Panama Canal

Panama Canal

Many economists argue that the physical infrastructure of Latin American and Caribbean countries is insufficient to maintain favorable economic development. Adequate physical infrastructure is the foundation for economic development and the elimination of poverty. In other words, there is a direct relationship between the development of physical infrastructure, economic growth, and material progress in social well-being. The absence of such infrastructure places limitations on a region’s international competitiveness, interregional trade, and foreign investment. Physical infrastructure refers mainly to public transportation (including roads, highways, railroads, ports, airports, etc.), telecommunications, potable water and electric energy systems, sanitation and education.

The World Economic Forum’s (WEF) Global Competitiveness Index for the Latin America and Caribbean region is 3.75, significantly lower than other countries. Hong Kong (at 6.77) has the highest index, similar to other Asian countries that have invested in physical infrastructure, such as South Korea (5.59). According to a report by the World Bank, it is estimated that if the physical infrastructure in the Latin America and Caribbean region were improved to the level of South Korea, the gross domestic product (GDP) would reflect increases of between 1.4% and 1.8% per year and poverty would be reduced by between 10% and 20%. It is estimated that “logistical costs” (costs related to the absence of adequate transportation infrastructure) of doing business in Latin America and the Caribbean range between 18% and 40% of GDP, which compares poorly with 9% to 10% in the Organization for Economic Co-operation and Development (OECD) member countries.

New intraregional infrastructure development efforts have begun during the new 21st century. Among the most significant of these intraregional initiatives is the expansion of the Panama Canal and multiple subregional infrastructure projects, such as the South American Regional Infrastructure Integration Initiative (IIRSA, for its Spanish acronym) and the Caribbean Community (CARICOM). The Mesoamerican Project includes ten countries of the Central American isthmus and the CaribbeanBasin (Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Colombia, Mexico and the Dominican Republic) and its objective is the coordination of subregional infrastructure projects. Among its projects are the Mesoamerican International Highways Network (RICAM, for its Spanish acronym) and the Mesoamerican Information Superhighway (AMI, for its Spanish acronym).

In South America, the IIRSA, consisting of the twelve MERCOSUR member countries (Argentina,Brazil, Paraguay, Uruguay, Bolivia, Colombia, Ecuador, Peru, Chile, Guyana, Suriname and Venezuela) is aimed at improving the regional transportation, energy and communications infrastructure. In the Caribbean islands, physical infrastructure development agreements at the subregional level have been created within the CARICOM framework, particularly in the areas of maritime and air transportation, which is one of the infrastructure elements most lacking in the region. The Caribbean islands have experienced an increase in tourism, particularly in cruise ship tourism, which has shown the current physical infrastructure to be insufficient, particularly in terms of water scarcity, the absence of adequate maritime and air transportation between the islands, and a significant increase in vehicular traffic on land. These shortfalls remain a challenge within the development of physical infrastructure at a regional level.

Author: Luis Galanes
Published: June 24, 2012.

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