THE FINANCIAL SECTOR IN THE EVE OF THE CENTURY PED: STATE OF PLACE OF RECENT TRENDS
Introduction
The independence and ownership by national control of the political machine is the first step in the decolonization of the developing countries. Before considering the economic independence, the main financial concern of the new State has been to balance the budget that the administrative part is heavily burdened by the creation of services essential to its sovereignty. The weakness of the own resources available to developing countries at the dawn of their independence was forced to resort to their former colonial power. But the challenges of development inspired by national development programs very ambitious, the funding mechanism for these countries has continued to change during the subsequent period. The weakness of domestic resources (equity financing) and forced to resort to international bodies or States to obtain aid or loans, borrow from banks to finance their economy. Prolonged use external funds has led many developing countries in a system of neo-colonialism in all its forms even putting into question their national sovereignty. After
respective political independence, developing countries have each tried to cope with development challenges long ignored by the colonial system. This article tries to unravel in a way summarizes the recent trends in the financial sector of developing countries (DCs) whose main objective is to apprehend the state, the level and trend of their financial independence, subject to (to) other items later.
1-1 - Overview of the financial sector of developing countries
1-1-The financial dualism in developing countries
Analysis of the level and trends of financial independence requires a thorough knowledge of the parameters considered essential in the operation the economy of a country just like all developing countries. That is the purpose of our study here.
Since independence, a multitude of reforms have succeeded in developing countries, to face the challenge of developing long claimed by the local population but also and especially to reduce the risk of financial vulnerability that regularly shake (crisis debt, financial crisis, etc.).. These reforms have led to some major changes in their financial sectors. There
thus:
- changes in the banking sector (creation of a development bank, Institutions public financial);
- the establishment of securities markets;
- emerging markets domestic debt
- the dollarization of the economy;
- the development of micro finance institutions. As noted
Hugon [2006]: "Developing countries in particular have a" by economic development linked to financial underdevelopment. In these countries money markets are few and assets, financial markets are embryonic or nonexistent ( with the exception of some emerging countries), foreign affiliates use to the critical circuits "offshore" related to their parent companies, local small businesses have little access to funding mechanisms, only the state and public enterprises and borrowers in the short term (seasonal credit, imports and exports) are the main beneficiaries of financial systems. "
Despite successive reforms undertaken (liberalization, sanitation), the financial sector in developing countries remains highly fragmented and unable to finance development.
But what is really the financial sector of developing countries? What are the salient features of the financial sector of developing countries since independence?
If the financial dualism characterizes the financial system in developing countries as a whole, the level of intermediation is the core.
In most developing countries, financial systems are characterized by the coexistence and parallel operation of two financial sectors, one formal and one informal. This heterogeneous nature of financial systems, more commonly called the "financial dualism" is one of the distinguishing features of developing economies. The informal financial sector is largely characterized by the absence of regulatory rules, the importance interpersonal relationships and flexibility of operations. The formal sector is highly regulated by cons, often inherited from the colonial system.
financial systems of developing countries show a substantial financial dualism, the market for loanable funds being partitioned. On the one hand, there are banks, highly specialized in the financing of formal activities, which risks must be offset by the existence of collateral. On the other, there is a formal sector finance all sorts of activities both formal and underground, by the remarks of N personal credits, more based on trust vis-à-vis the debtor on the basis of performance and estimates of risk associated with claims [C. Eboue, 1990, p.27]. This vision of
C. Eboue despite the changes that have occurred in the financial sector of developing countries since 1990 remains valid today.
Grossomodo, if the formal sector refers to organized institutional system, focusing on urban areas and meeting the financial needs of the modern sector monetized, the informal sector less institutionalized and less regulated looks more and more rural areas and subsistence spheres of the economy. However, this delimitation informal / formal is not always obvious because the reality is more complex and it is difficult to define precisely a dividing line between the two sectors. As noted
Germida Dimitri et al [1991, p .12]: "It has become traditional to oppose the formal financial sector to the informal financial sector. But it is also important to recognize that each of the two sectors is itself very diverse. It seems difficult to define precisely a dividing line between these two subsets with blurred (fuzzy sets).
It is evident that the structure and functioning of the financial sector formal determine and influence the nature and importance of the informal financial sector, which does not prevent the latter having its own dynamics. Depending on the country and context, this sector may well recorded 30% and 60% see more of the total rural credit, etc.. Channels of informal finance are characterized by several features: predominance of cash transactions, weakness or lack of records and regulations, limited scale of operations, exchanges of assets outside legal frameworks, the role of personal relationships and community membership or accession [Lelart, 2005]; money hot link creator outweighs the money not cold creator of obligation [Bédart, 1986]. These informal networks can defer consumption and to conduct a forced savings.
Two main theses are usually given about the causes of financial dualism. The first considers the informal financial sector is explained by the formal financial sector failures which result from financial repression is to say, the strict regulation system and financial constraints imposed by public authorities on the activities of financial institutions. The second thesis argues that monetary and financial dualism is explained by the inherent dualism of economic and social structures and attachment to rural values and customs [Ibid, p.14]. In other words, dualism can be attributed to both the financial repression that the people's attachment to traditional attitudes.
The renewed interest in micro finance in the 1990s, following the success of the Grameen Bank in Bangladesh as an effective alternative against poverty [Soulama, 2002] has transformed from a radical financing systems of certain categories population in many developing countries. Soulama [2002] argues thus: "In the alternative of using unproductive, microfinance substituted with effective assistance through small loans tailored to the needs of the population, allowing them to create viable microenterprises. "But the emergence of microfinance has led to two major changes in these countries [Lelart Michel, 2002]. It is first the appearance of a financial sector intermediary between the formal financial sector and the informal financial sector, financial systems and officially recognized the need to regulate. It is then important credit instead of saving, thereby breaking the vicious circle of poverty says, replacing it with success by the virtuous circle of Microcredit. In some developing countries (particularly in countries of the WAEMU), there is now beside the formal and informal financial systems, said Decentralized Financial System (DFS). BCEAO are essentially three types of structures: cooperatives or mutuals savings and loan institutions and credit secured credit component project. Among recent developments, we can see that there is a tendency to reconcile the microfinance institutions and commercial banks classic classic (and vice versa). This trend is explained by the phenomenon of "downgrading" (descent of some conventional banks in the microfinance field) or "upgradind (classic ascent of some institutions micro finance to traditional forms of banking). This development is far from complete in sub-Saharan Africa as in most developing countries, but recent trends are promising.
