SEATTLE, Washington — On Dec. 17, 2019, the United States formally launched its new Growth in the Americas program designed to promote private U.S. financial investment into the infrastructure needs of Latin America and the Caribbean. Originally conceived of as an energy-focused initiative, the scope of the program has since broadened to encompass a wider range of infrastructure projects, including telecommunication services, roads, ports and airports. Four nations (Chile, Argentina, Jamaica and Panama) have already signed formal memoranda of understanding agreements with the U.S., and officials are indicating that the government is planning to put significant resources behind the program, calling Growth in the Americas “a whole of government effort.”
Increasing Competition in the Western Hemisphere
This announcement comes hot on the heels of recent reports highlighting China’s extensive investment within the region, which has thus far included more than $137 billion in infrastructure-related loans since 2005. The overwhelming majority of these loans have been extended to four nations in particular: Venezuela, Brazil, Argentina and Ecuador, and primarily serve to finance the construction and maintenance of oil refineries, natural gas pipelines and other energy sector-related developments.
As the U.S. has long considered Latin America something of its “backyard” in a geopolitical sense, this has all created some concern on the part of officials. In comments alluding to Chinese ambitions in the region, U.S. Sec. of State Mike Pompeo cautioned Latin American leaders to be “good attractors of foreign investment, but also discriminating consumers of it.” He stated, “There’s that old saying, ‘if it sounds too good to be true, then it probably is.’”
Latin America’s Fight Against Corruption
U.S. and other foreign private investment in Latin America has been in something of a nadir in recent decades, thanks in part to the region’s reputation for governmental corruption scaring away investors. This has allowed nations like China, whose state-owned enterprises can be more directly channeled toward a particular end, to step in and fill the void. Growth in the Americas seeks to change this, however, both by giving businesses the tools needed to compete and by encouraging the sharing of best practices among the region’s institutions, business groups and civil society organizations. In the words of Pompeo, “the U.S. government doesn’t tell U.S. companies where to invest. Instead, we work with other countries to create the right conditions to be able to attract a U.S. type of investment.”
Although much work remains when it comes to fighting corruption in Latin America, public perception of the region has often lagged behind reality. Indeed, Latin American governments have seen an encouraging amount of successes in recent years, with each of the six largest infrastructure markets in the region having passed major legislation combating corruption at the federal level since 2016. This has helped strengthen the independence and transparency of the region’s financial and political institutions.
Meeting Latin America’s Infrastructure Needs
If successful, Growth in the Americas will bring much-needed relief to a region in dire need of improved infrastructure. More than 60 percent of Latin America’s roads are currently unpaved, for instance, and a lack of adequate railways, ports and urban transport systems further hinders the speed of exports and the mobility of workers. Overwhelmingly, it is the poor that must bear the brunt of this inadequate infrastructure. Latin American households spend the highest percentage of their income on transportation of any region in the world.
Part of the issue plaguing Latin American infrastructure has been the inability of regional governments to secure funding for new infrastructure projects on account of problems with fiscal deficits and mounting public debt. This has led to an annual shortfall of $100 to $150 billion in investments. As a result, many Latin American governments have increasingly turned toward the private sector to meet each country’s needs, largely in the form of Public-Private Partnerships (PPPs).
PPPs are long-term contracts arranged between the government and a private entity to provide a public utility where the private partner takes on a large portion of the risk and responsibility and payment is dependent on performance. According to the Inter-American Developmental Bank, one key advantage of PPPs is that by attracting private funding to public infrastructure projects, governments are thus able to ‘bridge the financing gap’ with the newly created fiscal space. This has led to Public-Private Partnerships in recent decades becoming the primary intervention model employed by national banks and a host of other financers.
An Encouraging Start
Growth in the Americas currently identifies $1.1 trillion in Total Market Opportunity for U.S. companies in energy and infrastructure over the next five years. Although still young, the program is already touting some major projects. These include a $25 million loan guarantee program done in cooperation with the Bank of Jamaica as well as securing $700 million worth of private investments in Argentina’s energy sector.
While much remains uncertain in terms of what kind of impact Growth in the Americas will have on U.S. investment in Latin America, there is optimism that renewed attention to the region will bring many positive benefits, both for the U.S and Latin America.
– James Roark