Building regional infrastructure in Latin America

Recent economic theories and political leaders suggest that infrastructure is one of the factors that can explain the growth process. Unfortunately, the building of infrastructure tends to be very expensive and absorbs large public resources. This paper outlines some of the issues that characterise multi-country infrastructure projects. It focuses on regional rather than national projects and emphasises transportation projects which absorb an overwhelming share of total infrastructure spending and are less likely to attract the interest of the private sector.

After addressing some general issues concerning the infrastructure projects, the paper focuses on the financing questions. It indicates the areas of concern and problems that should be addressed when the decision of undertaking an infrastructure project is being made. It also points out to the fact that there are political and not only economic objectives behind these decisions.

The main points highlighted by the paper are the following:

• cross-country infrastructure is not driven by demand, except for the energy sector
• it could be damaging to the countries’ economy to build an infrastructure with loans because for a long while, the rate of return is likely to be lower than the interest rate of the loan
• in addition to physical obstacles, many other man-made obstacles can impede or retard the building of cross-country infrastructure.

Finally, the author recommends the following actions to be undertaken by governments:

• doing their best to build potentially useful infrastructure with ordinary revenue
• considering the possibility of earmarking to finance the projects
• reducing obstacles to build cross-border infrastructure by reaching multi-country agreements.