The IDB and BNDES, the Brazilian development bank, yesterday signed a groundbreaking agreement that will provide a $ 1.5 billion credit line to back infrastructure investments in Brazil. The deal sends a strong signal that the so-called Latin American “infrastructure gap” has become a top priority in the region. The plan calls for the two institutions to cooperate on feasibility and technical terms while BNDES will disburse the credits. It is also a firm indication of new IDB president Luis Alberto Moreno’s focus on infrastructure. The president told Emerging Markets that it will take an urgent mobilization of multiple sources of funds to meet the region’s infrastructure demands.
“This cannot be done simply by governments; it has to be done through public-private-partnerships,” he said.
Private sector developers are upbeat on business prospects this renewed push will yield. Marcelo Odebrecht, the CEO of Brazil’s largest construction and engineering company, yesterday emphatically endorsed the upbeat position . “We have never seen as many opportunities,” he said. “Now it as good as it can be.”
His fellow Brazilian, Demian Fiocca who has just become the BNDES president, was similarly optimistic. While government infrastructure investment suffered in the years 1995 to 2003, it is now showing vitality he maintained. BNDES currently lends around $20 billion a year - considerably more than the IDB.
Fiocca explained that Brazil has a uniquely advantageous position because of its institutional system, beginning with BNDES, but also including the Fondo de Ampara al Trabajador which was created especially to fund public infrastructure projects. “Not every country can count on such a framework,” he said in a seminar yesterday.
However not all observers are equally optimistic. Sir Nicholas Stern, the UK’s head of Government Economic Service and former World Bank chief economist pointed out that private sector involvement has been disappointing. “The private sector hasn’t entered as much as we thought 10 to 15 years ago,” he admitted, pointing to the risks that have affected revenue streams as well as other factors such as fulfillment of contractual agreements and legal jurisdictional issues.
Heinz-Peter Elstrodt, head of McKinsey’s Mercosur Office Complex, said that his firm estimates the monetary value of required infrastructural investment in Latin America at somewhere between $65 billion and $110 billion and that over the past two decades Asia, whose infrastructure assets were slightly behind the region in 1980 were double those of Latin America by 2000.
Elstrodt praised Chile’s framework for public-private-partnerships as it provides for foreign exchange risk sharing, open bidding processes and revenue sharing. McKinsey’s research, he said, proves that “bad regulation is the single most important element limiting emerging market growth.”