Mobilizing Private Finance for Development in Latin America and the Caribbean

Abstract

After a two-year recession, something last experienced over three decades ago, the Latin America and the Caribbean (LAC) region is growing again. The challenge now is to accelerate and sustain growth to continue making progress on the social front as in the first decade and a half of the new century: between 2000 and 2014 the region managed to reduce poverty (US$4 a day poverty line) from 42.9 percent to 23.3 percent, cutting the number of poor people by 80 million at a time when the Latin American population increased by 100 million. A renewed emphasis on productivity comes up during any discussion of LAC’s growth agenda. After all, labor productivity in the region has stalled at around 30 percent of that of the U.S. Moreover, improvements on the productivity front would result not only in faster growth but also, as basic economic theory suggests, in better salaries for the workforce, therefore further contributing to poverty reduction and shared prosperity. But why is there such a gap in LAC’s productivity with respect to the developed countries? One factor is the large infrastructure investment and service gaps. Infrastructure investments can be a powerful engine for reviving and sustaining growth. A recent regional study on the determinants of growth in LAC indicates that infrastructure has been the main structural driver of growth in the region. Yet, LAC governments are well aware that public resources are not enough to satisfy infrastructure needs, especially in the context of ongoing fiscal adjustments across the region and the enormous need for infrastructure investment: an estimated $180 billion per year investment gap. And LAC governments are also aware that the private sector can play a central role to finance the existing gap. Not surprisingly then, LAC has made considerable strides in attracting private sector investments in infrastructure: the region has the largest stock of active Public-Private Partnerships (PPP) investments and the largest pipeline of infrastructure projects by volume globally, reflecting the central role of the private sector in the regional development agenda. Going forward, LAC countries will benefit from an improved environment for private investments, as well as for further developing a robust pipeline of bankable projects. This report showcases the different ways the World Bank Group has been part of these efforts to support the mobilization of private financing for infrastructure in the region, following what authors call the Cascade approach. These encompass everything from policy and regulatory advice to structuring support, guarantees schemes and financing. Country-specific examples presented in this report illustrate how private financing mobilization in LAC has been supported by the WBG. While not exhaustive, these examples are representative of the different strategies and instruments used by governments at the central and subnational levels to help leverage private sector participation in infrastructure. The WBG stands ready to continue to assist the region in that endeavor with financial support, as well as knowledge and convening services.