The Fruits of Interest: Financial Liberalization and Banking in Central America

Trevor Evans

Chapter 3 in Towards Sustainable Development in Central America and the Caribbean, 2001, pp 30-56 from Palgrave Macmillan

Abstract: Abstract In the first half of the 1990s, the banking systems in most Central American countries underwent a major change following the introduction of policies of financial liberalization.2 The advocates of financial liberalization argue that the elimination of government controls will, by allowing interest rates to rise, encourage higher savings and thereby make more funds available for investment. They claim that higher interest rates will in addition result in finance being directed towards the most profitable investment projects, and that this will enable countries to achieve higher rates of growth. They also believe that a competitive system of privately owned banks is required so that costs will be kept to a minimum, and banks will have an incentive to seek out successful clients.

Keywords: Interest Rate; Monetary Policy; Central Bank; Banking System; Commercial Bank (search for similar items in EconPapers)
Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-50212-3_3

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DOI: 10.1057/9780230502123_3

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