Best Practices in PPP Financing Latin America - e-Institute - World ...

Best practices in Public-Private Partnerships financing in Latin America
China and Vietnam grew about 7% of GDP per capita, and
investment in infrastructure represented 10% of GDP.
The previous comparative perspective reveals two
extremely important aspects for consideration in the
future. First, the strong relationship between economic
growth and infrastructure development can be highlighted
as a determinant factor to obtain higher rates. Second,
bottlenecks can limit sustainable growth if appropriate
financing arrangements are not developed.
In terms of searching for “natural funding” to promote greater
investment in infrastructure projects, pension funds can play a
relevant role. By analyzing the size of projected pension funds
in countries where the private pension component is more
developed, as in Chile, Colombia, Peru and Mexico, it can be
noted that the pension funds continue to accumulate more
weight over the years. To date, this represents on average
about 30% of GDP for these four countries, and by 2050 the
average can reach 50% (in the case of Chile it may exceed
90%). In this regard, pension funds need to diversify their
investment alternatives, and financial instruments associated
with infrastructure projects may become more important for
this purpose.
With the goal of establishing the relevance of private pension
funds in financing infrastructure, Tuesta highlighted common
ground between governments and pension funds. On the
government side, in recent decades, Latin America has been
more inclined to give priority to fiscal sustainability. This
may limit public investment in infrastructure, but could be
covered by private placement financing of pension funds. This
complementarity would free up state resources to address,
for example, emergency social spending and alleviate cyclical
fluctuations in the economy.
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