##rrencies. this is reflected in a clear trend towards developing local assets ( mainly asia but also latin america ) and, consequently, in narrower spreads and stock markets hitting record highs – in short, it results in higher funding opportunities for the emerging world. such a process – which takes place gradually and is coupled with a transition towards a more diversified asset portfolio for central banks – offers great opportunities but also poses significant challenges for our countries, where financial development is incipient. although they exhibit advances, latin american countries appear to be lagging behind in terms of financial depth, not only compared to the developed countries but also when compared with other emerging economies like those in eastern asia. latin american countries exhibit a lesser relative degree of banking penetration. this situation reflects both supply issues and problems inherent to the demand side. these demand difficulties relate to a large degree of informality in corporate operations, or cultural issues which mean that at times the economic agents exclude themselves from this market on their own free will. bank loans to the private sector in latin america is typically below 30 % as fraction of gdp, while it is 175 % in uk, 167 in spain, and fluctuates closely to 100 % in france, japan, italy, canada, australia and germany. in emerging asia, where contract enforcement is probably better than in latin america, thailand´s ratio is 88 % and korea´s 100. the development of capital markets appears to be even more incipient. these markets are relatively illiquid, fragmented and incomplete, because the instruments that enable them to diversify ( or transfer ) risks are scarce, and, in particular, the capital markets are concentrated on government securities. indicators for 2004 show that while the turnover traded on the domestic capital markets was 6. 1 % of the gdp in latin america, it accounted for 92. 2 % in the g - 7 markets and for 104. 5 % in east asia. on the other hand, during that year equity financing was 0. 5 % of the gdp in the region, compared with 1. 5 % in the g - 7 countries and 5. 9 % in asia. between the years 1990 and 2004 latin america suffered a decline in the number of listed corporations which contrasts with the growth trend observed in the g - 7 countries and east asia. the domestic corporate bond markets exhibited a similar situation, as the amount of the bonds issued in 2004 was equivalent to 10. 7 % of the gdp in the latin american countries, compared with averages of 47.

dollarization should act in this direction, while the prudential regulation bears in mind possible mismatches that exceed the denomination of the financial instruments ( for instance : limiting loans in foreign currency to export activities only or to those who generate foreign currency revenues ). carrying out the policies mentioned above does not mean blindly following certain recipes that must be applied always and under any circumstances. this acknowledges that there are different ways of putting into practice the adequate policies to achieve a stable and deep financial market. moreover, it is not only necessary to identify the adequate economic policies for a country under specific circumstances, but correct timing is also crucial when implementing the measures. the pace at which policies are implemented cannot be independent from the structural characteristics, nor the economic and social environment in any particular country. therefore, the pace selected should allow for maximizing the chances that the process undertaken will be successful. in summary, in several cases the choices of adequate policies to attain a predictable economic environment calls for an adequate combination of credibility and flexibility. references allen, franklin and gale, douglas ( 2004 ) “ financial intermediaries and markets ”, econometrica, vol. 72, n° 4, pp. 1023 - 1061, july 2004. allen, f. y gale, d. ( 1999 ) ; “ diversity of opinion and financing of new technologies ”, journal of financial intermediation, vol. 8 ( 1 - 2 ), pages 68 - 89, january. bebczuk, ricardo, garegnani, lorena ( 2006 ) “ self - financing and economic growth ” central bank of argentina - wp 7. buenos aires. cantillo, miguel and wright, julian ( 2000 ). “ how do firms choose their lenders? an empirical investigation ”, the review of financial studies, vol. 13, n°1, pp. 155 - 189. cecchetti, stephen g. ( 1999 ). “ the future of financial intermediation and regulation : an overview ”, current issues in economics and finance, vol. 5, n°8, federal reserve bank of new york. de la torre a., j. c. gozzi y s. l. schmukler ( 2007 ) ; “ capital market development : whither latin america? ”, world bank policy research working paper 4156, march. diamond, douglas w.. ( 1991 ) “ monitoring and reputation : the choice between bank loans and directly placed debt ”,