Latin America lags in infrastructure investment

By Cesar Illiano

BUENOS AIRES (Reuters) - Latin America has failed to invest sufficiently in infrastructure, and current government efforts to increase public spending are seen as insufficient to make up for the years of neglect.

A recent World Bank study estimated that the region would have to invest $100 billion a year over the next two decades for its infrastructure to reach a standard similar to South Korea's -- a formidable challenge for a region prone to economic boom-and-bust cycles.

"What we see in Latin America, and in South America in particular, is that there's been a sharp fall in public investment," said Jose Luis Machinea, executive secretary of the U.N.'s Latin American Economic Commission.

Only part of that investment was replaced by the private sector during the 1990s, he said recently during the Reuters Latin American Investment Summit.

Now, with some countries forcing private investors to renegotiate contracts, "private investment has fallen, and public sector investment up until now hasn't had the capacity to recover what was lost," Machinea added.

Last year, the Inter-American Development Bank (IADB) approved financing for 21 projects totaling $1.8 billion to improve infrastructure in the region. Sixteen were destined for government-financed projects and five with private investment.

Between 1995 and 2006, the IADB handed out $16.7 billion for 225 infrastructure projects.

"Latin America has traditionally had a big lead with infrastructure. Latin America has always been the second world as opposed to the third world. But now that lead has diminished dramatically," said Atul Mehta, director for Latin America and the Caribbean at the International Finance Corporation.

"About 55 percent of private sector companies in Latin America say infrastructure is a problem, only about 18 percent in East Asia. So I think there's an urgent need to address infrastructure," he said.

PROJECTS

The region's need for an infrastructure upgrade has drawn the attention of some investors. Mexican tycoon Carlos Slim, Latin America's wealthiest man and the third-richest in the world, told Reuters he is interested in bidding for infrastructure projects in Mexico and across the region.

"You have to stay with infrastructure, but well diversified. It will continue to be important and profitable," he said last week.

Slim's firm IDEAL (IDEALB1.MX) is planning to bid in tenders for toll highway concessions in Mexico, which the Mexican government hopes will reap close to $25 billion over the next six years.

"IDEAL's end objective is to make infrastructure investments, and if that infrastructure is an airport or a highway or a water plant ... it's all the same," Slim said.

In South America, the biggest infrastructure needs are in roads, bridges, waterways and ports to help lower the cost of exporting the region's abundant natural resources.