An InWEnt-DIE initiative supported by the Federal Ministry for Economic Cooperation and Development (BMZ)

Financial markets that mobilize domestic savings and efficiently allocate these and foreign inflows to the most productive investments have long been recognized as key drivers of economic development. Financial markets will remain crucial in undertaking the substantial investments needed to stimulate and sustain growth and employment generation over the coming decades. In addition, access to financial services for the poor makes important contributions to poverty reduction.

While emerging markets have greatly increased the efficiency of and access to their financial markets, substantial risks for stability remain as financial innovation has continued to proceed at great speed. The rapid diffusion to emerging markets of new financial instruments like derivatives and asset-backed securities, as well as the entry of new investors like hedge funds and private equity raise questions to which extent policy and regulatory responses are required in these countries. This two-day dialogue aimed at outlining policy implications of these recent trends in financial markets for large emerging countries. It provided a platform for mutual learning and peer-to-peer discussion about the opportunities of innovative financial instruments and new investors for development finance and poverty reduction, but also explored their risks for the stability of financial systems at the national, regional and global levels. Against this backdrop, the InWEnt-DIE-dialogue placed particular emphasis on an exchange between government officials and academics to address the public policy-oriented issues related to financial stability. It brought together policy makers and policy advisors from relevant public institutions and academic research from Brazil, China, India, Mexico and South Africa with their peers from international and German bodies. The exchange of results of in-depth analysis and sound political assessment led to a number of recommendations that can help to shape policies with regard to upcoming new challenges to financial markets worldwide. Cooperation and networking opportunities offer a starting point for future coordinated action. The dialogue was structured into three sessions on (i) the benefits and risks of new financial instruments; (ii) recent developments in bond markets; and (iii) the resulting challenges for regulatory authorities, policy reform priorities and scope for future cooperation.