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From The World Bank Group Documents and Reports Archive

Subnational capital markets in developing countries
From Theory to Practice - 2004
Editors: Mila Freire and John Petersen with Marcela Huertas and Miguel Valadez
The decentralization of governments throughout the world has brought new prerogatives and responsibilities to subnational governments as service providers to their local constituents. Part of a larger move toward greater democratization of government, reliance on markets, private provision of many activities formerly carried out by governments, and globalization of commerce and finance, decentralization also has encompassed a desire to use private capital markets as allocators of credit. In developing countries the twin tasks of building more dispersed and democratic governments and opening economies to freer markets and greater private ownership have been attempted in tandem—and have proved a difficult undertaking.
Table of Contents
Abbreviations and Acronyms

Executive Summary
Chapter 1 Introduction
I Political, Legal, and Financial Framework
John Petersen and Mila Freire
Chapter 2 Fiscal Devolution
Chapter 3 Market Setting and Legal Framework
II Borrowing Instruments and Restrictions on Their Use
John Petersen and Miguel Valadez
Chapter 4 Subnational Governments as Borrowers
Chapter 5 The Nature and Design of Debt
Chapter 6 Debt Instruments and Methods of Sale
Chapter 7 Restrictions on the Issuance and Use of
  Subsovereign Debt
III Characteristics of Financial Market
Regulation and Disclosure
John Petersen
Chapter 8 Financial Market Structure, Regulation, and Operations
Chapter 9 Disclosure and Financial Reporting
IV Evaluating, Monitoring, and Assisting Subnational Governments
John Petersen and Marcela Huertas
Chapter 10 Credit Analysis and Credit Ratings
Chapter 11 Monitoring and Intervening in
Subnational Government Finances
Chapter 12 Designing and Implementing Credit
Assistance to Subnational Governments
V Policy Guidelines
John Petersen and Mila Freire
Chapter 13 Concluding Observations and
Policy Guides
VI Country Case Studies
Latin America and the Caribbean
Chapter 14 Argentina
Rodrigo Trelles Zabala
Chapter 15 Brazil
Rodrigo Trelles Zabala and Giovanni Giovanelli
Chapter 16 Colombia
Rodrigo Trelles Zabala
Chapter 17 Mexico
Steven Hochman and Miguel Valadez
Sub-Saharan Africa
Chapter 18 South Africa
Matthew Glasser and Roland White
Chapter 19 Zimbabwe
Roland White and Matthew Glaser
Middle East and North Africa
Chapter 20 Morocco
Samir El Daher
Chapter 21 Tunisia
Samir El Daher
Chapter 22 People’s Republic of China
John Petersen
Chapter 23 Republic of Korea
John Petersen
Chapter 24 India
Pryianka Sood
Chapter 25 Indonesia
Robert Kehew and John Petersen
Chapter 26 The Philippines
John Petersen
Eastern and Central Europe
Chapter 27 Bulgaria
Peter D. Ellis and Kremena Ionkova
Chapter 28 Czech Republic
João C. Oliveira and Jorge Martinez-Vazquez
Chapter 29 Hungary
Pryianka Sood
Chapter 30 Poland
Miguel Valadez and John Petersen
Chapter 31 Russian Federation
Asad Alam, Stepan Titov, John Petersen
2.1. Devolving Responsibility for Elementary School Teachers’ Salaries in Romania
2.2. Rio and the International Marketplace
3.1. Banks and Securities Markets: Are Both Needed for Development?
3.2. Brazilian Banks’ Excessive Concentration in Government Securities
4.1. Defining and Controlling Public Debt
4.2. China: Off-Budget Finance and the Transmuted Bond
4.3. Restructuring Subnational Government: From Few to Many (But How Many?)
5.1. Importance of the Rate-Setting Pledge
5.2. Intergovernmental Transfer Payments as Collateral
5.3. Importance of Feasibility Reports: The San Pedro Sula, Honduras, Sports Complex
6.1. Selecting an Underwriter through Competitive Negotiation
6.2. Rigging a City’s Bond Sale
7.1. The Philippines: How Political Risks Can Inhibit Municipal Credit Markets
7.2. Examples of Language on the Binding Nature of Financial Obligations
7.3. The City of Cebu in the Philippines
7.4. Johannesburg Comes Up Short
7.5. Example of Language Denying Central Government Responsibility for Municipal Debt
7.6. Example of Language on Securing Debt with Own Revenues
8.1. Commercial Banking in Transitioning Economies
8.2. The Bank for International Settlements’ Reserve Requirements and Capital Rules
8.3. What Is a Security? Considers a Deal
