Building Bridges of Prosperity: Lessons from Latin America's Infrastructure Successes

By: Victorino Bernal & Fernando Mendez

Itaipu Dam Night

Introduction: The Infrastructure Paradox

Latin America and the Caribbean (LAC) confront one of the most significant paradoxes in global development: a region rich in resources yet crippled by a massive and enduring infrastructure gap. This deficit is not merely an inconvenience but a structural impediment to economic growth, social equity, and climate resilience, costing the region hundreds of billions of dollars annually in lost productivity.

Estimates consistently underscore the severity of the problem. According to the Inter-American Development Bank, LAC needs to invest a minimum of 3% to 5% of its Gross Domestic Product (GDP) every year until 2030 to achieve the Sustainable Development Goals (SDGs) and maintain adequate infrastructure. This translates to an annual investment shortfall, or "gap," often cited at over $150 billion. Furthermore, projections indicate that without immediate structural intervention, the total public investment gap could surpass $2.2 trillion by 2030.

The consequences are visible across every sector:

• Transportation: Paved road density is low, and the region’s railroads are stagnant, ranking comparably to levels in Sub-Saharan Africa.

• Water and Sanitation: Less than 10% of the rural population typically has access to sewage systems, creating severe public health crises.

• Digital Connectivity: The digital divide remains palpable, with significant portions of the rural population lacking basic internet access, hindering remote education and economic participation.

However, amid this environment of deficiency and risk, the region has produced successful, large-scale infrastructure projects—models of efficiency and governance that defy the generalized narrative of failure. These successes prove that the challenge is not one of capital scarcity alone but of governance and risk mitigation as well. This article examines said dichotomy, first summarizing the common pitfalls that erode investor confidence, and then detailing the essential blueprint for effective, sustainable investment that successful Latin American projects have pioneered.

The Perils of the Past: Common Pitfalls

To achieve success, in-depth observations must be made at the deep-seated structural issues that have historically derailed projects, leading to massive cost overruns, delays, and investor pause or outright flight.

Political Instability and Legal Uncertainty

Infrastructure projects, particularly large concessions involving Public-Private Partnerships (PPPs), are long-term commitments, often spanning 20 to 30 years. This timeline exposes investors & operators to the turbulent flows of regional politics. Changes in government frequently lead to abrupt policy reversals, judicial intervention, and a lack of continuity.

These policy reversals regularly come due to new administrations’ anti-incumbent sentiment or populist pressures, often challenging or attempting to renegotiate contracts approved by their predecessors. This legislative and regulatory instability makes it nearly impossible for private partners to accurately model cash flows and secure long-term debt financing. Richard Puttré, Partner at Winston and Strawn, LLP focused on energy and infrastructure assets throughout the US and Latin America, notes:

I have experienced issues on convertibility of local currency to U.S. dollars that’s causing difficulty in terms of repayment of debt that was denominated in U.S. dollars. There needs to be access to international [currency] exchange in some of these projects to prevent there from being a [gap]. The money just goes down the path of least resistance.

The core issue is that the capital expenditure needed for large projects is typically U.S. dollar-denominated, and Central Bank restrictions on the amount of dollars that can be taken out of a country prevents foreign investment. This dollar/currency risk is seen as a major factor, alongside political risk, that causes international investors to go elsewhere.

Legal frameworks, especially those governing land expropriation and environmental permits, are often weak or inconsistently applied. Projects have been bogged down in the courts for years, not for lack of planning, but because judicial intervention is often burdensome, politically influenced, and lacks specialized expertise to resolve complex infrastructure disputes. This uncertainty translates directly into higher risk premiums for the private sector.

Beyond judicial challenges, a lack of long-term infrastructure plans providing continuity to projects remains one of the most highlighted impediments to sustained investment anywhere.

 

The Systemic Corrosion of Corruption and Lack of Transparency

Corruption is the single greatest multiplier of risk and cost in Latin American infrastructure. It does not merely steal funds but also destroys the institutional trust necessary for successful PPPs. Transparency International consistently highlights the region’s high average level of perceived corruption, a factor directly linked to lower FDI and economic welfare.

A notorious example of this systemic corruption emerged in the mid-2010s with the Odebrecht scandal, which revealed a sprawling, systematic bribery scheme across at least a dozen countries in Latin America, the Caribbean and Africa. The scandal exposed illegal payments made by the construction giant in exchange for lucrative government contracts, often resulting in inflated project costs far above market value. Beyond financial theft, the scandal revealed the profound complicity between political elites, public officials, and private contracting firms. This forced several major infrastructure projects to be halted or placed under review, triggering massive economic losses and shaking public faith in the PPP model. The Odebrecht case crystallized the need to move beyond simple anti-corruption laws to implement proactive strategies: strengthening the due diligence process for contractors, digitalizing information processing to reduce official discretion, and establishing clear accountability frameworks. The institutional damage done to both private and public institutions remain immeasurable.

The Foundations of Success: A Blueprint for Effective Investment

Despite the shadows of the recent past, certain projects and nations have established a clear blueprint for overcoming these systemic challenges. Success hinges on four integrated pillars: structured governance, legal stability, localized integration, and long-term planning.