Whatever the causes, the financial dualism can have a positive and negative impacts in developing countries. But the dramatic development of the microfinance system in many developing countries in recent years, combined with successive reforms of the formal financial sector prompt us to suggest that: i) these two sectors can coexist, ii) are complementary, iii) require specific measures to be viable in developing countries.
But what about the financial intermediation in developing countries?
1-2-fiscal L'intermediation in Developing Countries
In a seminal article entitled "The Crisis in Keynesian Economics", JR. Hicks [1974] by inventing the concept of debt Economy (Economics of Capital ) and the Market Economy Financial pioneered the analysis of various mechanisms and phenomena related to financial intermediation. According to the analysis of Hicks, a debt economy is an economy in which economic agents in need of financing (usually businesses, sometimes the state) to finance their deficits primarily directed to financial intermediaries (banks) . Conversely, in a competitive financial market, agents with financing needs are more often in securities issues on capital markets.
It is crucial to recall that stakeholders formal financial in developing countries are mainly composed by:
- the Central Bank;
-Banks and financial intermediaries (commercial banks, merchant banks, Savings, Credit Agencies Real Estate Network of Postal Savings Banks of development, other financial institutions, insurance companies, etc.);
-Financial Markets (Securities).
Despite the spectacular development of informal finance and microfinance in some countries, the dual bank financing / funding by the financial markets still occupies a central place in analyzing the structure and evolution of the financial system in developing countries as in some rich countries of the north to the 1980 and 1990.
Generally, a basic distinction can be made in the financial systems of developing countries especially since the 1990s:
-those in which banks and other financial intermediaries play a dominant role;
-those in which financial markets play a central role in financing the economy.
Anyway, unlike the rich countries where the stock market is already largely developed, the financial sector developing countries are still heavily dominated by the banking sector. The explosion and the dramatic growth in trading activity and financial markets in some emerging
(Emerging Asia and Latin America) during recent decades, approaching even the financial markets of rich countries do not prevent them to be among the countries' debt economics. "
But it is extremely difficult to make a formal demarcation that this group of countries is part of an economy of debt and one group of countries with economies in financial markets. Frederic Poulon [2002, p.33] analyzing the transition from a debt to a market economy and financial markets as an example the case of France (1981-1999) found that the French economy was in a state of saving debt until 1990. Referring to the rate of financial intermediation in terms of supply (in the strict sense, that is to say bank financing) by the credit institution, the author found that the French economy recorded a rate of intermediation than the critical value 1 / 2 until 1990. This rate has increased and 78% in 1981 to 65% in 1985 and fell to 45% in 1986 to finish at 58% in 1990 after which it will be below the critical level of 50% (45% in 1991, 2% in 1993 and 32% and 37% in 1997 and 1999). Poulon F. However, did not fail to note that the transition of the French economy to the state savings in financial markets began in 1983. This situation is explained by the phenomenon of global financial disintermediation following the bursting of the international debt crisis in 1982 that profoundly affected the functioning of international financial markets but also especially the nationals. But the result of the study by Nicole Poulon Lafaye [2002, p .63-82] seems to contradict the conclusion of F. Poulon that France went to the State economy of debt since 1990. Indeed, Nicole Poulon Lafaye [Ibid, p.69] has considered the indicator of intermediation rather than in terms of deals in the strict sense but in the broadest sense. The National Credit Council (France) decided in 1998 to calculate a new indicator of financial intermediation in general. This indicator, unlike the other (in terms of deals in the strict sense) includes not only institutions credit (banks) but also insurance companies, UCITS (Undertakings for Public Investment in Transferable Securities) the significance of these institutions in intermediation. The review on the evolution of the rate of financial intermediation in the broad sense has revealed that in fact the French economy is still in a state of economy of debt since 1990. This rate has increased and 78% in 1981 to 64% in 1985 before declining to 58% in 1990, 71% in 1993 and 70% in 1995. boundary values of 40% and 48% increases respectively in 1986 and 1987 do not conclude that the French economy was in a state savings markets. Meanwhile, Tunisia sensing a rate of financial intermediation in the broad sense with a high rate of growth (57% in 1988, 67% in 1990 , 71% in 1993 and 70% in 1995) is undoubtedly an economy of debt.
The results of the study of M and J Boutiller. Bricongne C [2006] covering the period (1994 -2004) confirm the conclusion of F. Poulon that the French economy grew by saving state of financial markets if one refers rate intermediation in the strict sense (including credits insurance companies and mutual funds). The analysis in terms of intermediation in the broad sense (takes account of investment in securities of credit institutions, insurance and UCITS) does not corroborate this finding. According Boutiller and Bricongne [2006] in France, the rate of financial intermediation in the strict sense (excluding funds of mutual funds and insurance companies) has increased from 54 to 39%, 5% from 1994 to 2004. This rate has increased from 55.4% to 40 4% respectively in 1994 and 2004 if we take into account the credit of mutual funds and insurance companies. The rate of intermediation in the broad sense about him from 76, 2% in 1994 to 58, 8% in 2004. The French economy is an economy of financial markets if one refers to the rate of intermediation in the sense strict but it is an economy of debt if you take into account the rate at large.
