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Background Papers

Mar 24, 2008

IDB and Infrastructure

IDB allocates $12 billion for critical infrastructure projects in Latin America and the Caribbean by 2010

The Inter-American Development Bank, the main source of multilateral development financing for Latin America and the Caribbean, plans to allocate US$12 billion for infrastructure projects in the region by 2010.

IDB President Luis Alberto Moreno highlighted the significance of IDB financing for infrastructure and competitiveness projects, which rose to US$5.7 billion in 2007. Speaking at a conference on competitiveness and infrastructure in London earlier this year, Moreno noted that Latin American and Caribbean countries have yet to recover from decades of underinvestment in infrastructure, in contrast with Asian countries that have faster-growing economies, such as China and South Korea.

“To reach that level [Latin America and the Caribbean] need to invest at least double what they are currently investing in that sector, or 2 percent of GDP annually. They need to spend between 4 percent and 7 percent of GDP per year for the next two decades in order to have high-quality infrastructure that can become the backbone of our development,” Moreno said. 

Moreno highlighted the positive economic outlook for Latin America at the conference,  which was sponsored by the IDB, Canning House, London Stock Exchange, British Expertise and UK Trade and Investment.

“The main challenge to the region is to ensure it makes good use of this extraordinary period of solid growth and high export prices,” said Moreno. “The outcome will depend in large part on the decisions made concerning infrastructure.”

Rapid growth in foreign trade has highlighted the region’s serious deficiencies in infrastructure. While China invests 9 percent of its GDP in infrastructure, Latin America and the Caribbean invest only 2 percent, Moreno said.

“In Latin America and the Caribbean, investments must increase substantially in order to boost existing capacity,” Moreno added.

Moreno signaled that the region’s infrastructure deficiencies also represent opportunities, especially when considering sectors that are likely to be very dynamic in the future. He mentioned the production of cereals, meats and other foods that face increased restrictions in areas of Asia and Africa due to the scarcity of land and water.

“Net cereal imports by Asia and Africa are projected to increase from 85 million tons currently to 265 million tons in 2030,” said Moreno. “Latin America has a comparative advantage to meet that future demand, which has wide implications for the investments that the region should make in irrigation, roads and ports.”

He said there were numerous additional examples of opportunities in the industrial, tourism and services sectors, among others. “The opportunities are there; we should make them happen,” said Moreno.

Moreno said the region’s governments are moving to implement frameworks that provide incentives for private investments and public-private partnerships.

“Far from rejecting all forms of private participation and foreign investment in infrastructure, the public sector has a renewed understanding that partnerships with the private sector are, in many cases, the only way to have the resources, know-how and skill for carrying out infrastructure projects,” added Moreno.

He explained that foreign trade, which already represents 50 percent of Latin America’s GDP, had an enormous potential for growth if the limitations on infrastructure can be resolved.

The Project Preparation Fund (InfraFund)
In its first 15 months of operations the IDB’s Project Preparation Fund (InfraFund), which finances the preparation and development of critical infrastructure  in Latin America and the Caribbean, has directed more than US$12 million in grants to 14 countries to support 23 projects that will eventually pave the way to billions of dollars in investments. These operations also leveraged US$10.7 million in counterpart and other resources for the early phases of project preparation and development.

In 2007 the IDB approved 18 InfraFund projects for a total of US$8.7 million. Launched with an initial IDB contribution of US$20 million in September 2006 and operating through a fast-track mechanism, InfraFund finances feasibility studies,  technical analyses and other preparatory activities that are an essential prerequisite for strategic, sustainable infrastructure investments. Of the approved financing operations, nine have supported energy projects (US$3.7 million), seven transportation (US$4.5 million), five water and sanitation (US$2.9 million), and two multisectors (US$1 million). These preparatory investments benefited projects in Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Guatemala, Honduras, Mexico, Panama, Paraguay, Suriname and Uruguay.

 

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