The Development of Capital Markets in the SEACEN Countries

Capital investment is essential for the acceleration of economic development. The SEACEN countries therefore, need a steady supply of medium- to long-term capital funds for productive investment. In this respect, capital market plays a crucial role in mobilizing a constant flow of savings and channelling these financial resources for expanding productive capacity in these countries. This financial intermediation process, in particular the term transformation of short-term savings into long-term investment funds, requires a well-functioning and efficient capital market to facilitate the process.

Since the second oil shock in 1979/1980, the over-reliance of many SEACEN countries on external debt finance has evidently become precarious. The debt situation deteriorated further in the early 1980s as interest rates increased significantly while the U.S. dollar appreciated sharply. As the external debt problem became disproportionately serious, the governments in these SEACEN countries then took various steps to resolve the increasingly difficult debt situation by resorting to among others, a severe cut in government expenditure, and an active promotion of exports to increase their debt-servicing capacities.