indicators provide information regarding legal and regulatory<sup>differenceswith three</sup> indicators ('Creditor', 'Anti-director', and 'Rule of law') reflecting<sup>the rightsof outside</sup> investors and the degree to which they areprotected<sup>while 'LegalOrigin'refersto the</sup> classification of a country's legal system.2 The protection of secured creditors ('Creditor') and minority shareholders ('Anti-director')<sup>arefairly strongin India and</sup> Malaysia but weaker in the Philippines and Thailand<sup>with Japanbeing weak in theformer</sup> but strong in the latter.<sup>232</sup> It is interesting to note that<sup>in terms of securedcreditor</sup> protection Japan is at about the same level as other countries<sup>witha Gernan-originated</sup> legal system (e.g., Germany and Switzerland).<sup>233However,Japan'sprotection of</sup> minority shareholders is considerably stronger than<sup>that of thesetwocountries.234</sup> The secondary importance of financial structure (bank-based<sup>or market-based)is</sup> further supported by the findings of Schmukler and<sup>Vesperoni(2001)in their analysisof</sup> cross-country microeconomic data. Their results<sup>suggestthat for emerging markets,</sup> whether they are bank-based or market-based is less<sup>important thanthe fact that they are</sup> emerging markets. They also found that<sup>integrationwith world capitalmarkets has</sup> similar effects on firns whether they operate<sup>in a bank-basedor market-basedsystem.</sup> They conclude, "[ ... ] the financial sector<sup>of emergingmarkets(either bank-basedor</sup> market-based) needs further development and can<sup>potentiallybenefitfromintegration</sup> with international markets."<sup>235</sup> The Demirgiiu-Kunt and Levine studies reveal that as a<sup>countryundergoes the</sup> development process its financial structure will tend<sup>to change"because banksand</sup> markets have different requirements concerning<sup>information and contract enforcementin</sup> order to function effectively."<sup>236</sup> Thus, based on this research,<sup>it appears advisablefor</sup> policymakers to focus on financial development<sup>through the reformation of the legal and</sup> regulatory environment allowing the financial structure<sup>to evolve naturallyfrom that.</sup> Again, we come back to financial market reform<sup>as thefocus recommendedfor</sup> policymakers.

# **Conclusion: How to Achieve the Goal**

The goal, as stated at the beginning of this section, is<sup>todevelop the region's</sup> financial sector to a level of soundness and stability<sup>that would not only reducethe</sup> chances of another crisis but also promote economic<sup>growth in the region.We have</sup> presented basically two approaches for the achievement<sup>of this goal:(1) focusingon</sup> changing financial structure so as to move away<sup>from the currently dominant bank-based</sup> system to a more market-based system and (2) focusing<sup>on reformingthe regulatory,</sup> legal and macroeconomic environment which will lead<sup>naturally toa moveaway froma</sup> bank-based to a market-based system. These<sup>approachesappear atfirst glanceto be</sup> opposites. However, upon closer examination it can<sup>be seen that the ultimate outcomeis</sup> the same - although approached from different<sup>directions.</sup> In the first approach, developing corporate bond markets<sup>is proposedas an</sup> altemative method of financing for firms that have traditionally<sup>relied on the banking</sup> sector. However, corporate bond markets in the region<sup>are nowsignificantly</sup> underdeveloped with a narrow issuer base and<sup>limited investors (particularly institutional</sup> investors), among other problems. While some progress<sup>in developing corporatebond</sup> markets has been made in individual countries,<sup>a</sup> great<sup>dealof work remainsto bedone.</sup> It will be. a costly and lengthy process requiring<sup>years, even decades,tocomplete.</sup> 87