When it comes to drive infrastructure growth in LAC, using proper
financing mechanisms and improving the functioning of economic institutions is
fundamental. Above all, Public-Private Partnership (PPP)1
is considered a vital instrument for improving infrastructure efficiency in
Latin America.  PPPs have been present in
LAC for almost three decades. The first countries to implement this type of
arrangement were Mexico and Colombia in the early 1990s. Recently, Brazil became
the leading country in terms of PPP, with over 310 projects implemented between
2008 and 2014. Follow Chile (64), Mexico (58), and Peru (52). Argentina,
instead, is among the worst performers in this sense, with only 23 PPPs
implemented: about one third of the regional average (Cerra et al., 2016). Currently,
PPPs account for about 40 percent of LAC annual infrastructure commitments,
although there is great variation across countries both in terms of volume and
regulatory frameworks.

Especially after
the global financial crisis, PPPs became a vehicle for building infrastructure,
combining greater efficiency and innovation led by private sector, with
sustainability of public services. When well implemented, PPPs help boost
infrastructure investments and strengthen the interaction among infrastructure
stakeholders. This mechanism allows to split responsibilities among partners,
based on the conception that actions must be taken by the agent who can manage
it most. From the government side, PPPs allow public sector to better focus on
the demand of public services, and in turn individuate the type of
infrastructure to be improved. On the other hand, private sector compensates
with greater capacity to design, implement and monitor infrastructure project,
bringing industry expertise and technological innovation. Moreover, this
instrument contributes to tackle public fiscal constraints, and maximize infrastructure
potential impacts in terms of quality, spending efficiency and institutional
transparency (Garcia-Kilroy and Rudolph, 2017).

The main
advantage of PPPs is to attain higher project efficiency and quality through
better risk diversification for public and private stakeholders. It also
contributes to ameliorate the allocation of resources improving productivity of
public infrastructure and in turn economic growth. However, PPPs efficiently
work only when regulatory frameworks enable transparent distribution of risks
and resources, and financial markets are developed and credible for attracting
international institutional investors. In this sense, Brazil, Chile and Peru
have been moving toward more comprehensive public financial management of PPPs,
while Argentina has made limited progress (Garcia-Kilroy
and Rudolph, 2017). 

Having discussed
the causes of the infrastructure gap in LAC, with a brief mention of the role
of PPP as a possible driver of development, some policy recommendations are
hereby presented to promote the dialogue upon this topic and shape the
conditions for a more efficient management of infrastructure projects in the
near future.

It is widely
acknowledged that LAC needs more investment in infrastructure. Countries should
invest between 5-6 percent of GDP in infrastructure over the next decade in
order to narrow and potentially close the existing gap between infrastructure
supply and demand. More fiscal space for economic and social infrastructure
projects is needed to deliver improved public services and trigger virtuous
mechanisms for trade, productivity and growth. However, long-term investments
must prioritize projects able to provide tangible and predictable results that
are economically, environmentally and socially sustainable. Investments in
infrastructure cannot neglect the exigence of ensuring long-term sustainability
of debt, preventing the insolvency risks experienced in the past.

Due to the
financial restrictions experienced by Latin American policy-makers, the
reliance on public sector investments is risky and no longer sustainable.
Alternative instruments must be adopted to manage infrastructure projects and
overcome the barriers that have constrained infrastructure development in the
last decades. A greater appeal to PPP may foster investments in strategic
sectors and achieve important results in terms of infrastructure project efficiency,
quality and transparency, which in turn advocate greater productivity. In fact,
PPPs may unleash important mechanisms of technology transfer, favouring
entrepreneurship and infrastructure progress.

Likewise,
comprehensive institutional frameworks for PPP and infrastructure finance are
needed to offer an efficient risk allocation among stakeholders and attract
international investors. Reinforcing regulatory framework and institutional
quality are essential to develop an efficient pipeline of bankable projects and
developing the infrastructure ecosystem. LAC countries should adapt financial
instruments able to meet liquidity exigencies of investors. Concessions and PPP
contracts still suffer from daunting inconsistencies and heavy bureaucracy, and
underlying costs discourage investors.

Only by
considering all these aspects, LAC countries will be able to reinforce the infrastructure
ecosystem. Raising investments, improving collaboration between private and
public sector, and upgrading the institutional frameworks, are all essential to
reduce the infrastructure gap in LAC. Political stability is also crucial to
maintain the preconditions for infrastructure investment to grow and implement
sound macroeconomic policies. Especially, government intervention should
continue in the direction of dismantlement of competitive barriers on trade and
capitals.