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INTERVIEW-IADB says Latin America must boost infrastructure spending
March 7, 2013 / 8:00 PM / 5 years ago

INTERVIEW-IADB says Latin America must boost infrastructure spending

* Infrastructure in focus at annual meeting

* IADB says need extra $100 bln in private spending

* IADB president says region needs closer ties

By Lesley Wroughton and Krista Hughes

WASHINGTON/MEXICO CITY, March 7 (Reuters) - Latin America must double its spending on infrastructure and deepen regional ties to boost growth and allow it to compete with other emerging markets, Inter-American Development Bank President Luis Alberto Moreno said.

With growth in Latin America slowed by sputtering recoveries in the United States and euro zone, Moreno said the region needed to find ways to return to pre-crisis growth rates of around 5.5 percent, pointing to the need for structural reforms, more regional trade and infrastructure spending.

“We need ... close to 6 percent of GDP (gross domestic product) investment in infrastructure,” Moreno told Reuters in an interview. “On average we probably need to double the current investment we have been doing.”

IADB data show infrastructure spending has declined from levels above 4 percent of GDP in the mid 1980s to 2.8 percent in 2010, the bulk of which is public spending.

The region’s infrastructure needs and partnerships with the private sector will be in focus at the IADB’s annual meeting in Panama from March 14 to 17, to be attended by policymakers from its 48 member nations.

The IADB, whose members include the United States, China, Japan and 16 European states, is one of the biggest sources of development financing in Latin America and the Caribbean, approving $11.4 billion in loans and grants last year.

The IADB spends about $6 billion on infrastructure projects in the region, half of its total lending. While spending on infrastructure has increased, even major economies such as Brazil and Mexico are hobbled by poor roads and railways, outdated port facilities and unreliable electricity.

Moreno said public-private partnerships would go a long way to addressing the infrastructure shortfall. While the region has seen a surge in private investment capital since 2011, very little of the investment has gone toward infrastructure.

“Going forward we need to use the private sector better towards development,” he said, noting private pension funds had $1 trillion in assets which could be better harnessed.

IADB economists estimate private investment will need to increase from about 1 percent of GDP to 2.5-3 percent to close the infrastructure gap, equivalent to $100 billion per year.

MISSING TRADE LINKS

Moreno said the region was forecast to expand 3.5 percent this year and 4 percent in 2014, which is vastly slower than the pre-crisis growth rates of around 5.5 percent.

The impact of a slow recovery in the United States differed across the region, with the impact felt most by Mexico, Central America and the Caribbean, he said.

One missing link in growth was economic integration: less than 20 percent of the region’s trade is with other Latin American nations, compared to more than 60 percent in Europe and about 50 percent in Asia.

In that sense, Moreno said moves toward more integration and trade between Chile, Peru, Colombia and Mexico - a group dubbed the Pacific Alliance - were more beneficial to the region than the bigger Trans-Pacific Partnership (TPP).

The Pacific Alliance nations have agreed to lift tariffs on 90 percent of goods by the end of March and Mexico is moving closer to a cross-border share trading agreement between Chile, Colombia and Peru.

“That is looking to integrate stock markets, to have mobility of people, in immigration, to have 90 percent of products quota-free, that’s the kind of agreement that’s really going to move things within the region,” Moreno said.

Chile, Peru and Mexico are also part of the TPP talks to create what would be the world’s biggest free trade zone. (Reporting by Lesley Wroughton and Krista Hughes; Editing by Phil Berlowitz)

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