Financial Deepening for Agriculture in Central America
Loading...
Date
1988
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Ohio State University. Department of Agricultural, Environmental, and Development Economics
Abstract
This paper has four parts. The first one examines the importance of financial deepening in economic development. The second one describes the process of financial deepening in Central America and identifies its deficiencies. The third one explores the impact of the recent economic crisis on the real size and performance of the Central American financial systems. The fourth one briefly analyzes the role of financial services in agricultural development as well as the difficulties of supplying these services to the rural population. Finally, the paper explores the differential impact of the crisis on the provision of financial services for agriculture. After two decades of substantial financial deepening, with the crisis the real value of deposits mobilized and loans outstanding dramatically declined and the favorable trends were reversed. The private sector was "crowded out" from loan portfolios. Portfolio concentration and default increased. The financial system became less of an intermediary between private savers and investors and more of a fiscal instrument to tax resources away from savers. Transaction costs increased, and the urban bias of financial development augmented. The share of agricultural loans in total credit declined; the share of small farmers declined even further. The concept of the iron law of interest-rate restrictions is used to explain these changes in portfolio composition after financial repression increased.
Description
Exact date of working paper unknown.