GOOD

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GOOD GOVERNANCE
A CONDITION FOR PRIVATE FINANCING OF
INFRASTRUCTURE
Eduardo Rojas Inter American Development Bank
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The context
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Latin America is highly urbanized
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Latin America is growing slowly
Average Real GDP Growth Rates
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Latin America in not investing enough
Investment as a Percent of GDP
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Latin American growth is unequally distributed
Gini coefficient of distribution of household per
capita income
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The challenge
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• 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

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Latin America is decentralizing
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Latin American municipalities by size
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The response
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• Bank lending
• Expand capacityinfrastructure and services
• Improve fiscal management
• Improve project management

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IBD lending 1994 2003 (number of projects)
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IBD lending 1994 2003 (US)
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• Also needed
• Set the right incentives to promote good sub
  national governance
• Bank to support sector-wide reforms

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Sub National Development Strategy
http//www.iadb.org/sds/soc/publication/publicatio
n_78_2440_e.htm
http//www.iadb.org/sds/soc/publication/publicatio
n_78_2829_e.htm
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• Key factors for good sub national governance
• Structure of intergovernmental relations
• System of democratic governance
• Institutional capacity
• Financing

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

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

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

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

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

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

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