The situation of four other rich countries (USA, UK, Germany, Spain) deserves mention. Restricting the analysis to the level of intermediation in the strict sense, the U.S. and the UK are already classified in the financial market economy, however, this assertion is relative because they are not really far from the border value of 1 / 2 which defines our classification because the rate of financial intermediation of the United States and United Kingdom have risen respectively to 33.6%, 33 8% in 1994 to 42.9% and 38.9% in 2000. In 2004, this rate was respectively 47.7% and 46.2%. Germany and Spain are countries cons deserve a place in the countries' debt economics. "A high intermediation Financial of 69.6% in 1994 to 73.4% in 2000 and 68, 6% in 2004, making Germany the first country as intermediary among the richest countries. Spain, with a rate of 46.1% in 1994, 50.6% in 2000 and 60.2% in 2004 remains close.
Developing countries are countries 'debt economy' because of the predominance of the banking sector and financial intermediaries in the traditional financing of their economies. We see later a detailed analysis on that. For now we content with a general overview on their level of financial intermediation from the work of some authors who have analyzed this problem.
Germida Dimitri et al [1991, p.126-128] performing a specific study on some developing countries were able to analyze the level of financial intermediation and the status of some developing countries. Indeed, analysis of the distribution of financial savings of a few developing countries in 1985 (percentage of total gross liabilities of the financial system) shows the dominance of the banking sector. It was clear from this study that the commercial banks represent the share the largest total gross liabilities of the financial system, an average of 50%. This ratio ranges from 31% in Brazil to 40% in Philippines, Malaysia 45%, 54% in South Korea to Thailand 59%, 57% in Nigeria and 63% in Chile. Central banks are second with percentages ranging from 10% in Malaysia and Korea, Chile 20% and 35% in Brazil and the Philippines. It reflects the degree of government intervention in economic activity. The proportion of specialized lending institutions largely corresponds to those of development banks and their weight varies from 2% in Chile and Nigeria to 8% in India, 16 in South Korea and the Philippines and 18% in Malaysia. The social security systems and insurance companies represent only a small fraction of the total commitments of the financial system. They occupy an important place in Malaysia and Chile, thanks to the role of foresight in these countries. Unions save when there are a limited share of total gross exposure, which ranges from zero to Chile and Nigeria to the Philippines to 4% and 11% in Brazil. The relative weight of mutual funds, trusts and investment banks is similar, that is to say between 1% and 11% of total gross commitments. This ratio is 0% in Thailand, 1% India and Chile, Brazil 5%, 9% in Nigeria ET11% in South Korea.
Regarding financial markets, this study shows that the share of securities in the long term fixed income and variable income ranges from 11% in Korea, 20% in Thailand, 24% in Nigeria, Brazil 30% to 48% in Malaysia.
Curiously, unlike the numbers look good for rich countries deemed by the spectacular development of their financial markets are still heavily dominated by the dominance of the banking and finance intermediary.
Countries with economies of debt (especially DCs) have a specific function in relation to countries with "economies of financial markets."
In countries with "economies of debt, the lending officers prefer investments in securities issued to banks in financial markets. Generally, the liquidity preference of investors led financial intermediaries to convert cash into loans to medium and long terms. By cons, in an economy of financial market, financial intermediaries can more easily finance their lending over the medium to long term resources of the same maturity through vehicles in the financial markets [SG Jeanneney, 1998, p.53-54 ]. As noted
SG Jeanneney [Ibid, p.56-57], in an economy of debt :
i)-money creation can increase investment and through the Keynesian multiplier investment aggregate savings;
ii)-the interest rate significant in terms of investment is the rate of credit banking;
iii)-It is possible to practice a dirigiste credit (with supervision quantitative bank lending and administration of interest rates. The rates charged by banks may be rate imbalance (credit demand is greater to supply);
iv)-banks are generally very dependent on central bank refinancing, especially in less developed economies, currency Manual (issued by the central bank) is an important part of the money supply.
In these circumstances it is difficult for the central bank to pursue a policy of strict quantitative limitation of the money supply (monetary base policy). He remains the possibility of acting on the request of the monetary base by varying the rate of interest.
Knowledge of state and level of financial intermediation is a key concept for understanding the level financial independence of the DCs, but analysis of specific indicators relating to level of financial development is the fundamental pillar.
2 - Indicators of financial development in developing countries
2-1-Brief review of literature
Examines the level of financial development of a country is not easy. Which approach? What analysis variables to use?
The IMF [2006] through its publication: "Indicators of Financial Soundness
" has already identified several indicators to assess the strength and financial health a country. You can read through this publication
[IMF, 2006, p.23]: "Financial soundness indicators are calculated to help assess and monitor the strengths and weaknesses of financial systems. Such assessments should take into account the specific situation of the country concerned, particularly the structure of its financial system. For simplicity, it is important to know whether an economy is composed of a small or large number of banks, if or it has not diversified financial intermediaries, if the stock market is complex and fluid, and whether financial intermediaries operate at internationally. "If there is a clear recognition of the scientific scope and methodology of these indicators, even the fruit of several years of research by the Financial Institutions Division II Statistics Department (in collaboration with other departments), the delineation and interaction between domestic and foreign financial sectors has been almost neglected. This delineation between domestic / abroad through the deepening of the determinants of financial independence that will allow us eventually to propose indicators of financial independence that they too are not free criticism.
Since the pioneering work of Keynes [1936] who revolutionized modern macroeconomics, many authors have tried to look for indicators to assess the level of development and financial sector soundness of a country.
Before entering the heart of the debate, it is crucial to recall briefly the discussions on the interplay economic growth / financial development (or development of real sector / financial development).
analysis of the interaction of real sector development (through growth) and the Financial is an old debate over a century. The question then arises: "Is the financial industry that pulls and influences the development of real sector or the reverse occurs? .
