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G20 lands in South America and puts infrastructure financing centre stage

Added 14 Dec 2017

For the first time a South American country - Argentina - is president of the G20, and theoretically at least, the whole continent has a major opportunity to make its voice heard. When it took over the presidency at the beginning of December, the Argentinean government announced one of its priorities would be 'infrastructure for development'. So far so good - along with many other South American governments, Argentina is making the right noises, but questions remain about what kind of infrastructure will get financed, and how.  

To mark the beginning of the new G20 presidency, civil society groups led by Fundación Ambiente y Recursos Naturales (FARN) organised an inspiring gathering to discuss, among other things, the growing trend of promoting public-private partnerships (PPPs) in social and economic infrastructure projects.

The workshop, which brought together a wide range of civil society groups, was organised when Argentina was about to kick-off the World Trade Organisation (WTO) ministerial summit. The fact that the Argentinean government banned CSOs from participating in the WTO Summit, and even from entering the country, raises serious concerns about civil society participation in the G20 process.

The issue of infrastructure financing has been on the G20’s agenda since the 2010 Korean presidency. The G20 promises that in 2018, it will once again give priority to this work, as, according to the host government website, 'countries need the right structural foundations – roads, bridges, railways, public transport, sanitation – for their societies and economies to grow. Investment in infrastructure must be enhanced through greater private sector participation.' Worryingly, however, there is no mention of how to address sustainability concerns.

It's hardly surprising that much of the discussion around infrastructure financing is focused on leveraging private finance. In recent years the World Bank, and other multilateral institutions, have significantly increased their efforts to create a powerfully persuasive narrative to influence the infrastructure policy choices made by governments. This includes the launch in 2017 of the controversial ‘private finance first’ approach (formally known as ‘maximising finance for development’) developed by the Bank. However, as I mention in a recent briefing on infrastructure financing, this strategy is at odds with the historical experience of developed and successful developing countries, and the current practice in emerging markets, where infrastructure is predominantly publicly financed (80-85 per cent of the total), often for good reasons (capital-intensive projects that tend to be “natural monopolies”, long time frames, high risks, often a lack of profit-making options).

Argentina has a long and chequered track record of privatising public services, dating back to the 90s. However, it is a newcomer to PPPs, with a PPP law adopted in 2016. This relatively recent conversion to PPPs represents a major opportunity for Argentina to learn from the experience of other countries and to avoid repeating others’ mistakes. The risk is high, however, as the country has already developed a major pipeline of projects to be implemented as PPPs.

According to the recently-launched PPP Manifesto, supported by 152 organisations, the evidence is clear that PPPs often cost more in the long run than conventional public funding, expose governments to financial risk, can have a disproportionally negative impact on women and children, and undermine democracy, human and environmental rights.

The FARN meeting, along with other civil society discussions about how to finance infrastructure projects, reaffirmed that governments should always select the best financing mechanism from a range of options including public financing. The final selection should be on the basis of a thorough and transparent cost-benefit analysis that takes into account the full fiscal implications over the long run, and the overall impact on the public purse and on users, including equity and affordability considerations.

The key question for the Argentinian government as it embarks on the G20 presidency, is how effectively it will be able to deliver on its promise of tackling ‘infrastructure for development.’