Investment in infrastructure in Latin America and the Caribbean: when the how, the how much and the who are what's important.

Author:Serebrisky, Tomas

There's nothing new in the argument that Latin America and the Caribbean (LAC) have an important infrastructure gap.

Studies show that closing this gap will call for an important investment effort in the order of 5 percent of the regions GDP for years to come. Infrastructure investment in Latin America and the Caribbean now stands at 3 percent of GDP.

We need to be clear that this gap is explained not only by insufficient attention to infrastructure in the region. The low quality of infrastructure is an equally large factor.

If we compare LAC with other regions, as the World Economic Forum has done, we see that the levels of perceived quality of its infrastructure are much lower than those of the advanced or the high-growth Asian economies.

On a scale of 1 to 7, with 1 being totally inadequate and 7 being excellent, for 2014-2015 LAC infrastructure is at 3.5, compared to 5.5 for advanced countries and 4.9 for fast growth Eastern Asian economies.

As well, if we compare the region with other developing areas like Sub-Sahara Africa we find that, while in 2006-7 there was a sizable difference in favor of Latin America and the Caribbean (2.8 vs. 1.7), this difference reduced considerably over the last 10 years (3.4 vs. 3.2).

In other words, although the quality of the regions infrastructure has modestly improved in absolute terms, in relative terms it remains far behind regions with higher perceived quality.

If the trend continues, LAC will soon have the worst perception of infrastructure quality in the world.

If this article were to end at this point, it would serve only as a concise and tweetable synthesis of a situation that has already been recognized and analyzed by experts. There is a lot of talk about how much investment in infrastructure is needed to close the gap, but little has been written about how, and perhaps more important, by whom.

The high levels of infrastructure investment in the 80s fell sharply in the 90s. At that time, it was thought that the wave of privatizations that the region was going through would compensate for the reduction in public investment.

However, that didn't happen and LAC went through a time of very low infrastructure investment, both public and private.

Although infrastructure is recognized as a public good with a powerful impact on the growth of economies, it is also easily "cuttable" from the budget. In times of economic crisis, governments tend to hold back on budgetary items destined for...

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