Latin America is increasingly looking to the private sector to help fund a $200 billion a year infrastructure investment gap that is dragging on economic growth and preventing the region from catching up to other emerging markets.
Financial officials attending Inter-American Development Bank meetings in Panama said better infrastructure, from roads to ports to public utilities, was one of Latin America's most pressing needs.
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But strained government budgets limit the amount of contributions from the public purse, leaving policymakers seeking more involvement from the private sector.
"There's a tremendous potential," Colombian central bank governor Jose Dario Uribe said. "One of the bottlenecks of growth that we have in Colombia is that we have inadequate infrastructure and this is not only a problem for growth."
Mexican deputy finance minister Fernando Aportela said planned financial sector reforms would aim to improve the ability of development banks to work with the private sector.
It was also important to involve pension funds - which in Mexico have assets worth more than $150 billion - as well as development banks and other official funding sources.
"I think it's very important to promote the participation of private sector investment in infrastructure using all the structures that we have," Aportela said.
The IADB estimates investment in Latin American infrastructure needs to at least double from the current 2.5 percent of gross domestic product, with about half the increase coming from the private sector - worth about $100 billion a year.
If the region could double its infrastructure investment, potential real annual GDP growth could increase by as much as 2 percentage points, the IADB said. If infrastructure investment rates of 4 percent to 6 percent of GDP were maintained over 20 years, the region's infrastructure would finally catch up to average levels in East Asia.
Some money is already flowing in. China is partnering with the IADB to provide $2 billion for a new regional investment fund, adding to a $1 billion investment in the region last year, at least part of which is expected to flow to infrastructure projects.
BOOM IN DEMAND FOR FINANCING
Ratings agency Standard and Poor's is seeing a boom in demand for infrastructure financing. Last year it rated a record number of project or infrastructure bonds with 25 issues, and in the initial months of this year has already received requests for ratings on 15 similar bonds, said Jane Eddy, managing director of Latin American corporate and sovereign ratings.
Itau Unibanco economist Ilan Goldfajn said countries seeking outside investment would have to balance their desire for cheap finance with investors' desire for a reasonable rate of return.
"I don't think it's a far-fetched dream," he said of the IADB call for a doubling in private sector participation.
Over the past few years, there has been a tremendous growth in local banks funding infrastructure projects, said Mini Roy, head of agency loans at Sumitomo-Mitsui Banking Corporation global trade finance department.
"The support of governments and the understanding of local players in the region is expanding very quickly," she said.
Brazil, gearing up to host the Olympics and soccer World Cup in coming years, is capping the maximum rate of return on 30-year concessions, or leases, for infrastructure projects.
But the sheer size of Brazil's infrastructure needs presents opportunities for investors. The government expects about 180 billion reais ($94 billion) in annual investments through 2017 to help the country overcome aging roads, soaring logistics costs and burdensome red tape.
IADB economists said Latin America was a pioneer in attracting private investment into infrastructure, but its share of investment has fallen recently. Between 2001 and 2011 the region attracted only 29 percent of the total invested in developing regions, compared with 52 percent in the previous 10-year period.
Bolivia's problems with water privatization in the early 2000s may have given some countries pause for thought, as the country battled with protests about price increases.
Mexico has also had to extend the lease period for at least some privately built highways and allow toll increases after the initial cost of construction was more than expected.
But two of the world's richest men, Carlos Slim and Bill Gates, partners in a healthcare initiative in Central America, told an IADB seminar that partnerships between the private and public sectors worked very effectively.
Such partnerships made it possible "to combine different expertise: financial expertise, regional expertise, health expertise," Microsoft founder Gates said in a video message.
In Peru, which has put construction of a $5 billion metro line out to private tender, central bank governor Julio Velarde said more investment was needed in roads and airports.
Even Paraguay, one of South America's poorest nations, is debating a new law to allow for more public-private partnerships and growth in infrastructure, which central bank chief Jorge Corvalan told Thomson Reuters' IFR he hopes will pass by April.
(Additional reporting by Luis Rojas, Noe Torres and Joan Magee from IFR; Editing by Mohammad Zargham)