Walter Bagehot [1873] and Shumpeter [1911] were the first to highlight the existence of a link between economic growth and financial development. Three positions mark the link between the financial system and economic growth.
i)-The financial sector positively affects economic growth
This first group of authors believe that the financial system has a positive impact on economic growth. These authors such as Walter Bagehot [1873] and John Hicks [1969] that showed the critical role played by the financial system in the rise of industrialization in England by facilitating the mobilization of capital. Schumpeter [ 1911] stressing the importance of banks through technological innovation and financing of entrepreneurs is also in the same vein as Bagehot.
work of Gurley and Shaw [1960] (deepening the financial sector's role in the process of economic growth) and Gerschenkron [1962] (which has focused its research in the gap analysis Development by differences in the banking system) have illuminated the path in search of the existence of the link between financial sector and economic growth. But subsequent work by Goldsmith [1969] remains a benchmark. In his work, Goldsmith [1969], based on international cross-section data over the period 1860 to 1963 to regress the average growth on financial development defined by the size financial intermediation sector (measured by the value of its assets to GDP).
Later, Mac Kinnon and Shaw [1973] much emphasis on the theory of financial repression, Diamong . Dybvig.P D [1983], Bencivenga and Smith [1991] highlighting the role of the banking sector have helped to renew this approach. Bencivenga, Smith and Starr [1996], Greenwood and Smith [1997], Rousseau and Wachtel [2000] in turn showed that stock market liquidity is important for economic growth.
Recently, the work of King and Levine [1993], Levin [1997, 2000, 2004, 2005] are authoritative and even the basics of fundamental references for the analysis of the interaction between financial development and economic growth . Ross Levine [1997] focusing on a sample 77 countries over the period 1960-1989 has tried to prove the existence of a formal link between the development of the real and the financial sphere. Even if the result is hardly conclusive, the author finds significant correlations between some indicators of economic growth and four indices of the maturity of the financial sector: i) - the ratio of liquid liabilities of the sector (currency in circulation and deposits) to GDP ratio, ii) - the primary role of banks versus the central bank, iii)-the private sector's share in domestic credit, iv)-outstanding credit from firms private relative to GDP. Levine also notes that for 57 countries, the initial level (1960) the first index-liquid liabilities / GDP significantly predicted indicators of GDP growth during the next 30 years. We can also infer from the study of Levine that it is not possible to predict whether the economic growth rate could increase and how much if any due to financial reforms involving specific changes for the major sector indices. But financial crises in emerging countries for years 1990 and subsequent years which have greatly destabilized the real sector are the formal proofs of the existence of a causal link between financial sector and real sector.
ii)-Economic growth positively affects the financial sector
The second group of authors foremost among the Keynesian Joan Robinson rather think it is growth that drives the financial system. For Robinson [1952], economic development creates demands for particular type which meets the financial system as it develops. The financial sector development can thus be interpreted as the result of requests made by the productive sector. Causation previously is reversed: the growth process requires new modes of financing, which causes the development of the financial sector. This vision Keynesian Robinson (as opposed to Schumpeter's vision that gives a central role of banks) based on the premise that: "where the company leads, finance follows". Finance and Banking then appear as endogenous responses to the request made by economic agents. However, its contribution in 1979, it seems to qualify his position that approximates the concept of purchasing power of Schumpeter. It recognizes that growth can be impeded by inadequate credit. For Robinson [1979], an economy that has reached a certain degree of complexity that needs money is the abstract representation of purchasing power from which transactions can take place. Robinson led the vision of reality in a two-way causality. At first the company borrows from a bank, then when the project has borne fruit and increased earnings of the company, she began to issue shares or obligations and repay the loan at the bank, thus restoring its credit to borrow again. The second direction of causality is manifested when more or less constant proportion of the investment is financed, increasing the investment rate leads to an increase in bank loans. Thus, bank credit caused primarily investment which in turn leads to an increase in national income that accompanies higher levels of investment. This vision in both directions between finance and real development leads to the conclusion that Schumpeter was partly right.
iii)-No formal causality between financial sector and economic growth
This latter group of authors do not believe there is a correlation between formal financial system and economic growth. Robert Lucas [1988] think and the role of financial factors in growth is exaggerated. Mayer [1988] about him beforehand that a developed stock market is not important for the financing of the company. Stiglitz [1985.1999] corroborates this observation saying that the liquidity of financial markets has no impact on the behavior of managers of companies and therefore does not have some corporate control. Most development economists are also skeptical about the role of the financial system in economic growth. But given the spectacular development of the literature on endogenous growth, and some authors Berthelemy Varoudakis [1996] have highlighted the ambivalence of the relationship between financial development and growth. The result of the study of these two authors leads to the non-linearity between an indicator of financial development and growth. They determined the existence of a minimum threshold of financial development beyond which there may be a causal sense in finances to growth (and this country is a convergence club to another). This correlation can be reversed or negative in the stadium maturity of the financial sector.
In order to better understand our study, referring to the mainstream literature, the approach developed by Levine [1993, 1997] will be adopted here. To some extent already, so we adopt the position of Levine and his colleagues that: "The financial sector has a positive impact on growth." But this position is not formal. Levine himself in this work has raised doubts about the universality of causation. This position will provide key indicators of financial development critical to our analysis.
2-2-Indicators of financial maturity
As noted by Aghion [2007, p.80]: "In his excellent review of the literature in the Handbook of Economic Growth Ross Levine [2005] summarizes current research on finance and growth. Overall, all current research suggests that countries whose banks and markets work better grow faster, simultaneity bias does not seem to affect these findings, an increased efficiency of financial systems reduces the constraints on financing external companies indicate that this is one mechanism by which the development of financial markets affect growth. "Levine through this statement confirms the existence of a causal link between formal financial development and growth. His seminal article of 1997 helped pull the financial development indicators.
