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GOOD GOVERNANCE

GOOD GOVERNANCE. A CONDITION FOR PRIVATE FINANCING OF INFRASTRUCTURE. Eduardo Rojas Inter American Development Bank. The context. Year. 1985. 2000. 2015. Rates. 1985-00. 2000-15. Population. 400.8. 519.1. 631.1. 1.7. 1.3. % Urban . 70. 75. 80. 2.8. 2.7.

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GOOD GOVERNANCE

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  1. GOOD GOVERNANCE A CONDITION FOR PRIVATE FINANCING OF INFRASTRUCTURE Eduardo Rojas Inter American Development Bank

  2. The context

  3. Year 1985 2000 2015 Rates 1985-00 2000-15 Population 400.8 519.1 631.1 1.7 1.3 % Urban 70 75 80 2.8 2.7 Cities over 1 million 21 47 58 Population 69.5 153.9 213.1 Latin America is highly urbanized

  4. 1986-90 1991-95 1996-2000 2001-03 Latin America and the Caribbean 2.8 3.1 0.6 Asia 6.9 8.8 6.4 6.2 Central and Eastern Europe 0.6 -1.3 3.0 3.2 Middle East and North Africa 2.0 3.0 4.5 4.6 Sub Sahara Africa 2.7 1.2 3.4 3.2 Industrial Countries 3.7 2.2 3.3 1.5 Latin America is growing slowly Average Real GDP Growth Rates

  5. 1986-90 1991-95 1996-2000 2001-03 Latin America and the Caribbean 20.7 20.5 21.1 19.3 East Asia & Pacific 32.7 36.6 32.3 31.6 Middle East & North Africa 23.0 23.6 20.9 22.5 Sub-Saharan Africa 18.2 17.3 17.7 17.5 Latin America in not investing enough Investment as a Percent of GDP

  6. 1970s 1980s 1990s Latin America and the Caribbean 48.4 50.8 52.2 Asia 40.2 40.4 41.2 Eastern Europe 28.3 29.3 32.8 OECD 28.3 29.3 32.8 Latin American growth is unequally distributed Gini coefficient of distribution of household per capita income

  7. The challenge

  8. National governments are devolving resources and responsibility to sub national entities in order to: • Provide infrastructures and services in sync with the needs of the local economy • Improve delivery of basic services essential for the poor

  9. Focus Level of Decentralization (Sub national Public Expenditures as a percent of total) More than 20% Between 10 and 20% Less than 10% Intermediate Level States or Provinces Argentina (49.3) Brazil (45.6) Mexico (25.4) Venezuela (19.6) Peru (10.5) Local Level Municipal Colombia (39.0) Bolivia (26.7) Uruguay (14.2) Chile (13.6) Honduras (12.3) Guatemala (10.3) Ecuador (7.5) Trinidad and Tobago (7.2) Paraguay (6.2) El Salvador (6.0) Nicaragua (5.2) Panama (3.2) Dominican Rep. (2.9) Costa Rica (2.3) Barbados (0.0) Bahamas (0.0) Latin America is decentralizing

  10. Latin American municipalities by size

  11. The response

  12. Bank lending • Expand capacity:infrastructure and services • Improve fiscal management • Improve project management

  13. IBD lending 1994 – 2003 (number of projects)

  14. IBD lending 1994 – 2003 (US$)

  15. Also needed • Set the right incentives to promote good sub national governance • Bank to support sector-wide reforms

  16. Sub National Development Strategy http://www.iadb.org/sds/soc/publication/publication_78_2440_e.htm http://www.iadb.org/sds/soc/publication/publication_78_2829_e.htm

  17. Key factors for good sub national governance • Structure of intergovernmental relations • System of democratic governance • Institutional capacity • Financing

  18. Intergovernmental relations • Clearly defined responsibilities • Sufficient resources • Hard budget constrains

  19. Governance • Citizen representation and oversight • Good and timely information

  20. Institutional capacity • Organizational structure • Administrative systems • Human resource policies

  21. Financing • Own sources of revenue • Fees for services • Local taxes • Transfers • Borrowing

  22. Borrowing to be framed in a hard credit discipline imposed by • Intergovernmental relations • Democratic oversight • Market based risk evaluation • Good and timely information

  23. The basis of a hard credit discipline legal framework Intergovern- mental relations hard credit framework accounting and budgeting practices financial regulatory framework

  24. Agenda to support a hard credit culture • Focus on credit worthiness and self sustainability • Employ a graduation strategy with sub nationals • Promote the development of private intermediaries

  25. Potential sources of financing Systemic Framework access to bond markets Developed access commercial bank funding direct lending from MDBs High dependence on federal funds Underdeveloped Creditworthiness Low

  26. Instruments • Technical assistance • Lending with sovereign guarantee • To sub national governments • Support local intermediaries • Credit enhancement activities • Direct lending to private sector enterprises

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