is worth noting that all entities offering securities to the public—issuers—must adhere to rules that provide certainty to those who decide to invest.
To continue developing Guatemala’s capital market, it is necessary to encourage investment in local financial instruments and implement high standards of corporate governance. Technology and the ease of participating in foreign financial markets provide an opportunity for investors to consider local investments, provided there are financial products and legal security. A developed capital market will have a direct impact on the country’s and the region’s economic growth.
Jorge Luis Rodas
Lawyer and Notary | Founding Partner NexusLegal
Comments