In a 1997 article, Professor Ross Levine [1997] in order to study the relationship between the development of the financial sphere and the real economy has identified four indices to assess the level of development A country's financial. These indicators reflect the state of financial maturity of a country.
i)-financial depth: a measure of the size of the financial sector, gives the ratio of liquid liabilities of the sector of the currency in circulation plus demand deposits and interest bearing liabilities of banks and financial intermediaries Non-bank on GDP (M2 / GDP).
ii)-The BANK: a measure of the primary role of banks vis-à-vis the central bank, gives the share of primary banks in the total domestic credit, that is to say the claim of the primary banks, more in-house assets of the central bank.
iii)-the private sector: a measure of the private sector's share in domestic credit, gives the ratio of credit allocated to private firms, excluding state enterprises, domestic credit relative to total net credit granted to banks. The World Bank through its interventions and the various reports attaches particular importance to developing the private sector. It says so in the annual report of the World Bank [2007, p.21]: "The diverse markets efficient and well regulated, and a legal and regulatory framework conducive to private sector, allowing companies microenterprises to multinationals to invest productively, create jobs and grow. "
iv)-The Privy: a measure of the importance of private sector credit in the economy as a whole, gives the ratio of credit to private enterprises (as in iii) relative to GDP.
To these four indices identified by Levine, we will add on to the banks that we call "Banceco.
v)-The BANCECO: It is the ratio of bank credit to GDP. This index is very important because it assesses the importance of banks in financing the economy of a country.
the purposes of Levine, the underlying assumption underlying indices is that the more each of them is high at time t, the faster the future growth of an economy. In other words, the greater the financial sector is deep (ie more depth is), the greater the role managed by the private sector in domestic credit, the greater the primary role of banks is large compared to that of the central bank, and credit in circulation in private firms is high relative to the global economy, and the growth rate of the economy is high.
It is crucial to remember that these indicators identify specific characteristics financial sector and reflect the overall level of its size. They say nothing of some structural details and institutional considered significant.
1-2-2-1-Global analysis of financial maturity of DCs
Table 1 below tells us the overall state of the financial sector of developing countries in accordance with the evaluation criteria previously proposed. Table 2 taken from the study of King and Levine [1993] allows us to make a relative comparison to our result.
Table 1: Indicators of financial development in developing countries (1)
1980 1985 1990 1995 1996 1997 1998 1999 2000 0.29 0.31 0.33
M2/GDP 0.38 0.38 0.41 0.44 0.47 0.48
PRIVATE 0.79 0.73 0.73 0.74 0.75 0.71 0.69 0.69 0.69
privy 0 , 27 0.30 0.32 0.32 0.32 0.35 0.35 0.34 0.34
BANK 0.65 0.65 0.76 0.79 0.78 0.77 0.76 0 , 78
BANCECO 0.37 0.37 0.37 0.38 0.41 0.4 0.44 0.43
(1) Countries: The sample consists of 17 developing countries including Africa: Algeria, Benin , Cameroon, Madagascar, Latin America: Argentina, Brazil, Ecuador, Mexico, Asia: China, India, Indonesia, Thailand, South Korea.
Source: Author's calculation from the International Financial Statistics, IMF 2002.
Table 2: Indicators of financial development of King and Levine for 1985
Very Very Poor Poor Rich Rich
0.67 0.51 0.39 0.26 M2/GDP
PRIVATE 0.71 0.58 0.47 0.37 0.53 0.31
Privy 0.20 0.13 0.91 0.73 0.57 BANK
0.52 Nb: Sample 29 countries
Source: King and Levine [1993].
From Table 1 that the financial sector of developing countries as a whole is still in an embryonic state.
i)-The degree of monetization of the economy (M2/GDP) has steadily increased throughout the study period (1980-2000) respectively from 0.29 to 0.31 in 1980 and 1985, respectively, 0.38 and 0.48 in 1995 and 2000. It's important to note that the average level of this indicator (year 1985) found by Levine [1993] for the very rich countries is 0, 67 and 0.51 for the rich, respectively 0.39 and 0.26 for the poor and very poor countries
(Table 2). Since 1995, the average level of financial depth in developing countries has exceeded the critical threshold of 0.365 (by Advanced Varoudakis Berthelemy and [1998] beyond which a country is considered to have freed the first stage of financial development. But what that 'it is this low level of detail financial (financial depth) of DCs reflects the small size of their financial sector despite the development of the banking sector remains fragile. The assumption that the liquidity ratio (M2/GDP) is a crucial indicator of the level of financial development is still questionable [Fry, 1997]. According to Fry, this indicator is a correct estimate of the financial development in countries the early stage of their development, particularly given the predominance of banks in corporate finance and the underdevelopment of financial markets, which is no longer the case in countries where financial markets are already widely developed. In fact, in financially developed economies, it is likely that the velocity of circulation of money tends to grow faster than money supply. In this case, the liquidity ratio could negatively correlated with the evolution of GDP, contrary to what prevails Levine. The use of this indicator for developing countries is in our view justified by the fact that they are all (even countries emerging) countries' debt economy "where money and quasi money occupy a significant portion of the money and where banks predominate.
ii)-The indicator PRIVATE (Private credit / Domestic credit) shows importance of the private sector. Indeed, the private sector accounts for almost two thirds or more of domestic credit in developing countries from 0.79 in 1980 to 0.73 in 1985 to 1990 and 0.69 in 2000.Notre result does not really fit with the results of King and Levine [1993], which show that poor and very poor developing countries supposed to have represented an index PRIVATE respectively 0.47 and 0.37 in 1985. In our case, this index is 0.73 in 1985. This difference is attributed firstly to the weakness of our sample, the other countries that make up the sample.
iii)-The analysis of the variable privy (private credit / GDP) shows an increasing trend throughout the period from 0.27 to 0.30 between 1980 and 1985 respectively from 0.32 to 0, 34 between 1990 and 2000. For comparison, in the study of King and Levine [1993], this index is about 0.20 and 0.13 respectively for the poor and very poor in 1985, respectively 0.53 and 0.31 for the very rich countries and rich countries.
iv) The variable-BANK (Bank Credit / Bank credit over internal debt of the Central Bank) recorded virtually unchanged from 1996 after the growing trend that began in 1985. The Banks and Insured 65% of domestic financial assets in developing countries in 1985 and 76% and 0.78% in 1995 and 2000.This is well corroborates the fact that these countries are countries with " Economy of debt. "The fact that the Banks provide almost two thirds of domestic assets in developing countries is a strong signal of the importance of the banking sector in developing countries, which does not necessarily reduce the flexibility of the Central Bank. In an "Economics of debt, control of the control variables of monetary policy by the Central Bank is becoming increasingly clear (we do not take into account other exogenous parameters).
v)-variable BANCECO (Bank Credit / GDP) has trended upward from 1985 to 1998 from 0.37 to 0.4 before stabilizing at 0.44 and 0.43 respectively in 1999 and 2000.
