The Brazilian government is in negotiations with the IFC and other multilateral lenders to create a system of guarantees that will encourage private sector capital to finance the country’s large infrastructure needs. Brazil is a country that doesn’t have enough internal savings.
The government acknowledges the need for public sector reforms if it is to attract international investors to finance infrastructure investment, according to Paulo
Correa, secretary for economic affairs at Brazil’s ministry of finance. Correa, speaking at the IIF conference in Lima, told delegates that the end of the commodity boom has reduced the country’s fiscal space to finance infrastructure from the public sector, saying: “We are all looking in different ways to build the bridge between the tremendous [capital] liquidity in the international market and Brazil’s infrastructure needs.”
Gabriel Goldschmidt, IFC’s head of infrastructure for Latin America and the Caribbean, thinks that the provision of guarantees to mitigate construction risks for private investors could be particularly effective.
“There could be space for guarantees – that’s an area in which a number of actors, including ourselves, are trying to make something happen,” he says.
“Clearly, if you could have a wrap that isolates construction risk from the remaining residual risks you could have a set of investors that is significantly larger than the one you have now. There are a number of mitigants to construction risk that we are looking into but this clearly goes beyond what one multi-lateral organization can do, so if this product is developed there should be a market standard.”
Hector Gomez Ang, IFC’s country manager for Brazil, says the multilateral development bank is looking to facilitate greater commercial finance for Brazil’s infrastructure needs, but stresses the reduction in the role of the Brazilian Development Bank (BNDES) needs to be placed in context.
“BNDES is retreating but it has made it very clear that infrastructure will continue to be its priority, so while it will probably withdraw from some sectors it will continue to be a very real player in infrastructure,” he says.
“However, some of the things the bank is doing will help private-sector involvement. For example, if private companies want to maximize their access to subsidized lending [TLJP] they need to issue project bonds and this is a good way to provide incentives for the capital markets to develop.”
The buyers of the project debentures issued in Brazil to date have been almost exclusively local and Gomez Ang says there is a growing realization that international capital is needed if the country is to develop its much-maligned infrastructure, both to boost GDP through construction and improve broader industrial productivity.
One of the potential solutions is to replicate the Colombian government’s provision of dollar-denominated payments for its 4G road programme, which has facilitated international banks getting involved in financing some of the road projects.
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