Strong Public-Private Partnerships (PPPs) Backed by Governance

Successful infrastructure in Latin America is increasingly financed and managed through robust PPP models, which transfer design, construction, finance and operational risks to the private sector while leveraging public sector stability. Tim Formuziewich, Managing Director at I Squared Capital, notes that:

In Latin America, countries are reliant on private capital to fund and expand infrastructure given the government’s limited ability to do so and, as a result, understand that returns need to be appropriate to attract capital on a risk-adjusted basis. In the case of developed markets typically the courts have enforced protections on investors where losses have occurred, judicial independence is very important. While we do look to invest in countries that want foreign private capital and set policies to attract it, we only do so when we view the country as having a strong rule of law, independent judiciary and independent regulators. Anything that puts those at risk would be a vulnerability. I would suggest the power markets in Brazil as a whole is a good example of a country / sector that has offered regulatory stability to attract investor support.  Since the reforms of FHC of the late 90s and early 00s, the growth of the power sector has been funded entirely by private capital.  The regulators have, over a period of decades and different administrations, worked to address a variety of market events, many of which have been driven by weather given the power markets reliance on water, wind and sun. The water and sanitation reforms that occurred under [recent] administrations are another recent example that have resulted in significant private capital inflows.

Colombia's 4G and 5G road (Vías, not to be confused with telecommunication investments) programs are often cited as best practice as well. The country introduced the 4G road program: a $24 billion initiative covering 7,000 kilometers. The success of this program was due entirely to institutional reform. Colombia established the National Infrastructure Agency (ANI, in Spanish) which standardized contractual documents, professionalized project management, and created specialized risk allocation mechanisms. The government provided explicit, state-backed guarantees for certain specific risks, like minimum traffic revenue shortfalls, thereby reducing investor uncertainty and attracting institutional funds, including local pension funds and international investors. This structure makes financing predictable. Building on that success, the 5G program expanded beyond roads to include airport, rail and river infrastructure integrating multimodal transport and demanding greater technological integration and social-environmental compliance, proving that the model is both scalable and adaptable. For Mr. Puttré, he emphasizes that:

In the absence of a legislative fix to ensure subsequent administrations cannot cancel or renegotiate projects, the single most critical factor for governments is to offer a transparent bidding process with a concession agreement that reflects a proper allocation of risk between the public and the private sector. You can have excellent concession contracts... But if the subsequent administration comes in and changes the rules or changes the economic terms or cancels the projects, [then] the legislative reforms in any given administration need to be binding on subsequent administrations, but there's no real legislative fix for that. If a government attempts to offload all risks onto the private entity, cross-border investment will dry up. The solution lies in establishing a framework where the enforceability of that needs to be understood in the market to be long term for the life of the concession agreement.

Focus on Comprehensive Sustainability and Climate Resilience

Successful modern projects recognize that sustainability is not a cost, but a risk mitigator and value driver. Multilateral banks, like the IDB and World Bank, demand high ESG standards, effectively raising the bar for projects they finance. This ensures projects are designed with minimal ecological impact, fair labor practices, and transparent governance structures. Given the escalating threat of hurricanes, flooding, and droughts, resilience is a necessity. For coastal roads, ports, and water treatment plants, this means higher capital costs upfront for designs that can withstand hazardous weather events. This investment ensures long-term asset security and minimizes taxpayer burden from post-disaster reconstruction. Projects that demonstrate high sustainability credentials can tap into the rapidly expanding global market for green and sustainable bonds, should that be a criteria for investors. This market offers lower financing costs and attracts a wide base of institutional investors who have mandates to invest in environmentally friendly assets.

Strategic Planning and De-politization

The final pillar is the capacity of the public sector to professionalize the project development pipeline, ensuring project readiness. Institutions like the IDB and CAF (Corporación Andina de Fomento - development bank of Latin America and the Caribbean) have focused on building national project preparation facilities that fund the expensive, specialized front-end work (feasibility studies, legal structuring, detailed engineering). This creates a pipeline of bankable projects, reducing the time between ideas and financial closure, a significant challenge historically marked by slow approval process, and a lack of project readiness. The most effective governments establish independent or specialized technical bodies whose mandate is to evaluate projects based solely on economic efficiency and technical merit, insulating decision-making from short-term political pressures. This approach ensures that capital is directed toward projects with the highest societal return.

Conclusion: Building the Way into a Brighter Future

Latin America’s infrastructure gap is daunting, representing a monumental challenge to its future prosperity. However, the successful projects already in place provide a clear, repeatable, and non-negotiable roadmap for investors and policymakers.

The era of relying solely on public funds, opaque contracts, and political expediency is over. The future of infrastructure development in Latin America belongs to those who embrace the following principles:

1. Institutional Resilience: Implementing specialized PPP agencies and independent oversight bodies that are insulated from electoral politics

2. Transparent and Enforceable Contracts: Utilizing international standards, ring-fencing agreements, and mandatory digital tracking to combat corruption and ensure legal certainty.

3. Prioritizing People and Planet: Ensuring that investments are not only economically sound but also socially inclusive and environmentally sustainable

   
   

By learning from both the historical pitfalls and the triumphs achieved, Latin America can unlock its vast potential. Investing in this blueprint is the crucial step towards converting financial risk into sustainable economic growth and demonstrably improving the quality of life for its citizens.