Continued resilience: Regional Report Latin America

Latin America is showing early signs of recovery from the global financial malaise; although it is likely to be 'slow' and 'unsynchronized', according to the World Bank, until government stimulus plans and foreign investment begin to have an effect. Richard High reports.

Speaking at the Second Meeting of Finance Ministers of the Americas and the Caribbean at Vina del Mar, Chile, the World Bank's chief economist for the region, Augusto de la Torre said, "The worst case scenarios for the region are dissipating, although that doesn't necessary guarantee a strong rebound."

Recovery is expected to be slowest in Mexico, Central America and the Caribbean due to their relatively open economies and large trade dependency on the US. Rising unemployment also remains a problem for the region, said a joint statement by finance ministers following the meeting.

One way to stem this rising tide, said ministers, would be for Latin American countries to "increase public infrastructure integration to reduce transport and energy costs in order to make their economies more competitive."

Multilateral institutions, including the World Bank and Inter-American Development Bank (IDB), which are "playing a more important role in the region in the wake of the economic crisis", can help toward this objective, according to Chile's Finance Minister Andres Velasco. Mr Velasco added that these institutions have already agreed to help promote infrastructure integration projects that would reduce transport costs.

Future loans

In April multilateral development banks announced they would increase support to Latin America and the Caribbean by providing as much as US$ 90 billion over the next two years. The Inter-American Development Bank and the Inter-American Investment Corporation (IDB/IIC), the World Bank Group (IBRD, IFC and MIGA), Corporacion Andina de Fomento (CAF), the Caribbean Development Bank (CBD) and the Central American Bank for Economic Integration (CABEI) said they would work together to identify partnerships to increase their collective impact.

The IDB/IIC is expected to provide US$ 29.5 billion of the total while the World Bank plans to provide US$ 35.6 billion. In addition, CAF plans to provide US$ 20 billion while CABEI and CBD are expected to provide US$ 4.2 billion and US$ 500 million respectively.

"Latin America and the Caribbean have achieved substantial economic and social progress over the last five years and we must ensure that this is not lost because of the external shock of the global crisis," said World Bank president Robert Zoellick.

The region's governments have also increased the amount of money available to infrastructure investment, particularly cross-border projects. In January Bolivian President Evo Morales and Brazil's Luiz Inácio Lula da Silva signed a new economic cooperation agreement to boost highway, energy and defence projects.

Some of the money will be used to construct a US$ 415 million highway connecting Villa Tunari to San Ignacio de Moxos and the Arroyo Concepción-Roboré highway, which is part of a 5850 km bi-oceanic corridor connecting Brazil's largest port, Santos, through Bolivia to Chile's Pacific ports of Arica and Iquique.

The bi-oceanic corridor was launched in 2007 and is part of the Initiative for Integration of Regional Infrastructure in South America (IIRSA). Supported by CAF, which has just announced additional funding of US$ 270 million, the project is now expected to cost well over its original budget of US$ 2 billion.

At the same time President Lula authorised five new port projects under the country's growth acceleration plan (PAC) totalling US$ 157 million. Brazil has spent US$ 3.68 billion on 4314 km of roads under PAC, US$ 606 million on rail projects and US$ 758 million on maritime projects, as of 30 April according to the 7th PAC balance report.

A total of five airport and three waterway projects were also completed, at a combined cost of US$ 112 million. In total the federal government has invested US$ 31.8 billion and completed 335 of the 2446 projects identified under the PAC initiative. Brazil's government also plans to spend US$ 152 billion on low-cost housing in the next 15 years.

Further funding

Other governments in the region are also pressing ahead with their infrastructure investment plans. In February Venezuela's President Hugo Chávez said US$ 1.81 billion would be available for infrastructure and water initiatives, while Argentine President Cristina Fernández announced a US$ 713 million investment package for the province of Salta's infrastructure development.

The initiative, in one of the poorest states in the country, includes construction of wastewater treatment plants, 6000 new homes, the re-paving of several national highways, and investment in 160 "shovel ready" projects that will take less than a year to complete.

In Peru the government has identified 52 public transport, sanitation, energy, health and education projects of national interest, with an additional US$ 400 million of investment announced for 2009.

Colombia is also pressing ahead with an ambitious infrastructure investment plan. Again many of the projects under consideration are cross-border. About 1500 km of roads are expected to be built, with priority given to the Transversal de la Macarena from Llanos Orientales to the Pacific coast and the US$ 334 million Buga-Buenaventura link, part of the Bogotá-Buenaventura Corridor, which handles a high percentage of cargo containers.

The Segovia-Zaragoza route will be developed as well as two roads to Ecuador, including the San Jose de Guaviare-Florencia-San Jose del Fragua link and Santa Ana-Yarumo-San Miguel route.

The Colombian government also announced US$ 157 million will be invested by the public and private sectors to improve navigability of the country's Dique canal. The initiative will turn Cartagena into Colombia's main Caribbean port by 2012.

Foreign interest

There is also overseas investment in the region. China is establishing two partnerships with the IDB to co-finance public and private sector projects in Latin America and the Caribbean. The first is between the IDB and the Export-Import (EXIM) Bank of China, while the second is between the IDB with China Development Bank Corporation (CDBC).

The EXIM Bank and IDB will collaborate to identify and invest in infrastructure projects, trade finance and other sectors, while CDBC and the IDB will promote business links between China and Latin America and the Caribbean.

Elsewhere, the EXIM Bank of Korea and the IDB have signed an agreement to co-finance public and private sector projects worth up to US$ 2 billion in the next three years. The two will work together to share information and identify and finance projects in infrastructure and other areas.

European contractors also continue to find the region attractive, and earlier this year Spain's OHL Concesiones was awarded the 25 year concession to expand, operate and maintain Peru's Autopista del Norte. Running for 362 miles along the coast of Peru between Pativilca and Trujillo it forms part of the Northern Pan-American Highway.

Outlook

While the economies of Latin America remain relatively stable there is no doubt that foreign investment will continue to flow into the region. However, if the current financial crisis continues that investment, along with Government initiatives could be under series threat, which in turn would have a major impact on Latin America's construction sector.