Note that these figures should be interpreted with caution because the difference in the level of financial development, economic structures and institutional frameworks are not the same in all developing countries. Which brings us to a regional analysis of evolution of these indicators.
1-2-2-2-Regional Analysis of financial maturity of DCs
The overall analysis of the level of financial development DEP does not really allow us to have a clear vision and clear each area. It is therefore important to extend the analysis in terms regionally. 3-4-5 tables below we trace the evolution of these indicators for three regions, namely Africa, Latin America, Asia, which are the main regional boundaries of our study.
Africa's financial sector in Africa, from what we hear across the various studies and reports from international agencies, governmental and quasi-deficient, ill-organized and highly segmented. The World Bank [Ibid, p.21] notes thus: "Efficient markets are particularly needed in Africa, where financial sector development is uneven, excessive business regulation, access to credit especially limited in rural areas and intermediation financial less widespread than in any region of the world. "
With reference to Table 3 below, this finding seems to be confirmed simply by comparing the index of financial deepening to those of other developing countries.
Table 3: Indicators of Financial Development in Africa (1)
1980 1985 1990 1995 1996 1997 1998 1999 2000
M2/GDP 0, 32 0.34 0.26 0.24 0.22 0.24 0.24 0.26 0.26 0.86 0.79
PRIVATE 0.75 0.47 0.52 0.50 0.55 0.69 0.69
Privy 0.32 0.33 0.23 0.08 0.08 0.06 0.07 0.08 0.08
BANK 0.70 0.63 0.62 0.65 0.64 0.65 0.67 0.70
BANCECO 0.35 0.27 0.18 0.17 0.16 0.18 0.19 0 , 17
(1): Algeria, Benin, Cameroon, Madagascar.
Source: Author's calculation from the International Financial Statistics, IMF, 2002.
Indeed, the index of financial depth (M2 to GDP) in Africa has increased from 0.32 in 1980 to 0.34 in 1985 and respectively 0.24 and 0.26 in 1995 and 2000.
Similarly, the index has increased from 0.86 PRIVATE in 1980 to 0.79 in 1985 and 0.69 in 2000. The Privy
variable showed a sharp decline during the study period from 0.32 in 1980 to 0.08 in 1995 and 2000. The sharp decline in this variable is attributed to the growing public sector (government) in this continent. BANK
variable deserves special attention. The review on the evolution of this variable shows a great importance of banks vis-à-vis da central bank. The banks have provided about 70% of financial assets Internal Africa (sample) in 1985 and 62% and 70% of these assets in 1995 and 2000. Paradoxically, this value (especially in 1985 and since 1998) is very close to the level found by King and Levine [1993] for rich countries (0.73) in 1985 (see table 9) and far from the level corresponding to poor countries and very poor countries which were respectively 0.57 and 0.52. In our case, this value is 0.70
(1985), much higher than that of King and Levine for the poor and very poor 1985.Cette difference is justified by the importance of the State Bank in countries that comprise our sample for the 1980s and early 1990s. In countries such as Cameroon, Madagascar, Benin and Algeria, the state has always occupied a crucial place in the banking sector. Nationalisation successive years 1970 and 1980, meant that the state had become the main player in the banking sector as result explosion of bank credit and financing of large investment programs to the death (as the case of Madagascar in the late 1970s and early 1980). The high level of the Index Stock (approximately 0.65 or more) recorded since 1996 reflects the reorganization and the health of the banking sector of the continent because of the privatization that has exploded domestic credit but also and especially the control of Central Bank credit in the economy (deficit financing).
The downward trend of the index BANCECO (from 0.35 in 1985 to 0.18 in 1995 and 0.17 in 2000) confirms the relative decline of the role of banks in the economy.
Latin America countries of Latin America are known for their unstable financial sector. The international debt crisis of the 1980s has its management in Mexico before doing a spot of oil in other developing countries in the region, Africa and Asia. The successive crises in subsequent years: Mexican crisis of 1994, the Brazilian crisis of 1998, sovereign debt crisis of the equator in 1998, Argentina's crisis of 2002 reflect the ongoing financial fragility of these countries that we refer to the recess analysis of the level of development of the financial sector (Table 4).
Table 4: Indicators of Financial Development in Latin America (1)
1980 1985 1990 1995 1996 1997 1998 1999 2000 0.22 0.17 0.19
M2/GDP 0.26 0.26 0 28 0.28 0.28 0.27
PRIVATE 0.73 0.52 0.55 0.86 0.83 0.74 0.70 0.65 0.68
Privy 0.19 0.15 0.18 0.25 0.21 0.23 0.24 0.24 0.23 0.55 0.55 0.79
BANK 0 85 0.89 0.84 0.81 0.81
BANCECO 0.18 0.24 0.28 0.26 0.29 0.29 0.30 0.29
(1): Argentina, Ecuador, Brazil , Mexico
Source: Author's calculation from the International Financial Statistics, IMF, 2002.
A priori, scan on the table 4 indicates a low level of monetization of the economy, a strong private sector involvement and the banking sector in the economy.
