July 6, 2007
HP-482
Secretary Paulson Announces New Latin American and
Caribbean Initiative to Catalyze Private Finance for Infrastructure
Washington, DC-- Secretary Paulson announced a new proposal today to increase investment in infrastructure projects in Latin America and the Caribbean. The United States will partner with the International Finance Corporation (IFC), the private sector arm of the World Bank Group, to create a program to catalyze private investment in infrastructure in Latin America. This initial $17.5 million infrastructure project development program will include a $4.6 million U.S. contribution, and a $1.9 million contribution from Brazil. The IFC is prepared to seek an increase in funding over time if warranted by demand for its services.
"The United States' interest in the Americas is strong. We are committed to helping the region reduce poverty, fight corruption, build a middle class, and generate more opportunities, including for those who currently feel excluded from the region's growing prosperity," said Treasury Secretary Henry M. Paulson, Jr.
"Last month I announced an initiative to catalyze market-based bank lending to small businesses in Latin America and the Caribbean. The initiative involves a combination of new lending models, sharing part of the lending risk, and technical, regulatory assistance so that more banks can finance options for small businesses.
"The Americas face another serious constraint to economic growth – that is a lack of critical infrastructure. Latin America, for example, currently spends less than 2 percent of GDP on infrastructure annually. Underinvestment in electricity, transport, and potable water hamstring the region's entrepreneurs and citizens.
"Today I am pleased to announce a new initiative aimed at addressing this constraint. This initiative will attack the information, technical capacity, and regulatory barriers which block the flow of private finance."
Underinvestment in infrastructure has had a direct impact on the quality of life and economic performance in Latin America. 59 million people in the region lack access to potable water and 135 million have no adequate sanitation. Meanwhile, 55 percent of entrepreneurs complain that infrastructure is a serious problem. Improving the region's infrastructure could reduce inequality by as much as 20 percent, according to the World Bank.
Major investments in infrastructure are needed to boost productivity and competitiveness, connect the poor and small entrepreneurs to markets, and provide them with adequate basic services. Investment in infrastructure is a regional priority and mobilizing private financing is essential given the magnitude of investment needs and the constraints on public finance.
The objective of this program is to target three critical constraints that block the flow of private finance for infrastructure: lack of reliable, objective information identifying good projects for potential investors; lack of know-how on structuring and tendering projects; and problems with the regulatory environment – particularly as it pertains to specific transactions.
The program, to be managed by the IFC, will help identify productive infrastructure projects suitable for private participation, make information about these projects publicly available, and provide technical assistance on structuring projects, tendering concessions, and improving regulatory regimes. Project proposals can be made to the program by sovereign governments, sub-sovereign governments (including municipal governments), or private sponsors. The program will provide assistance in two phases: first, identifying and analyzing projects through feasibility assessments, and, second, advising project sponsors on how to structure, market, and tender projects successfully.
Once a project reaches contractual closure, the investor will reimburse the program through a cost-recovery fee. The program can also assist private investors in identifying possible sources of financing in order to move projects to financial closure and implementation. A project manager will be responsible for overseeing all aspects of this process. The program is expected to be fully operable in one year. Interested parties should contact the Advisory Services Department at the International Finance Corporation, http://www.ifc.org/Advisory.
The IFC estimates that the program's impact could be as much as $800 million to $1 billion in creating new investments and $300 to $400 million in fiscal savings to local governments.
President Bush called for this program in 2005 at the Summit of the Americas.
The $4.6 million grant from the U.S. comes from FY06 and FY07 State Department Economic Support Fund appropriations.