their positive influence in the quality of corporate governance (IMF and World Bank 2004). Walker and Lefort (2002), for example, show that the pension reform significantly contributed to improvements in the financial regulatory and legal framework as well as in transparency and corporate governance in Argentina, Chile, and Peru.<sup>56</sup>

**Figure 20:** Selected LAC countries: Pension fund participation in the domestic capital markets per instrument, 2000-2005 (percent)

<!-- Start of picture text --> 16<br>Argentina<br>14 Chile<br>Colombia<br>12 Mexico<br>Peru<br>10<br>8<br>6<br>4<br>2<br>0<br><!-- End of picture text --> <!-- Start of picture text --> 160<br>120<br>80<br>40<br>0<br>2000<br><!-- End of picture text --> <!-- Start of picture text --> Argentina<br>Chile<br>Colombia<br>Mexico<br>Peru<br><!-- End of picture text --> <!-- Start of picture text --> Mexico 120<br>Peru<br>80<br>40<br>0<br>2000 2001 2002 2003 2004 2005<br><!-- End of picture text --> <!-- Start of picture text --> 2001<br><!-- End of picture text --> <!-- Start of picture text --> 2003<br><!-- End of picture text --> <!-- Start of picture text --> 2004<br><!-- End of picture text --> <!-- Start of picture text --> 12<br>Argentina<br>Chile<br>10 Mexico<br>Peru<br>8<br>6<br>4<br>2<br>0<br>2000 2001 2002 2003 2004 2005<br><!-- End of picture text --> <!-- Start of picture text --> 60<br>Argentina<br>Chile<br>50 Colombia<br>Mexico<br>40 Peru<br>30<br>20<br>10<br>0<br>2000 2001 2002 2003 2004 2005<br><!-- End of picture text --> <!-- Start of picture text --> 0<br>2000<br><!-- End of picture text --> <!-- Start of picture text --> 2001<br><!-- End of picture text --> <!-- Start of picture text --> 2003<br><!-- End of picture text --> <!-- Start of picture text --> 2004<br><!-- End of picture text --> <!-- Start of picture text --> 2005<br><!-- End of picture text --> <!-- Start of picture text --> 2000<br><!-- End of picture text --> <!-- Start of picture text --> 2001<br><!-- End of picture text --> <!-- Start of picture text --> 2003<br><!-- End of picture text --> <!-- Start of picture text --> 2004<br><!-- End of picture text --> Note: Participation of Mexican pension funds in the domestic equity market was zero percent in 20002004 and 0.1 percent in 2005.

Sources: Based on data from AIOS and the World Bank Financial Development Database.

However, the contribution of pension funds to capital market development should not be exaggerated. For example, the contribution of pension funds to market liquidity in Chile has been overestimated by many analysts, particularly earlier analyses that preceded the decline in turnover ratios for both stocks and fixed income instruments in the mid-1990s. Pension funds are not very active traders, either in stocks or bonds. Moreover, the increasing concentration of the Chilean industry in the 1990s probably further aggravated the liquidity problem. Neither have pension funds contributed to the creation of a credit curve due to the concentration of their investments in equity and bonds in highly rated issuances, and their contribution to the development of a private equity market has also been limited (IMF and World Bank 2004). In addition, a recent

> 56 See Holzman (1996), Acuña and Iglesias (2001), Impavido et al. (2003), Cifuentes et al. (2002), Agosin and Pasten (2003), and Roldos (2004).

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