8.4. After 60 Years, Municipal Bonds Return to Romania
9.1. Disclosure over the Internet
9.2. Accounting for Accounting Differences
9.3 Why Did Czech Municipal Debt Grow So Fast?
10.1. Emerging Market Ratings and Bond Insurance
11.1. Example of Information Provided in the Debt Annex of French Subnational Government Budgets
11.2. In Argentina Trustees Make a Difference
11.3. Debt Adjustment and Subnational Insolvency in Hungary
11.4. Financial Stabilization to Address Subnational Bankruptcy in Latvia
12.1. The Subnational Government Retreat from the Private Credit Market in the Czech Republic
12.2. Moving from Soft to Hard Credit through Enforcement of Loan Collections: South Africa’s Experience
12.3. The Philippine Local Government Unit Guarantee Corporation
12.4. The Tamil Nadu Urban Development Fund, India
12.5. Assisting Small Bond Issuers: The Bond Bank Option
12.6. A Brief Illustration of Grant-Loan Integration: An Example from Indonesia
18.1. A South African Parable
24.1. Recent Projects Financed by the Tamil Nadu Urban Development Fund
24.2. Basis for the AA+ Rating of the Madurai Municipal Corporation Bond Issue
3.1. Market Structures and Sources of Capital for Local Government Borrowing
3.2. Stages of Development in Credit Market Access
4.1. General Government Obligation
4.2. Government Limited Obligation
4.3. Public-Private Project Financing
4.4. Matrix of Subnational Government Financing Capacity
6.1. Debt Service Structures
12.1. Retail On-Lending by the Government Financing Institution
12.2. Wholesale On-Lending by the Government Finance Institution
12.3. Securitization of a Loan Pool
12.4. Mechanics of a Liquidity Facility
14.1. Distribution of Shareable Taxes under the Coparticipation Scheme, Argentina
14.2. Relative Fiscal and Debt Situations of Provinces, Argentina, 2001
14.3. Provincial Indebtedness by Type of Debt or Lender, Argentina, December 2001
14.4. Impact of the Devaluation on Provincial Debt, Argentina
14.5. Disbursement of Coparticipation Revenues, Argentina
14.6. Provincial Bond Debt Outstanding by Type, Argentina, End of 2001
14.7. Flow of Funds for the Salta Hydrocarbon Royalty Trust Bonds
14.8. Selected Debt Indicators, Salta and All Provinces, End-2001
14.9. Selected Debt Indicators, City of Buenos Aires and All Provinces, End-2001
14.10. Selected Debt Indicators, Buenos Aires and All Provinces, End-2001
15.1. Distribution of the Debt Stock in Bonds by State, Brazil, End-1996
15.2. Subnational Debt as a Share of GDP, Brazil, 1998–2002
16.1. Fiscal Balance as a Share of Total Revenue by Department, Colombia, 2000
16.2. Direct Subnational Debt, Colombia, 1996–2001
16.3 Allocation of Credit from Findeter 1989–99
16.4. Debt Stock, Capital District of Santa Fe de Bogotá, 1995–2001
17.1. Borrowing by Three State Governments, Mexico, 1994–98
18.1. Outstanding Municipal Debt, South Africa, 1997–2000
18.2. Outstanding Municipal Debt by Form, South Africa, 1997–2000
22.1. Typical Cooperative Joint Venture Arrangement for Expressway Development
24.1. Funding Approvals and Disbursements by the Tamil Nadu Urban Development Fund by Sector, as of 31 March 1999
24.2. Value of Capital Works Executed by Municipalities with Funding from the Tamil Nadu Urban Development Fund, 1993/94 to 1998/99
24.3. Simplified Flow of Funds in the Pooled Financing Scheme
27.1. Local Government Expenditure as a Share of GDP, Selected Countries, Various Years, 1998–2002
28.1. Municipal Debt Outstanding, Czech Republic, 1993–99
28.2. Local Fiscal Deficits, Czech Republic, 1993–2000
28.3. Composition of Municipal Debt Outstanding, Czech Republic, 1993–99
28.4. Average Composition of Municipal Debt Outstanding, Czech Republic, 1998–99
29.1. Sources of Local Government Revenue, Hungary, 1995–2000
30.1. Own-Source Revenue as a Share of Total Revenue, Szczecin, 1998–2002
30.2. Local Government Debt by Source, Poland, 1999–2001
30.3. Concepts of Surplus from Operating Revenues as a Source of Funds for Capital Spending
30.4. Structure of Operating Revenue, Wroclaw, 2001
30.5. Budget and Debt, Wroclaw, 1996–2002
30.6. Structure of Operating Expenditure, Lodz, 2001
30.7. Budget and Debt, Lodz, 1996–2002
30.8. Debt Burden as a Share of Operating Revenue, Lodz, 1996–2002
30.9. Budget Balance and Debt, Szczecin, 1998–2002
30.10. Debt and Debt Service as a Share of Operating Revenue, Szczecin, 1996–2002
