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The role of municipal bonds in the development of municipalities in the second half of 19th – the beginning of the 20th century


At the current stage of economic development, characterized by a deep crisis in the financial sector of economy, an important issue is the search for additional financial and investment resources, which are subjects of not only entrepreneurial initiatives, but also of the state administrative units such as municipalities.

Under given circumstances there is a need to look for the effective mechanisms for additional financial investments and look at the functioning of these administrative units using the existing historical experience. In this context it is important to study a period of the second half of the 19th– the beginning of the 20th century, when the lack of financial resources was the motivating factor for the development of the domestic stock market, in particular, the market for municipal loans, and when the municipalities issue debt in the form of bonds has become an effective mechanism for the financial investments ensuring the development of the aforementioned administrative units. In the second half of the 19th century, socio-economic reforms and stimulated economic development required large investments both from the state and private individuals. But during the study period neither the state nor private sector were provided with a sufficient amount of financial resources for the implementation of effective reforms.

Under the conditions of unsufficient financial savings and high cost of credit resources, municipalities’ request to the sub loans during the study period was an effective mechanism for additional financial resources for basic social and economic functions, and municipal bonds have become promising for investment type securities, turnover occurred both in domestic and world stock markets. At the same time the main limiting factor was the practice of attracting financial resources through the issuance of municipal bonds which identified inefficient use of attracted resources, that essentially discredited the present financial and investment mechanism.

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