Emerging markets governments are increasingly relying on domestic sources to secure infrastructure financing, but local banks and multilateral lenders may not foot the total bill soon enough to meet their enormous needs.
Guillermo Ortiz, governor of the Bank of Mexico, said: “Corporates will have a more difficult time in financing infrastructure. Global funding looks pretty dim now.”
Last week, the Mexican government announced a fiscal stimulus package to boost the budget. It plans to build an oil refinery, the first new one in the country for nearly 30 years.
Earlier, an airport privatization had to be suspended due to the fallout from the US crisis. “There are domestic resources to finance a good portion of the projects in the pipeline. There are ample possibilities with [local] pension funds. And credit markets will have to unfreeze at some point,” he said.
Fred Jaspersen, director at the International Institute of Finance, said that the crisis “is going to increase pressure on the World Bank and [regional institutions such as] the InterAmerican Development Bank (IDB) to increase their lending”.
The Brazilian National Economic and Social Development Bank (BNDES) has just secured an extra funding of $1 billion from the IDB, and expects to get at least an extra $3 billion from multilateral lenders in the US and Japan to boost next year’s funding.
The crisis will have a “very little impact on infrastructure financing”, BNDES president Luciano Coutinho told Emerging Markets. Political will plays a role here: “president Lula has a very direct and explicit orientation on this. We will have full support from the finance ministry and the treasury”, Coutinho said.
The BNDES intends to release at least 85 billion reais in corporate loans next year, up from the 83 billion reais financing facilities it has extended in the 12 months period towards the end of September, according to a bank adviser.
Nevertheless, auctions of public utilities may not attract the same level of interest from private investors.
“Some foreign investors may not bid for a while of course, but even after the deterioration of the global scenario, we don’t expect the interest for very high return, low risk investment in infrastructure to vanish,” Coutinho said.
The IIF’s Jaspersen said: “Governments will indeed try to add funds to offset some of the decline, but it will not be as good as they would like. They could be potentially successful but there will be constraints, and it takes time to execute these programmes.”
“I absolutely disagree with some of the bearish assessments that are being made here [Washington, DC] about Brazil,” he added, as part of his confidence boosting mission.