PUNTA CANA, Dominican Republic – Latin American nations should strive for political stability to attract foreign direct investment, the head of the investment arm of the Inter-American Development Bank (IDB) said on Wednesday.
“Uncertainty plays against investment. Very sharp political turns do not calm investors, so it’s important not to change the rules of the game,” IDB Invest CEO James Scriven told EFE in Punta Cana at a regional forum on public and private partnerships (PPP).
IDB Invest is one of the organizers of PPP Americas 2019, whose chief focus is the need to boost cooperation on infrastructure projects in Latin America and the Caribbean.
“One can have a government of the left or of the right, but when certain assets or investments come in under a regulatory framework, it’s key to be consistent in the long term,” the Argentine said. “We have changes of government in various countries. If the frameworks are maintained, investment continues.”
IDB figures indicate that the region currently invests only around 3.5 percent of gross domestic product (GDP) per year in infrastructure, well below the estimated 5-6 percent of GDP that studies show is needed to achieve an adequate level of development.
That means the shortfall in terms of needed infrastructure spending over the next two years will amount to roughly $150 billion region-wide.
Because Latin American and Caribbean countries lack the resources to close the gap, “it is necessary to resort to international investors, and PPPs are instruments that can provide profitable results for both parties,” Scriven said.
“Investors evaluate Latin America in comparison with other places – Asia, Africa, Europe or the United States. That makes the mitigation of risks fundamental,” he said.
On the plus side, Scriven said that Latin America’s regulatory framework “is more advanced” than those of other regions.
Latin America “has political volatility that can make the long-term situation complex. But I believe that many of the governments of the 26 countries that we represent are ready to open markets to attract the private sector,” the IBD executive said.
Earlier Wednesday, in a speech opening the event, Dominican Finance Minister Donald Guerrero hailed PPPs as mechanisms that allow a level of investment spending beyond the limits set by governments’ budgetary constraints.
“We are an open and responsible country,” the minister said, noting that President Danilo Medina’s administration recently submitted a bill to the Dominican Congress to strengthen the institutional framework for PPPs.
The forum has brought together more than 500 public-sector representatives and private investors from across the region.
Since 2006, the IDB Group has approved more than $5.8 billion for the development of different projects in the region under PPP arrangements.
Projects include a solar power plant in La Jacinta, Uruguay, and an upgrade to the water and sewer system in the Brazilian city of Recife.