The index for financial depth (M2 to GDP) is low, around the same level Africa. This index increases from 0.22 in 1980 to 0.26 in 1995 and 0.27 in 2000.The Latin American countries are so low level of monetization. This reflects low level of monetization the reluctance of people to hold liquid assets to hyperinflation and monetary turmoil that characterized these countries. And people tend to hold less liquid assets and liquid assets into crisis as was the case in 2002 in Argentina. By way of illustration, this index was 0.24 in 1980 in Argentina, 0.11 in 1990 and 0.31 in 2000. In the same period, it was respectively 0.11 and 0.25 in 1980 and 1985 in Brazil and 0.28 in 2000. PRIVATE
index (Credit to private sector / Domestic credit) shows importance of the private sector despite a sharp decline recorded between 1980 and 1990. This index increased from 0.73 in 1980 to 0.55 in 1990 and 0 67 in 2000.
same time, the Privy variable (private credit / GDP) recorded a poor result (below the average for developing countries and slightly above Africa). This index increased from 0.19 to 0.15 and in 1980 and 1985 and from 0.25 to 0.23 in 1995 and 2000 while the average value of the study of King and Levine [1993] was respectively 0.20 and 0.13 for poor and very poor in 1985. BANK
variable shows the crucial role of the banking sector vis-à-vis the Central Bank. This variable increased from 0.55 to 0.79 between 1985 and 1995 and 0.81 in 2000.La stagnation of this variable observed between 1985 and 1990 is attributed to the reluctance of banks to finance economic activities in developing countries due to the international debt crisis which has created bad debt in most developing countries especially in Latin America (including countries of the sample).
The low value of the variable reflects the fact BANCECO that the banking sectors of these countries are not really dynamic.
Asia
past two decades, the Asian continent (especially emerging markets) is distinct from Africa and Latin America by the strength of their dramatic financial sector combined with the spectacular development of real sector. These countries have reached an average growth rate of over 6% and 10% for China during the last decade and today. But the Asian crisis of 1997 is a strong signal to the financial fragility of these countries. Depression often attributed to the phenomenon of original sin Eichengreen and Hausmann [1999.2003] and the Brutal Judgement (Sudden Stopps) Calvo [1998, 2004], it is primarily rooted in the status of their financial sector (Table 5).
Table 5: Indicators of Financial Development in Asia (1)
1980 1985 1990 1995 1996 1997 1998 1999 2000
M2/GDP 0.32 0.42 0.54 0.63 0.66 0.72 0 80 0.86 0.90
PRIVATE 0.77 0.87 0.88 0.90 0.90 0.88 0.83 0.72 0.70 0.31 0.41 0.56
privy 0 63 0.67 0.75 0.75 0.71 0.70
BANK 0.71 0.78 0.86 0.87 0.82 0.81 0.81 0.84 0.46 0.59
BANCECO 0.66 0.70 0.78 0.81 0.82 0.83
(1): India, China, Indonesia, South Korea, Thailand.
Source: Author's calculation from the International Financial Statistics, IMF, 2002.
By referring to Table 4, we find that financial depth (M2/GDP) Asia (sample) is already well advanced. That means a high level of monetization of the economy. This variable has almost tripled in value in 20 years, rising from 0.32 in 1980 to 0.63 in 1995 to 0.90 in 2000.This high level of financial deepening index highlights the status and dynamics of large area 's Financial
Asia (countries emerging Asia). The level of after 1996 (0.66 and up) approaches or even exceeds the level of financial depth of rich countries (0.51) and very rich countries (0.67) on the year 1985 [King and Levine, 1993].
To illustrate, note that this index has increased from 0.37 to 0.42 between 1980 and 1990 in India and 0.56 in 2000. In China, it rose from 0.36 to 0.80 of 1980 to 1990 and 1.52 in 2000. In Indonesia, South Korea and Thailand, it rose respectively by 0.16, 0.33 and 0.38 in 1980 to 0.40; 0.38 and 0.70 in 1990, then 0.57, 0.79 and 1.05 in 2000.Se Referring to these values, we can conclude that China and Thailand are countries largely monetized over South Korea, Indonesia and India. However, they all represent a significant index held well above the minimum threshold of financial development of 0.365 suggested by Varoudakis Berthelemy and [1998].
analysis variables and Privy PRIVATE highlight importance and a strong private sector involvement in the economy. PRIVATE index increases from 0.77 to 0.88 between 1980 and 1990 and 0.70 in 2000. This sector covers while almost two-thirds or even more domestic credit. We see although the dynamics of private sector in this continent. privy index also recorded a remarkable performance from 0.31 to 0.56 between 1980 and 1990 and 0.70 in 2000.
Regarding the variable BANK, the dynamics of the banking sector is remarkable. This index increased from 0.71 to 0.86 between 1980 and 1995 and 0.84. The Asian crisis has affected 19,997 in a less significant banking sector as Bank index from 0.87 in 1996 before the crisis to 0.81 in 1997 during the crisis and stabilized at 0.81 during the two years following the crisis is ie in 1998 and 1999. The high value of this index Bank (upper 0.70) during the study period reflects the strong involvement of the banking sector in these countries and its role vis-à-vis the Central Bank.
The dynamics of the banking sector is confirmed if we analyze the evolution of the variable BANCECO. This index increased from 0.46 to 0.66 and from 1985 to 1995 and 0.83 in 2000.
In short, by referring to Tables 3-4-5, among developing countries, countries of Asia are leading the pace in terms of financial development, followed by Latin America and Africa, which as always completes the course. The indicator for financial depth ( M2/GDP), and indices BANK BANCECO corroborate this finding. Asian superiority is clear to the average scores of Latin America and the poor performance of Africa. If direct indicators of financial development show a clear difference between these three regions, the analysis of two indirect indicators namely PRIVATE (Private credit / Domestic credit) and the Privy (Private credit / GDP) does not allow us to a definite conclusion. A thorough analysis of the evolution of these two variables allows us still to confirm the classification above.
1-2 3-Indicators related to the stock market
account the importance of the spectacular development of stock markets in some developing countries (some countries in emerging Asia and Latin America, some African countries) it is incorporated into capital our analysis two new variables: market capitalization and turnover. These variables are used to assess the size and liquidity of the market. Levine and Zervos [1996] were the first to have developed enough that approach.
i) - The ratio of market capitalization to GDP (CapBour / GDP) is used to estimate the size of market. The market capitalization is equal to the total value of all listed securities. For Levine and Zervos, the size of the stock market is positively correlated with the ability to mobilize capital and diversify risk.
ii)-On Turnover (TURN) is the turnover rate in volume that is to say the ratio of transaction volume on market capitalization volume. This measure also complements the measure for the size because a market may be important but inactive.
