Author

Peterson, George E.

1998

Number of Pages:

29

The National Framework For Local Credit Markets

Abstract

National governments, local governments, and lenders share an interest in establishing a clear framework for

local government borrowing. A successful policy and legal framework both enables the credit market to play a

more important role in financing local capital investment and can help control excessive borrowing by local

authorities.

The importance of the national framework for development of sub-sovereign credit markets is illustrated by a

number of developing and re-structuring countries currently creating new framework systems or overhauling

old regimes. For example, on July 29, 1998, in response to a growing crisis in the sub-federal credit market,

Russia for the first time passed a law entitled “On the Specifics of Issuing State and Municipal Bonds,” which

attempts to spell out rules for the local credit market. Further provisions are currently being prepared. Poland

is weighing new credit market legislation. In Africa, Morocco and South Africa currently have

recommendations before them that would establish a new framework guidelines for the local credit market.

Credit markets today are changing at unprecedented speed. The legal and policy frameworks for their

operation must keep pace, or be flexible enough to accommodate new developments. Some countries, in

response to credit crises, have adopted emergency legislation that has succeed in temporarily shoring up part

of the credit system only to trigger new stresses elsewhere. The entire municipal credit market framework

must be designed coherently and kept in mind even when attempting to reform specific parts of it. This paper

provides the basic intellectual fabric for establishing a National Framework for local borrowing.