Of caused the freezing of bank deposits (the so-called

Of the obstacles
to infrastructure development in LAC, public finances played a crucial role
affecting the composition and the evolution of investments across the region. The
Washington Consensus at the end of 1980s signed the end of import substitution
policies in the region, advocating greater market openness and reduced margins
for the state intervention, in order to reduce distortion effects on the
economy. In fact, the debt crisis had severe reverberations over the 1980s,
forcing countries to adopt fiscal adjustment programs and featuring large cuts
in public investments. Serebrisky et al. (2015) estimated that, between
1987 and 1992, the reduction of infrastructure investment represented a third
of the fiscal accounts improvement. The overall cut of public investment in
infratsructure accounted for more than 60 percent.

frameworks became more accommodating for imports: import taxes declined from an
average 42,2 percent in 1985, to 13,2 percent in 1991, and further to 10
percent in 2005. (Penfold, 2014; Lora, 2012).
International trade partners from United States and Europe became more and more
involved in financing Latin American infrastructure (from 2010s, China took
over western countries as leading investor in Latin American infrastructure,
mainly in Brazil and Argentina). FDIs principally targeted non-tradable service
industries such as telecommunications and construction.

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responded differently to the necessity of lowering their debt ratio, recurring
to different extent to privatization policies. Argentina, Brazil and Peru
implemented partial adjustment programmes with a gradual retrenchment of public
investments. However, the initiative was principally oriented to monetize the
deficit and regain access to international finance, which was frozen as a
result of the debt crisis and high inflation. Therefore, without a proper
regulation, the mix between debt reduction and public investments in
infrastructure did not deliver the expected results: private investments in
infrastructure were lower than what was required to replace public spending,
and the unclear business environment failed to ensure transparent and
predictable policies for infrastructure projects (Cerra et al., 2016; Carranza,
Daude, and Melguizo, 2014).

In Argentina,
the 1999’s Fiscal Responsibility Law, set to alleviate fiscal pressure for
infrastructure-related projects, has frequently been suspended and ignored.
Moreover, the super-inflation in 2001 caused the freezing of bank deposits (the
so-called corralito), pushing the
country into a deep economic collapse1.
The following years have been conditioned by the impositions of the IMF to
restore debt, according to which Argentina implemented more prudent fiscal
policies, higher taxation, and lowered infrastructure investments (Lora, 2012).

In Brazil, the
fiscal framework allowed certain infrastructure investments to be excluded from
state’s taxes. Moreover, it was imposed that a certain share of total revenues
and annual government spending had to be invested on social infrastructure,
namely education and healthcare. Bolsa
Escola (2001) and Bolsa Familia (2004),
were the flagship initiatives in this sense2.
However, the earmarked allocation of resources to such initiatives constrained
the flexibility of the government’s budget and created pro-cyclical
expenditures. Indeed, it represented an impediment when other infrastructure
sectors required a change of investment priorities and when, during the global financial
crisis, counter-cyclical interventions were needed (Carranza, Daude, and Melguizo, 2014).

Chile also
failed to invest sufficiently in infrastructure during the 1980s. Actually, the
government saw virtually no investment after the debt crisis. However, the
country used the transition to reform the domestic market. Chile, in fact, was
the most active country in LAC in terms of structural reforms during the 1980s.
Reforms covered subjects such as market liberalization, deregulation of
infrastructure sectors and tax break for corporations. Differently from Brazil,
the fiscal regulation did not predispose apposite standards for investments,
leaving the margin for managing contingent liabilities. Over the 1990s, the
government adopted a financing model for infrastructure projects based on
concessions. As a result, the country witnessed the greatest trend of
privatizations during the following decade, which amounted 37 percent of GDP.
Investments targeted different infrastructure sectors, foremost ports and roads
(Lora, 2012).

The most
virtuous case of fiscal consolidation programme including a sound treatment of
infrastructure investments is Peru. The Fiscal Prudency and Transparency Law
was issued in 1999 with the purpose of imposing fiscal discipline upon the government.
Ceilings were set upon public sector fiscal deficit and non-financial
expenditures in order to prevent administrations from designing opportunistic
fiscal expansion policies. Moreover, a Fiscal Stabilization Fund was created by
accumulating current income surplus and privatization revenues. Peru fostered
deregulation of infrastructure sectors during the 2000s achieving the greatest
trend of privatizations in the region (in relation to the size of the economy).
Rail and airport sectors were privatized (the Lima’s Jorge Chavez International
Airport being an example), and several interventions in the mass transportation
industry were jointly undertaken by public and private entities.

accounted for 75 percent of the stabilization fund, which enabled the
accumulation of important resources for counter-cyclical stimulus packages. In
fact, the law enacted a series of escape clauses to rearrange expenditure
priorities according to the market contingencies. When the international crisis
hit Peru between 2009 and 2010, the economic stimulus plan emphasized capital
investments in infrastructure. Sound macroeconomic management was crucial for
the success of the Peruvian economy over the last decade, encompassing
long-term goals of economic and social development by narrowing the
infrastructure gap and fostering domestic productivity (Carranza, Daude, and Melguizo, 2014). With regard to the maritime
transport sector, for instance, concessions favoured private investments in sea
and river berth terminals: over the 2000s, deregulation increased ports’ annual
productivity by 2.4 percent (Chang Victor, 2014).

In conclusion,
Latin American countries experienced mixed success in involving private sector.
The change from import substitution policies to more open economies, together
with different forms of stabilization policies combined with structural reforms
generated a large breach between infrastructure supply and demand.
Stabilization policies meant severe cuts in public infrastructure investments,
which were not fulfilled enough by private entities. This experience helps
explain the contrast between the development of infrastructure in LAC and
South-Eastern Asia. In fact, the extent to which privatizations and concession
played a key role in these regions is significantly different. Asian countries
experienced a greater share of private initiatives across various
infrastructure sector, determining the gap that eventually widened over the
1990s. Especially during the Asian crisis, greenfield investments in
infrastructure triggered counter-cyclical stimuli to the economy, a praxis that
was not efficiently replicated by LAC governments (Cerra et al., 2016). Moreover,
the application of fiscal adjustment policies in many Latin American countries
was short-sighted. Accoring to Easterly et
al. (2008), cuts in public infrastructure actually sterilized the potential
gains related to infrastructure projects, and so their possible contribution to
achieve greater fiscal solvency.


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