Noting the importance of financial liberalization in emerging markets, and lack of adequate statistical data to calculate these indicators, we confine ourselves here to data from Levine and Zervos 1996.
Table 6 below shows the evolution of these indicators for some emerging countries.
Table 6: Stock market indicators emerging
CapBour / GDP Turnover
Before After Before After Argentina
0.0115 0.0658 1.167 3.395 0.3268 4.361 0.0565
Brazil Mexico
3.790 0.0762 0 2894 7.477 3.561
Philippines0, 0712 4.513 0.2457 2.015 0.4172 6.213 0.0682
Thailand 0.8561 0.0749 0.2397
India 5.059 3.343
Pakistan 0.0581 0.720 0.1620 1.474 0.5714 0.607 0.4205
Jordan
2.026 Source: Levine and Zervos, 1996.
This table shows that financial integration has increased the market capitalization of emerging markets especially in countries like Thailand, Jordan and Brazil, where it (market capitalization) has already recorded a significant score, but for. evolution of the indicator TURNOVER in countries like Brazil, Mexico, Philippines, Thailand and India reflects the lack of dynamism in these markets. Some emerging countries have not been so dynamic transactions in their stock markets so that the transaction rates below the growth rate of capitalization. This is explained by the low power of capital market financing. A study by the European Investment Bank [2006] was able to show the overall situation of developing countries, highlighting the indicators on the Turnover and market capitalization as shown in Table 7.
Table 7: Stock market indicators in developing countries and other countries (in%)
Africa Asia QI lat PaysMed EU 25 U.S. EU8
TURNOVER
36.1 90.4 23.7 107.4 93.3 41 7 169.1
CapBour
Private / GDP 9.7 11.4 6.7 na 39.4 4.9 106.8
CapBour
publiq
/ GDP 36.4 16.9 25.9 42.5 47.1 29.3 44.1
Note: QMA lat: Latin America, PaysMed: Country of the Mediterranean sea, EU: 25 countries of the European Union, U8: The eight countries of Central and Eastern Europe that joined the European Union In 2004, U.S.: United States.
Source: European Investment Bank, 2006, Economic Trend in partner countries (p.19).
examination on this chart shows a strong momentum in the stock market of the countries of the mediterranean and Asia with a turnover of 107.4% respective 90.4% and even approaching or exceeding the performance of 25 countries of the European Union. Surprisingly, Africa Latin America exceeds even in terms of market capitalization (private or public) but also in terms of rotation of securities (Turnover). The overall performance of developing countries (Asia, Latin America, Africa, the Mediterranean sea) is comparable to that of the eight new member of the European Union ( EU8). It is still important to note that these indicators largely reflect the situation of countries emerging from Developing Countries but not all developing countries. The significant finding of Africa is so skewed by the performance of South Africa. The dynamics of Asia and Latin America is attributed to countries emerging from these two continents.
If indicators for the financial sector have presented so far allow an overview of its progress, they do not provide reliable information about its solidity.
1-2 3-indicators of financial sector soundness indicators
DCs previously proposed can not assess the soundness of the financial sector. These are indicators of size and liquidity of the real economy. Is it not then suggest other capital indicators to assess the financial soundness of the country? Three indicators namely, return of assets, the ratio non-performing loans on total loans, reported regulatory capital to assets weighted according to risk to assess the soundness of the financial sector as shown in Table 8 below.
Table 8: Indicators of banking sector soundness in developing countries (in%)
Return on Assets Non-performing loans to total loans Regulatory Capital asset-weighted risk
2002 2003 2004 2002 2003 2004 2002 2003 2004
PaysEmerg Asia 0.8 0.9 1.3 15.5 13.1 10.8 13.8 14.31 14.3
Latin America -1.3 1.3 1.6 12 9.6 6.9 13.7 14.7 16.1 1.2
Middle East 1.2 1.5 14.7 14.3 13.4 15.2 14.9 14.6
Afrq Subsahara 2.1 3.1 3.1 16.9 14.6 13.3 17.7 16.6 16.9
Source: IMF Global stabilty Reviw [2005].
examination on the table 8 shows that the banking sector of developing countries shows aggregate indicators of modest performance. This fact reflects the conditions of activity difficult and insufficient practice of risk management. The weak performance of the assets, combined with the high rates of non-performing loans, despite the encouraging result in terms of capital adequacy ratio (regulatory capital to assets weighted for risk) illustrates the fragility of the sector Banking in developing countries. A thorough analysis of this table is used to advance the Middle East and Sub-Saharan Africa are highly exposed if one refers to the indicator on the NPL while the Latin America and emerging countries Asia show a certain stability . The trend is reversed if we look at return on assets, a paradoxical situation because these two sub-regions
(sub-Saharan Africa and the Middle East) are largely marginalized by private creditors for various causes.
If we extend the analysis in the context of financial markets (Table 9), we see that the indicator on the volatility of stock returns displays a notable performance in all sample countries except Brazil and of Argentina that have experienced an increase in this indicator during the reporting period (before and after financial liberalization).
Table 9: Volatility of stock returns in emerging
volatility of stock returns
Before After Argentina
0.281 0.428 0.184 0.428
Brazil Mexico 0.107 0.103 0.070 0.069
Philippines Thailand 0.056 0.068 0.036 0.070
India Pakistan 0.030 0.060
Jordan 0.044 0.042
Source: Levine and Zervos, 1996.
As we have seen through the various data and tables in this article, the challenge of the financial sector is still required in PED.Si Asian supremacy is obvious, the awakening of Latin America and the Africa emerges on the horizon. But the gap between emerging countries and LDCs are still evident in the three regions of the developing countries (Africa, Asia and Latin America).
