Using the State-Owned Enterprises to Boost the Domestic Capital Market

Abstract

The article presents an innovative approach of addressing two seemingly unrelated constraints for the economic development of Moldova, which can be turned into opportunities: the sector of state-owned enterprises (SOEs) known for its extensiveness and inefficiency on the one side, and the capital market which is very limited in terms of financial instruments, market participants and development in general. The point is that, if proper reforms are implemented, SOEs can contribute to boosting the development of the domestic capital market in two ways: (i) by issuing corporate bonds, boosting the supply of financial instruments; and (ii) by listing of minority shares through the domestic stock exchange. Both ways will contribute to boosting the supply of financial instruments, will incentivize the development of the capital market infrastructure and will increase the popularity of investing in domestic capital market among local investors. There is a number of positive preconditions that could encourage such reforms in Moldova: relatively low level of indebtedness of many SOEs, presence of a number of SOEs with stable financial positions and the ongoing SOE reform initiated by the Government that is going to lead to a number of important privatizations in the future. Respectively, the article discusses how SOEs can boost the domestic capital market development and what policy changes and reforms are needed in this regard. UDC: [658.115:33.025.28]:336.763(478); JEL: L32, L51, L53.