b. Planning, finance and institutional arrangements at regional level

How has IIRSA-UNASUR (COSIPLAN) experience dealt with coordination and planning at regional level? As proposed in Section l.c, the following topics deserve special attention: regional planning and project identification, the role of finance and the regional banks and, finally, institutional arrangements and decision rules.

A distinctive feature of IIRSA-UNASUR (COSIPLAN) is its clear emphasis on planning at regional level coupled with responsibilities for project identification at national level. Both tasks have, in turn, specific attributes that are worth mentioning.

Regional planning and project identification

Along the years of repetitive practice, planning has meant focus on the territory. The organizing principle has been the notion of “development hubs”. The concept combines two basic aspects that are familiar to the economic geography literature: concentration and transport costs. Economic activity and population tend to cluster around infrastructure facilities that reduce transport costs - roads, railway lines and rivers. At the same time, it is assumed that the development of new projects will ease access (reduce transport costs) thereby allowing to connect the hinterland and having a positive impact on local development.

Transport and connectivity within the hub space are essential but there are also other policies and projects that contribute to the development of the hub’s territory. The positive side of this integrated approach to the territory is that it allows the interaction of economic, social and environmental dimensions. The other side of the coin is that the policy agenda becomes very complex to deal with. IIRSA-UNASUR (COSIPLAN) has confronted the problem. In order to come up with an effective solution to the issue National Coordinators have the dual task of representing the country’s interest in the regional body and linking with the national agencies in charge of the relevant issues concerning actions in the territory. In practice, the process is cumbersome. Not only because of bureaucratic and technical decisions in governments are fragmented but also because issues at hand usually require the intervention of local authorities. Therefore, decisions percolate to the structure according to the interests of the different stakeholders. Further, as will be analyzed below there are no grant mechanisms or matching funds that can help to unblock the process.

Notwithstanding the analytical dimensions of the hub concept, what is relevant for the purposes of the present discussion is that development hubs run across borders and involve different countries. Domestic political jurisdictions are a mere locational reference. The actual meaning of this approach to regional planning is that the South American space is viewed as a single borderless unity — that is, the entire sub-region is equated as it was a single country.50 All countries participate in planning deliberations and decisions. The more frequent issues under analysis are location and dynamic of economic activities including environment and social dimensions, transport and connectivity, project identification and project execution. The active technical work deployed at regional level is in itself an interesting landmark in the history of the sub-region. Planning and technical exchange has been modest and when it actually took place it remained at bilateral level and with reference to border issues.

Whereas planning is carried out at regional level, project identification is in the realm of country decisions. That is IIRSA-UNASUR (COSIPLAN) projects are prioritized first at the national level and presented then to the regional body for approval. In theory, the regional portfolio is a sort of “consensus portfolio” and it is the final result of a process that starts at the national level. The procedure assumes that there are national development plans in place and that they are supported by sector strategies — in particular, transport and trade strategy — and a medium-term investment plan. Thus, project selection is the outcome of an assessment made at national level and according to national priorities. There are no regional incentives to bias the choice towards integration projects. Most countries do have national agencies in charge of planning. Further, for those cases with the stronger framework the planning and budget processes are well connected. So, national plans are supported by projects — either public or private - and capital allocations are translated to national or federal budgets when necessary. In the case of infrastructure projects developed by the private sector or through ppp, there is a need not only of technical studies but they also have to be supported by the required authorizations either legal or administrative ones. However, the situation is uneven. Several countries in the region lack the institutional and technical resources for designing strategic and operational plans, and for conducting a proper assessment of complex investment projects. As a result, the regional portfolio is an addition of projects and profiles that are subject to different investment criteria — in some cases, they are aligned with national priorities whereas in other situations the link is weak. This is not a minor shortcoming. The quality of individual projects is a key ingredient for the quality of the regional portfolio.5 Moreover, to the extent that projects are not aligned with long-term goals there is a risk of a reversal of decisions and shifting government priorities.

