CAPITAL MARKET CHALLENGES AND DEVELOPMENT PREREQUISITES IN GEORGIA

Mikheil  Tokmazishvili

doi:10.35945/gb.2019.08.006

ავტორები

Mikheil Tokmazishvili Doctor of Economics, Associate Professor, Ivane Javakhishvili Tbilisi State University, Professor, Tbilisi Open University, Georgia ავტორი

DOI:

https://doi.org/10.35945/gb.2019.08.006

საკვანძო სიტყვები:

CAPITALMARKETS,CAPITALIZATION,MARKETSTRUCTURE,FINANCIALMARKET,ECONOMICGROWTH

ანოტაცია

The article describes the challenges of capital markets, concepts of effects of capital markets› development on the economic growth, the current conditions of the capital market in Georgia, restricting and stimulating factors and preconditions necessary for the expansion of the capital market. Through comparative analysis, the problems and trends of development of capitalization are presented.
The formation of capital market is a long process. It requires the formation of financial instruments, consolidated legal or model norms, market infrastructure and institutions. In the developing countries, and moreover, in the Post-Soviet countries with least-developed economy and transformational law, the capital market is undeveloped considering the capacity of economy and its potential benefits. The banking sector›sability to finance the economy is restricted, the demand on investment capital is wide, as a result, with the traditional bank financing, establishment and development of the capital market is considered with any alternative.
The paper analyzes the causes that impact on local capital markets functioning and the prerequisites without which the capital market can not be formed and developed in Georgia. The characteristics of impact factors on the capital market through examining of economic literature are presented.
The strong institutions and the well-functioning legal system are important for local market development, as they provide the protection of investors› rights, including the protection of minority interests and attracting investors. The studies show that the country, where the rights of shareholders are protected and the transaction is not expensive, has more developed local markets, however, there is the different view about the need for regulating the securities market.The initial studies argued that the securities market may not be regulated, but according to the recent researches, the regulation is essential for private contractual framework standardization and fraud prevention.Today it is widely recognized that the laws of securities are critical to the development of the capital market;
Finally, the article proposes the structure of market prerequisites that bases on several piles: macroeconomic stability, institutional and legal system, market size, market composition and pension system, transparency and financial infrastructure. Despite the absence o institutional, legal and infrastructural barriers, many economies are unable to attract investors in order to ensure the optimum level of capital market and efficient liquidity. In this regard, the compulsory pension systems are introduced, which is an opportunity to attract the long-term instruments of investment. It is the condition of the development of the local bond market. With the liberalization of financial markets and in the effective regulatory environment, investments in the state bonds that dominate in Georgia today will be added by expansion of the corporate private bonds market. Similarly, the derivative markets cannot be developed without a well-developed market and, inturn, they will contribute to the development of the capital market. Moreover, the bond market requires the well-developed money markets in order to encourage the monetary policy to ensure the stability of the percent rate that will support the development of the bond market.
The developed infrastructure is one of the essential conditions for the functionality of the capital market. It promotes trade and information exchange and provides access to predictable products on the background of a less costly system. The transparency and information provision of corporations is also important, which instantly connects investors with money investors. In the framework of the Association Agreement with the European Union, Georgia shall ensure approach to the legislation regulating trade with securities of the EU guidelines. The main requirements of directives are to increase the transparency of transactions and the price, the financial statements of the issuer and the openness of the information, as well as the equal condition for the investors.