Slow! Government obstacles ahead
Jun 15th 2006 | BELO HORIZONTE, MEXICO CITY AND SANTIAGO
From The Economist print edition
The public sector in Latin America is not spending enough on transport, electricity and water, but nor is it allowing private investors to help out
IT IS impossible to see such a thing and disbelieve in progress. Where there was air, there is rock. Where there was rock, there is air. Where there was no lake, there will be a lake. El Cajón, a dam 188 metres (617 feet) tall in Nayarit, in western Mexico, is to generate 750MW of electricity starting in 2007.
El Cajón is Latin America's biggest construction project. It is also a rarity. In Mexico, public spending on infrastructure—electricity generation, roads, railways, water plants and the like—was a third lower in 2004 than a decade earlier, according to a report by Merrill Lynch, an investment bank. The World Bank describes two-fifths of the country's motorways as “pre-modern”. Nevertheless, the government has found the money to spend 0.7% of GDP on subsidising the electricity that is consumed—which does nothing for the poorest, who live in the dark in rural areas.
So it is across Latin America. Although the region's economies are growing faster, thanks to an export boom, they are hobbled by poor roads and railways, clogged ports and a precarious electricity supply. In the 1990s governments slashed public investment to balance their budgets. They invited private investors to make up the shortfall. Between 1990 and 2003, Latin America accounted for half of total private-sector participation in infrastructure in developing countries. Private investment has expanded telecoms networks. But the flow of private money for electricity, water and transport has dried up in many countries, partly because citizens or politicians turned against privatisation.
In recent years, total spending in the region on infrastructure has averaged less than 2% of GDP. It is not enough. According to the World Bank, 58m Latin Americans lack access to potable water and 137m lack sewerage. In Brazil and Peru, less than a quarter of the main highways are classified as good. In surveys by the bank, 55% of businessmen consulted in Latin America cite infrastructure as a serious problem compared with just 18% in East Asia. The bank says the region will have to double or triple its current spending to bring its infrastructure up to the level of that in East Asia's fast-growing economies.
The exception, as so often, is Chile. Its military dictatorship began to privatise infrastructure in 1985, starting with telecoms and electricity. Democratic governments have since gone further. Now the roads that whisk the traveller into Santiago, the capital, from the airport are privately run, as are most other motorways and the airport itself. Nearly all Chile's water is supplied by private companies.[[imaginem no brasil, a barulheira que não seria feita pra algo assim]. In Santiago treatment of sewage has increased from 3% in 1999 to 70% today, says Alfredo Noman, chairman of Aguas Andinas, the capital's Spanish-controlled water company. Only the most remote households in Chile lack running water or electricity.
Speeding along in Chile
Chile has been able to mobilise so much private money because its governments have established legal and regulatory procedures that investors trust. “In case of a dispute we have to go to arbitration, which we've used and it works,” says Mr Noman. It helps, too, that Chile has deep capital markets and big institutional investors, in the form of private pension funds. Long-term “infrastructure bonds”, denominated in inflation-adjusted pesos, have financed much of the $8 billion investment in roads, airports and the like.
Getting paid, another Latin American headache, is relatively easy in Chile. Autopista Central, a Santiago highway operated by ACS, a Spanish company, bills drivers each month instead of collecting tolls. That sounds risky, yet bad debt should be less than 3% of the total, says Antonio Estrada, Autopista Central's manager. Chile is planning to issue contracts for private investors to build and maintain public hospitals.
Success has not made privatisation popular. Chileans grumble that they see only new cars on the new roads, because drivers of jalopies cannot afford them. (The same is true of Mexico's privately built toll roads.) Running water is convenient, but backyard wells were free. In a 2005 survey by Latinobarómetro, a polling organisation, two-thirds of Chilean respondents were dissatisfied with privatisation—more than in Brazil and Mexico. Yet Chile has shielded investors from popular ire, unlike most of its neighbours. That is why ACS, for one, is not tempted to invest anywhere else in the region. “Political and economic stability is not good enough in other countries to make an investment for 30 or 25 years,” says Mr Estrada.
Of the larger countries in Latin America, only Colombia has managed to maintain public investment while also attracting private funds. Elsewhere, the picture is much more problematic. In a few countries, private capital faces outright hostility. Bolivia nationalised its oil and gas last month, and earlier chased multinationals out of the water industry. Argentina's government has re-nationalised the Buenos Aires water company, and has fought with other private companies over utility tariffs. It now plans to levy a charge on energy consumers to raise revenue for a newly created state energy firm.
Paralysis in Brazil
In Brazil, Latin America's biggest economy, initial enthusiasm for private investment in infrastructure has cooled. In the 1990s, the government privatised telecoms, railways and electricity distribution, and turned 5,000km (3,100 miles) of federal highways over to private operators. Luiz Inácio Lula da Silva, Brazil's president since 2003, promised a break with the “neo-liberal” policies of his predecessor. Under his government, neither private nor public investment in transport, electricity and water has taken off.
Infrastructure will be “a point of strangulation”, holding the rate of economic growth to less than 4%, predicts Adriano Pires of the Centro Brasileiro de Infra Estrutura, a consultancy. The federal investment budget is just 0.5% of GDP. Add in lower levels of government and state companies, and public spending on infrastructure totals about 2%—probably not enough to maintain the stock of infrastructure.
Since Brazil has little scope for raising taxes and debt and cannot easily re-allocate spending, it will have to rely on the private sector over the next few years, believes Paulo Correa, co-author of a forthcoming World Bank report on Brazilian infrastructure. Yet the climate for private investment is forbidding. Regulators and the courts cannot be counted on to uphold contracts. In a recent survey of 21 regulatory agencies, 12 reported attempts by government to interfere in their decisions.
The rules themselves are in flux. Take electricity. Lula scrapped a system which used price signals to induce investment in generation. But the replacement—centralised auctions based on demand forecasts by distribution companies—has failed to attract investors, partly because of a government price cap. Investment in water and sewerage is stymied by a fight between lower levels of government over which should control it. In Brazil 36% of concession contracts have been renegotiated, usually at the instigation of the government—above the regional average of 30%. All but the most profitable investments have been deterred by the high—though now falling—cost of capital.
At least there is some new thinking, if not yet enough new roads. Policy on infrastructure in Latin America is at an “inflection point”, reckons Antonio Vives of the Inter-American Development Bank (IDB). Novel blends of public and private ownership and management are appearing.
After downplaying lending for infrastructure in the region for years, both the IDB and the World Bank are eager to dive back in. A “partial risk guarantee” from the World Bank protects investors in Peru's roads, airports and ports from breaches of contract. The IDB is contemplating loans to slow the rate of increase in utility tariffs, assuaging one main cause of resentment.
Brazil, after much delay, is launching a scheme under which private companies can build and operate roads, sewerage systems and even jails in exchange for a stream of revenue guaranteed by the government. Local firms are less queasy than international investors about risk. “Can we wait to reach the level of Chile? We need to accept a little the conditions there are,” said Marcelo Odebrecht, boss of a construction firm that bears his surname.
Mr Odebrecht's appetite for risk is commendable, but governments' reliance on it is not. Investment in infrastructure pays big dividends for the poor and reduces inequality. Governments that cannot finance infrastructure while also scaring away those who can are doing their voters no favours.
Tópico: infraestrutura na américa latina (Lida 477 vezes)