Finance, project execution and the role of regional banks

As indicated above. South American portfolio is an aggregation of individual projects that are located within the hub territory (belonging to countries sharing the same hub). There are, of course, some cross border projects that involve coordinated construction works in neighbor countries. Most frequently, this is not the case. Projects are financed and carried out by member countries according to the policies, legal and administrative procedures they have in place. There are no “regional projects” as such.52 Thus, the sources of finance devoted to project financing are a decision located at national level. The scheme is entirely compatible with the notion that projects are also the outcome of domestic decisions and that debt arising from them is composed of national liabilities either public or private. In this context, the incentives for developing regional infrastructure are low: project selection, construction and finance will be biased towards investment with relatively low positive externalities and those that require minimal coordination efforts.

Given the elements discussed above it is easier to understand the role of regional banks. On the one hand, they are able to finance development projects at similar interest rate costs to member countries. The alternative of having a mechanism for equating the financial costs of different projects is an attractive tool if one the countries face high borrowing costs or is credit rationed. However, in order to be effective, both countries must have coincident priorities at the time of defining the project pipeline with the financial institutions. This is not usually the case since multilateral finance is also limited and there many other factors at the time of structuring a borrowing program. Even when regional financial institutions may find out that certain (integration) projects are of key importance, countries do have the final decision on where to allocate the finance that is available to them.53

However, regional banks have also an advantage on the technical front. By definition, those institutions are better equipped to conduct studies with a regional range.54 First, institutions have the mechanisms for allocating concessional funds to this end. Second, there is an advantage when the issues at hand require similar methodologies to be applied in different countries.

In actual practice, the case of IIRSA-UNASUR (COSIPLAN) has conformed to the pattern presented above. The three regional financial institutions have worked closely on technical issues. The blend of concessional resources, technical assistance and the advisory role has contributed to a sustained work program and knowledge. Regarding of the lending of the bilateral program (country-institution), contents and projects were the result of a mutual agreement that accommodates national priorities and banks’ financial capabilities and operational modalities.

Institutional arrangements

As explained above IIRSA-UNASUR (COSIPLAN) has described a shifting institutional design. The early years (2000—2010) pivoted around a rather informal mechanism of inter-governmental dialogue and cooperation (Carciofi, 2008). The annual Presidential Summits contributed to raise expectations on results.

The process helped to lay the conceptual and technical grounds of the work program though it lacked the necessary rules for internalizing regional agreements at country level. The creation of UNASUR has solved this weakness. The institutional design is strictly inter-governmental adopting a model that is common currency in Latin American integration agreements. Being so, the process is rather cumbersome: decisions adopted by the regional body have to be implemented by national governments — either by administrative of legislative measures. The sequence of decisions and implementation takes time but, in principle, there are not formal loopholes that may restrain policy actions. Real obstacles lie elsewhere.

As discussed in the previous pages, the development of integration infrastructure entails significant coordination inputs and the need to internalize advantages and disadvantages at regional level. Additionally, there are marked asymmetries in the institutional capabilities for planning and project design at national level. Also, Bolivia and Paraguay, the two landlocked countries of South America, encounter particular connectivity needs (and higher investment levels). It is very difficult to come up with effective solutions to those issues when there are no regional funds available that could be allocated to the production of those (regional) public goods. As explained above, the role of regional financial institutions has helped but they provide a “second best” solution: they have a wider agenda to deal with and their own governance is subject to competing demands. It should be noted that the attempts at the creation of Banco del Sur have not materialized in actual results.”

Then the question arises: if the potential availability of regional funds might help to solve many of the current challenges, why have South American countries have not decided to set up the proper mechanisms? Is it a matter of budgetary resources or is it a political disagreement? Certainly, it is not easy to arrive at substantial understandings at the time of implementing decisions concerning deep integration. On that regard the political economy involved in this matter cannot be minimized. At the same time, it should be made clear that countries have invested considerable political resources that led to the deployment of this particular initiative. So, the lack of political will does not seem a very powerful argument. There is another dimension that has to be brought into the discussion and that was mentioned in Section 1: the degree of intra-regional trade in South America is low, intra-industrial exchange is shallow and cross-border investment is not strong enough. In order to make concrete progress towards deep integration there is a need to move forward on different fronts at the same time: convergent views on the strategy, economic policies that lead to increasing intra-regional trade and physical connectivity.

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