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Experts say more effort needed to increase competitiveness of infrastructure services in Latin America

Panels of international experts have urged greater efforts in Latin America and the Caribbean to promote competitiveness in infrastructure services to counteract persistent monopolistic practices and high costs.

Speaking at a conference at the Inter-American Development Bank in Washington, D.C., April 23-24, academic, government, and private sector representatives agreed that promoting competitiveness was necessary but complex, depending on the number of market entrants, the country’s overall economic development, and its regulatory and legal structure.

IDB president Enrique V. Iglesias said the past two decades reforms in Latin America were aimed at attracting investment by private capital in infrastructure, but now there is a need for greater efficiency that "requires us now to rethink our regulatory systems" and "adopt second generation reforms."

"Competitiveness is a key element for both economic and social stability," he said.

Paulina Beato, principal economist of the IDB Infrastructure and Financial Markets Division, and Prof. Jean-Jacques Laffont of the University of Toulouse, said in a joint paper that regulatory and procompetition policies must be balanced by the need to attract investors and by a country’s capacity to regulate, which will depend on its stage of development.

For Latin America, "A U.S-style of competition policy, with its armada of lawyers and economists, is neither affordable nor implementable," they said.

A paper at the conference presented by IDB regulatory specialist Carmen Fuentes said that inducing greater competition in the region will require "restructuring of sectors, establishing new regulations, eliminating old regulations, and applying competition regulations." She noted that despite reforms, "most private investors continue to enjoy monopoly power."

Virtually all of the participants in the two-day conference recommended that regulations encouraging competition in infrastructure services be kept "clear and simple." Fernando Heftye Etienne, Commissioner of the Federal Competition Commission of Mexico said: "Regulation and competition agencies have to work towards a common goal".

Several panelists pointed to the example of Zambia as a case study to avoid. Zambia developed a regulatory system to attract investors in infrastructure. But the expected investors never showed up because the incentives were not there.

"In order for competition to be effective, you need competitors," commented Laffont.

Panelists from Europe explained recent laws and regulations that are accelerating competition in infrastructure services in the European Union, changing an old regulatory system based on assumption of natural monopolies.

Regulators and chiefs of agencies described the challenges and achievements of promoting greater competition in Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico, Panama, Peru, and Venezuela.

Paulo Correa, deputy secretary of Brazil’s Secretariat for Economic Monitoring, said regulatory capacity may need to be strengthened in the area of safeguarding competition from mergers that affect infrastructure services.

Noting that most of the infrastructure market in the region is "in a transition from state-owned monopolies to competition," he warned here is a "probability that merger activity enhances dominance may be higher than in sectors in which effective competition is relatively in place."

Vivianne Blanlot, executive secretary of the National Energy Commission of Chile, described the new regulation for the energy sector in her country.

Taimmon Steward, a professor at the University of the West Indies in Trinidad and Tobago, noted that competition laws are generally absent from the Caribbean island nations. "We have a lot of catching up to do," she said. New agencies must be formed and financed, and staff must be trained. Moreover, she added, the competition regulations of the Caribbean must take into account the special characteristics of "microeconomies" of small island states. She suggested that such a competitiveness program could be undertaken in the framework of the Free Trade Association of the Americas.

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