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Latin America needs greater infrastructure investment

LIMA, Peru – Latin America must build stronger institutions, establish modern and reliable regulatory systems, and mobilize private sector investment in order to overcome the growing “infrastructure gap” with other regions of the world, according to experts.

International specialists, researchers and policy-makers offered alternatives and new ideas Saturday at a seminal on “Lessons and Perspectives for Infrastructure Investment in Latin America and the Caribbean,” one of a series of events held in conjunction with the Annual Meeting of the Inter-American Development Bank in Lima.

In inaugurating the seminar, IDB President Enrique V. Iglesias noted that Eastern Europe and Central Asia were investing proportionately double the amount of resources in infrastructure compared with Latin America, placing the region at risk of “falling even further in world competitiveness.”

Despite being a world leader in privatization of infrastructure from 1990 to 2001, the countries of Latin America face “a severe deficit in installed capacity and a decline in investment,” he said.

Iglesias warned that the region must improve its institutional and regulatory framework, explore and apply new financial mechanisms, and adopt risk-sharing techniques that will attract greater private investment and assure investors of a level playing field.

Public-private partnerships

A background paper submitted by IDB specialist Juan Benavides, José Luis Guasch of the World Bank and the University of San Diego, and Prof. John. S. Strong of the College of William and Mary in Virginia stressed the need to mitigate the risk and uncertainty of investors and suggested public-private partnerships as an avenue to attract more capital for infrastructure development. They also noted the need for institutional and macroeconomic stability.

“Better governance could help mitigate the risks that are inherent to countries where political economy conflicts and legal system weakness are pervasive,” they wrote in a paper titled “Managing Risks of Infrastructure Investment in Latin America: Lessons, Issues and Prescriptions.”

Teresa Ter-Minassian, director, Fiscal Affairs Department of the International Monetary fund, pointed out there have been calls to target the current fiscal balance instead of the overall balance when dealing with public infrastructure accounting. She noted, however, significant disadvantages of using the current fiscal balance, suggesting the continued targeting of the overall balance and gross public debt.

Other opening speakers at the seminal were Peru’s Minister of Energy and Mines Jaime Quijandría; David Ferranti, vice president, Latin America, World Bank; and Enrique Garcia, president of the Andean Development Corporation.

The seminar in Lima was the third international conference organized by the IDB to promote infrastructure investment in Latin America. A fourth conference will be held in Tokyo on May 13. The previous seminars were held in Madrid in January and in Washington, D.C., in February.

Daniel Schydlowsky, president of Peru’s Corporación Financiero de Desarrollo, and IDB Deputy Manager Antonio Vives delivered closing remarks. Vives noted that “reforms are a work in progress.” He said the IDB was ready to “examine new instruments to expedite infrastructure investments and mobilize untapped financial opportunities.”

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