Introduction and Overview

The effective mobilization of domestic savings for private investment plays a crucial role in achieving growth and poverty reduction. This is demonstrated by the historical experience of the now developed countries as well as East Asia. Low-income countries have undertaken considerable financial reform over the last decade, including financial market liberalization (the lifting of direct quantitative controls), bank privatization and efforts to build the capacity of central banks and financial authorities to conduct prudential regulation and supervision of the liberalized financial system; the same has been true in the transition economies, which have undertaken wholesale institutional reform to build a market-orientated financial system — see Caprio et al. (2001) and Abiat and Mody (2005) for a comprehensive discussion.