30.11. Budget and Debt, Krakow, 1998–2002
31.1. Administrative Structure for Executing the Debt Strategy, St. Petersburg
7.1. Municipal Debt Limitations in Selected Eastern and Central European Countries
10.1. Credit Rating Volatility in Asia: Selected Standard and Poor’s Long-Term Foreign Currency Sovereign Ratings
14.1. Allocation of Responsibilities among Levels of Government, Argentina
14.2. Terms and Conditions of the Typical Consolidation Bond, Argentina
14.3. Provincial Bond Issues in Domestic and International Capital Markets, Argentina, 1994–2001
14.4. Features of the Bond Issue by the Salta Hydrocarbon Royalty Trust
14.5. Debt by Source, Salta, 1995–2001
14.6. Key Features of the Bond Program of the City of Buenos Aires
14.7. Main Characteristics of the Bond Issues by the City of Buenos Aires
14.8. Debt by Source, City of Buenos Aires, 1995–2001
14.9. Access to the Bond Market by the Province of Buenos Aires, 1994–2001
14.10. Debt by Source, Province of Buenos Aires, 1995–2001
15.1. Municipal Sources of Funds, Brazil, 1999
16.1. The “Traffic Light” System for Regulating Subnational Borrowing, Colombia
16.2. Potential Borrowers from Findeter
16.3. Terms and Conditions of Findeter Loans
16.4. Features of the Bond Issue by the Capital District of Santa Fe de Bogotá
16.5. Revenues and Expenditures, Capital District of Santa Fe de Bogotá, 1995–2001
16.5. Debt Service, Capital District of Santa Fe de Bogotá, 1995–2001
17.1. Spending and Own-Source Revenues as a Share of GDP by Level of Government, Mexico, Selected Years, 1991–97
17.2. Subnational Bond Issues, Mexico, 2002
19.1. Assets of Deposit-Taking Institutions, Zimbabwe, 1992–97
19.2. Local Government Revenues by Source, Zimbabwe, 1995–98
19.3. Gross Public Debt of Local Authorities, Zimbabwe, 1994–97
19.4. Bond Issues by Local Governments, Zimbabwe, 1990–2001
22.1. Subnational Revenues and Expenditures, 1993 to 2001
22.3. Market Capitalization, Bonds, and Domestic Bank Credit as Percentages of GDP: 1995–2000
22.4. Outstanding Domestic Bonds and Issuance in 2001
23.1. Debt and Capital Spending of the Seoul Metropolitan Government, Republic of Korea, Fiscal Years 1996–2001
24.1. Third Tier of Government, India, 2000
24.2. Fiscal Decentralization, India, 1997/98
24.3. Finances of Local Bodies, India, 1990/91 and 1997/98
24.4. Terms of the Bond Issue by the Ahmedabad Municipal Corporation
24.5. Estimated Gap in Urban Infrastructure Financing, Tamil Nadu, 2002
24.6. Infrastructure Investment Requirements by Type of Urban Local Body and Sector, Tamil Nadu, 1996–2001
24.7. Lending Terms of the Tamil Nadu Urban Development Fund since 1998/99
24.8. Terms of the Bond Issue by the Madurai Municipal Corporation
24.9. Financial Indicators for the Tamil Nadu Urban Development Fund as of March 2002
24.10. Terms of Issue of the Water and Sanitation Pooled Fund
25.1. Central Government Lending to Local Governments, Indonesia, Selected Years, 1980–99
25.2. Banking Sector Assets by Type of Bank, Indonesia, End of March 2001
26.1. Local Government Loans and Deposits with Selected Financial Institutions, Philippines, 2000
27.1. Financial Performance Indicators for Sofia, 1996–2001
27.2. Credit Ratings of Selected Local Governments, 2001
28.1. Public Debt Outstanding, Czech Republic, 1993–99
28.2. Municipal Bonds Issued, Czech Republic, 1992–99
29.1. Equity and Debt Markets, Selected Countries in Central and Eastern Europe, End-1995
29.2. Terms of the Bond Issue by the Municipality of Budapest
29.3. Terms of the Bond Issue by the Municipality of Pecs
30.1. Current Structure of Subnational Government, Poland
31.1. Standard & Poor’s Credit Ratings of Subnational Borrowers, Russian Federation, 1997–2002
31.2. Debt by Type, St. Petersburg, 1994–2001
31.3. Structure of Debt, St. Petersburg, 1994–2001
31.4. Debt Indicators, St. Petersburg, 1997–2001
31.5. Credit Ratings, St. Petersburg, 1998–2002
Related themes:
- Aid
- Bureaucracy
- Debt
- Decentralization
- Dependency theory
- Development
- Development Economics
- Economic Policies
- Employment/Unemployment
- Foreign Direct Investment
- Gender
- Human Rights
- Human Development
- Hunger
- Inequality/social exclusion
- Informal sector
- Labour Market
- Microfinance
- Migration
- Poverty
- Privatization
- Sustainable Development
- Transnational Corporations
- Urbanization

- Complete list of development themes