CONTINUED
Another past concern for Latin American financial markets has been the documentation of inadequate creditor rights. As outlined by (Galindo and Micco 2003), creditor rights produce an environment that facilitates the existence and development of deep debt markets. Without such markets, a deadweight loss is incurred by both the creditor and the debtor.
“If the right to repossess collateral in case of debtor default is not strictly protected, the use of collateral will lose its important role in solving the information asymmetries that can lead to credit rationing and underinvestment (Galindo and Micco 2003).”
As it currently stands in Latin America, strong and stable debt market are needed for lending in riskier environments to take place. Thousands of middle market and small entrepreneurs cannot find the financing needed for their ideas and concepts to develop. Nevertheless, these problems have been documented and reform is on the way. In light of such news, it should be noted that these problems are fertile ground for investment opportunity. Investing in Latin America today will allow one to profit from reforms and renovations of the debt markets tomorrow. Investors can expect a brighter horizon for many Latin American financial markets in the near future.
