ASi" kUCTURE FlOR DEVELOPMENT

poor financial discipline, and substantial arrears.
Although such banks have helped add to the stock Box 59 Successful micipal credi in
of urban infrastructure, they have done little to pro- Colombia
mote the capacity or commitment of municipalities
to expand and operate it effiienty. Except in- Colombiassexperienceiwith itsmicipal indude
a facility in Colombia that-rediscounts lending st n is a su sto with a history going
back more than twenty yens. The municipal credit
institution has evolved thugh succewssve incarnaprojects
(Box 5.9). - - - - btions into the Fmandera de Desarrollo Ternitorial
Certain pragmatic principles emerge from the ex- FNrDrER), an autonomos agency that opeate
perience thus far. A spealized institution is justi- under the firnance minisry..
fled orly if the value of business warrants it and if
FINDETE does not lend dircty to municipal
the concomitant. techical and manageral capabili- govemments but operates as a discount agency to
ties are available. A more practical alternative is tovate sectr and stat-wned bank
develop and improve existing commercial and de- that make the loans, appraise the projects, and
e momtor perfrnmance. The system' success has development
banldng channels. An effort in Argentina- pendet onthequalityofFlNDErEWsstaffand that
to create a new lending institution (COFAPyS) dedi- of the intennediaries through which itlends. Under
cated to the water sector filed. Besides defects in the control of the finance ministry, has it been reladesign
that led to limited funding capability, the tively insuated from political pressures.
bank was seen to offer no benefits beyond those of 9 a n d 1990, moe tha 1,300 pro.
existing chnnels for routing official development . with a value of more than S1 bilio were f-
nanceL assing 600 municipalities. The system's
funding does not rely on government budgetay
The long-term goal for existing infrastructure ao tions bat ratheronbonds,ngofits
bank-in keeping with the shift toward greater loans, and heign aedits frm bilateral and muliconmercial
orientation and accountability-must laenal sources.
be to diversify their portfolios and operate under
private ownership and control, possibly as wholesale
banks. In the interim, the discipline under
which they operate can be improved. For example, greater privatization of municipal fastrudcure
efforts are under way m MorocCo to reform the BANOBRAS is playing an important role in facilitat-
Fond d'Equippement Communal (FEC), an agency ing private watEr and sewerage projcts by guaranestablished
in 1959 to fund municipal investment teeing that municpalities will pay for services pro-
The FEC is being transformed into an autonomous vided (or will allow water billing and collection).
agency subject to supervision by the finance -miin- At the same time, BANOBRAS is worldng to
istry and by the central bank, with a board compris- strengthen municipal finances by demanding better
ing mainly central government officiaIs. The re operational and financial performance as a condiforms
provide the FEC with a new set of operational tion for its support
guidelines, eligibility citeria, and financial targets Domestic construction capability is crucial to the
This is not an ideal solution, but until capital mar- development and maintenance of basic infrastruckets
are better developed or alternative financing ture, but construction contractors are difficult to fimechanism
are available, revitalizing institutions nance because they have uncertain cash flows and
by maldng them more accountable is a pragmatic limited bankable collateraL Typically, banks disway
to proceed.
count no more than 60 percent of the value of pay-
Looking ahead, specialized infrastructure inter- ment certificates issued by government departmediaries
could play a catalytic role in capital-mar- mentsa Frequent delays in payments by public
ket development In India, the new and innovative authorities compound the inherently difficult finan-
Infrastructure Leasing and Financial Services and cial position of contractors, who. are often forced to
the more traditional Housing and Urban Develop- resort to high-interest informal financing. The fiment
Corporation (which is seeking to redefine its nancing requirements of the construction industry
role) aim to sell their loans to other private financial can be partially met through local development fiinstitutions
once project credit histories have been nance compaxnes that on-lend funds to contractors
established. They also plan to padcage securities for highways and similar civil works.
from different projects and to offer shares in these Fnance is also provided through specialized inpackages
to investors. Another specalized in- frastructure banks. BANOBRAS, for example, profrastructure
bank, BANOBRAS in Mexico, is also vides short-term loans for public works against conlooking
for new responsibilities consistent with tractors' receivables from the government agency
103