Maritime Trade and Transport - HWWI

The traditional chronology according to which a country, once it has boosted its financial
capability, resorts first to development aid and then to government financing is likely to change
over the next 25 years. Private monies will then be filling part of the gap. International organizations
are already trying to attract private investors, a difficult undertaking. Initiatives like this
only bear fruit once the general political and economic conditions have improved substantially.
7.2.2 Government funding
Government will continue to play a dominant role in the funding of transport infrastructure.
New construction entailing high risks, projects with very high investment costs, and those
strongly in the interest of society as such will continue to be state-financed. Control instruments
will not be placed completely in private hands, so that action can be taken quickly in crisis situations
and to maintain political leeway. Several sources are available for financing: 95
1. Borrowing: The state can borrow from private-sector banks, grant loan guarantees to municipalities,
or issue bonds (some tax-privileged). The main advantage lies in just-in-time
financing: The project can be built when it is needed and be paid off while it is being used.
The long-term adverse effects of increasing public debt are, however, sufficiently wellknown.
Emerging nations have chosen other paths. Through its direct credit policy, China has financed
almost a third of all infrastructure investments through corporate bonds from banks.
This path is barred to countries with stronger market-based financial systems and lower domestic
savings. Following the opening of its banking sector, China will also have to make
greater use of more innovative forms of financing. For several years, special state capital access
programs have been gaining in popularity. India, for example, has established a financing
company for supporting selected projects in key sectors such as roads, seaports and airports
through long-term loans outside of the national budget. Both paths lead to hidden deficits
and rising latent government debt. The Asian crisis has shown that vehicles like this must often
be backed up by state guarantees, which would also (have to) be discharged when called upon.
2. Trust funds: They are funded by user fees or government revenues that are directly allocated
to a special investment sector. Long-term public loan costs are avoided. This source of
financing has proven efficient in the USA. All five federal trust funds for infrastructure, including
ports, highways, and inland waterways, produce net cash inflows.
3. Currency reserves: At the moment, Asia’s economies combine approximately 40% of world
savings and almost $3 trillion in currency reserves. In comparison with the low return on
American government bonds in the face of uncertain currency prospects, use for filling infrastructure
gaps appears attractive. However, potential consequences of inflation through
resulting surplus liquidity should be considered. Inflationary pressure will continue throughout
the project’s completion period. To limit the negative effects, the raw materials and
machines needed to complete the infrastructure facility should be imported.
95 See Infrastructure Canada (2004), ESCAP (2005), ESCAP (2006).
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