G20: New Proposals to Enhance Infrastructure

The Central Bank of Argentina and the Minister of Economy presided over the G20 Meeting of Finance Ministers and Central Bank Governors that took place in Buenos Aires, on March 19-20.

We would like to share an article by Demian Reidel, Second Deputy Governor of the BCRA and G20 Central Bank Deputy.

G20: New Proposals to Enhance Infrastructure

The G20 is a leading forum of economic governance, international cooperation and coordination, that includes 85% of gross world product, two-thirds of the world's population, 75% of international trade and 80% of global investments. Leading the group is a major challenge and places Argentina in a central position in the world. This year Argentina is in charge of setting the agenda, promoting consensus among the members. In a time where cooperation is so important for development, this task entails great responsibility.

Argentina’s G20 presidency has a double role: it is responsible for ensuring that the agenda remains the most relevant both at international and global levels and, in turn, for boosting those priorities connected with the local agenda. As a result, Argentina's G20 presidency set three priorities: the future of work, infrastructure for development and sustainable food future.

The Finance Track, led by the Minister of Economy and the Central Bank Governor, will mainly focus on the first two priorities. In this opportunity I would like to explain the proposal of Argentina to improve financing of infrastructure projects.

According to estimations, in the next 15 years USD 5.5 trillion will be needed to finance infrastructure programs to keep the current growth pace. Furthermore, institutional investors have about USD 80 trillion in assets available to be invested, precisely in long term and high yield projects.

How can we facilitate the flow of capital among those who have it and those who need it? Even though both sides desire so, today’s channels are not efficient enough. By setting this priority, the goal would be to create a new asset class that allows for standardizing parts of the financing process.

The standardization of sovereign bonds during the eighties serves to illustrate this point. Prior to this process, these assets were very different: each loan had different documentation. Over time, it became clear that drafting the same type of contract facilitated the diversification among investors and the understanding of financial assets, especially in case of default or asset restructuring.

The proposal of Argentina aims at achieving something similar for infrastructure projects. What would be the adequate legal structure for documents to be similar for those investors interested in financing the construction of a bridge in Argentina, a dam in Vietnam or a farm in Botswana? Without ignoring the individual characteristics of each project, territory and legal system; what would the minimum set of common structures be for the diversification of these projects? This is what we would like to start defining: a process that would facilitate liquidity in the secondary market and stimulate interest from investors.

We know this is a very ambitious goal, but we are aware that this will be a project to be continued in the coming years. This year, we will keep on working on the roadmap to be followed by future presidencies. Finally, we will continue working with the other members in order to reach an agreement including international standards that might be adopted by G20 members and any interested countries.

March 19th, 2018