Private Enterprise and Financial Markets > Infrastructure and Financial Markets > Infrastructure
Private Infrastructure Investment at the Subnational Level: Challenges in Emerging Economies
By Antonio Vives, Paulina Beato (10/03, En, Es)
There has recently been a noticeable increase in the number of conferences and papers extolling the virtues of financial markets to finance the public provision of local infrastructure services. Some advocate the wonders of foreign borrowing, even for cities and states that are patently unworthy of even local borrowing. We concur with the need to enhance the coverage and efficiency of the infrastructure service provision, but feel that private participation is a better alternative and one of the best instruments. Nevertheless, even private finance is challenging. The purpose of this article is to bring some caution into the discussion.
As decentralization and devolution of responsibilities to subnational governments is increasing, together with a continued, the volume of private infrastructure under the jurisdiction of subnational governments is increasing in tandem with increases in decentralization and devolution of responsibilities to those governments. Continued interest in the private provision of infrastructure services is also contributing to increases in private infrastructure investment. However, this move is fraught with challenges that arise partly from the social implications of the services that are in the purview of each level of government and also because of the political, institutional, economic and financial characteristics of subnational levels of government. This article discusses these challenges and presents some recommendations to overcome them.
Private participation in infrastructure attracts financing to the sector to increase quality and coverage and frees local government funds for use in other areas. However, obstacles for private sector participation in infrastructure are different and, to some extend, larger than those in power and telecommunication, which tend to be in the hands of national governments and are more amenable to commercial ventures. Some obstacles derive from the fact that relevant industry decisions rest on local authorities, making the nature of the political risks of these projects different than those associated with the central government. Other obstacles result from the lack of social acceptance of private participation in some local services such as water and sewerage, waste management and public lighting, which are viewed as rights that should be provided free of charge.
This working paper is being published with the sole objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not gone through the Department?s peer review process or undergone consideration by the SDS Management Team. As such, it does not reflect the official position of the Inter-American Development Bank.
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Last updated: 01/29/07
