The result is that domestic banks are giving credit only to the top names. Second, stock markets should be revived by allowing pension funds to participate in the equities market. In some countries, pension funds are not allowed to invest in equities, and in others the percentage of the portfolio that they can invest in stocks is quite small. Chile has done the best, but there are still too many restrictions. Pension funds are important because they can help to build a strong domestic institutional savings base for the development of bond and stock markets.
Privatization is important for FDI because it creates a momentum for investment.
Remittance and withholding taxes have to be eliminated. Fourth, currency stability needs to be encouraged. The current system of two currencies does not work well. The uncertainties of devaluations create a preference from savers for dollars and from borrowers for domestic currencies, leading to a huge interest differential between the two. Any shakeup in the system leads to an increase in this differential between national and reserve currencies, causing another crisis of confidence.