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How can municipal funds contribute to Latin America and the Caribbean’s development?

April 18, 2023 por Luis Schloeter - Editor: Daniel Peciña-Lopez 1 Comment

Este artículo está también disponible en / This post is also available in: Spanish


Latin America and the Caribbean (LAC) has more than 17,500 subnational governments that are responsible for approximately 25% of total public administration spending. Among subnational governments (provinces, municipalities, etc.), cities are closest to the citizens, and therefore, they ar responsible to cover their most basic needs. In addition, cities are called to lead the action against climate change and will be the driving force for the countries of the region to comply with the Paris Agreements.

In this context, this year’s IDB Mayors Forum, which will be held in Denver on April 26th, seeks to support local governments in LAC to improve cities’ access to diversified sources of financing, beyond the transfers they receive from central governments. The goal is to strengthen municipal leadership so that they can overcome the enormous challenges they face, which they will not be able to meet without the involvement and leadership of their mayors.

For this reason, in the previous article in this series about municipal financing we explained what municipal funds are and how they work. Today we dedicate this blog post to show how municipal funds can play a crucial role in the region’s development by mobilizing financial resources and enhancing the technical capacity of local governments. Don’t miss it!

Ways in which municipal funds can contribute to development:

In today’s article, we will explain two of the most used ways in which municipal funds can serve to develop cities in our region:

1. Mobilizing financial resources:

Municipal funds have the potential to attract and channel public and private resources to priority municipal projects in areas such as infrastructure, housing, energy, water and sanitation, and urban development. Mobilizing these resources allows local governments to invest in projects that promote sustainable development and improve the quality of life of their citizens. By attracting public and private investment, municipal funds can contribute significantly to closing the infrastructure investment gap facing the region, estimated at approximately US$150 billion per year.

One example can be found in FINDETER, a Colombian state-owned financial entity created in 1989 to promote the sustainable development of regions and municipalities. Between 2010 and 2019 it approved credits for a cumulative amount of more than US$5 billion.

2. Strengthening municipal technical capacity:

In addition to mobilizing financial resources, municipal funds can improve the technical capacity of local governments in various areas, including:

  • Formulation of municipal plans: municipal funds can provide technical assistance and support in the development of land use plans and capital investment plans. Thus, they ensure that projects are aligned with local needs and development priorities.

  • Project implementation: they can also help local governments improve their project implementation skills by providing training and support in project management, contracting and supervision of works, and evaluation of results and impact.

  • Fiscal management and local tax collection: municipal funds can support local governments in strengthening their fiscal skills and local tax collection. This, in turn, will allow them to obtain more resources to invest in development projects. They can also serve as an incentive to increase the collection of local taxes and fees if access to the fund’s resources is made conditional on such collection.

Five lessons learned:

Based on international experience, we summarize below five lessons learned about the operation of municipal funds, which we hope will be useful for LAC cities embarking on their implementation:

  • Clarity in objectives and priorities: it is essential to establish clear objectives and priorities for municipal funds, ensuring that resources are allocated efficiently and effectively to projects that contribute to the sustainable development of communities.

  • Training and technical assistance: providing training and technical assistance to municipalities in project planning, implementation and monitoring can improve the efficiency and quality of investments.

  • Transparency and accountability: municipal funds should ensure transparency in resource allocation and accountability in project implementation, fostering public trust and citizen participation.

  • Citizen participation: involving the community in the design, planning and implementation of projects promotes transparency and accountability, and can help ensure that projects are more aligned with local needs and expectations.

  • Sustainability: to ensure long-term impact, municipal funds should promote projects that are economically, environmentally, and socially sustainable, and that contribute to the sustainable development of local communities over time.

The IDB’s Housing and Urban Development Division will be happy to advise cities in the region interested in developing municipal funds in their municipalities. Together we can achieve climate goals and make our cities climate resilient. Next week we will be back to share a new article where we will discuss examples of public-private partnerships in the region.

Related content:


Filed Under: Urban economics Tagged With: city financing, municipal funds

Luis Schloeter

Luis Schloeter es economista urbano con más de 10 años de experiencia profesional. Se especializa en infraestructura municipal, bienes inmobiliarios y desarrollo económico local con un enfoque en planificación estratégica y financiamiento. Tiene una trayectoria probada en la originación y gestión de proyectos de infraestructura urbana. Ha publicado estudios sobre infraestructura y finanzas municipales, descentralización y gobernanza urbana. Luis también tiene experiencia en la evaluación económica de proyectos de infraestructura y Asociaciones Público-Privadas. En América Latina, Luis gestionó un estudio de desarrollo orientado al tránsito y captura de plusvalías para el proyecto de tranvía de la Carrera 80 en Medellín, Colombia. En Costa Rica, brindó asesoramiento técnico para un estudio de project finance para una importante iniciativa de regeneración urbana e inmobiliaria en San José. En Panamá, apoyó actividades de planificación estratégica para proyectos de inversión en infraestructura en varias ciudades intermedias con activos patrimoniales. En el Reino Unido, Luis lideró un estudio de evaluación económica para el desarrollo de un proyecto de vivienda verde que entregará 2,350 unidades en Manchester. También trabajó exitosamente en una propuesta para la designación de un área de puerto libre en East Midlands. Luis también apoyó el desarrollo de un caso estratégico y económico para la regeneración de un sitio industrial en desuso en el norte de Inglaterra, que atraerá inversiones y creará nuevos empleos en sectores de alto valor. Actualmente, Luis es Especialista Sectorial en Vivienda y Desarrollo Urbano del BID en República Dominicana. Anteriormente fue Economista Senior en Vivid Economics del Grupo McKinsey & Company en Londres, Reino Unido. Luis tiene una Maestría en Desarrollo Económico Urbano de University College London y una Maestría en Planificación Urbana de la Universidad de Nueva York. También es un Analista Certificado en Modelaje y Valuación Financiera. En América Latina, Luis gestionó un estudio de desarrollo orientado al tránsito y captura de plusvalías para el proyecto de tranvía de la Carrera 80 en Medellín, Colombia. En Costa Rica, brindó asesoramiento técnico para un estudio de project finance para una importante iniciativa de regeneración urbana e inmobiliaria en San José. En Panamá, apoyó actividades de planificación estratégica para proyectos de inversión en infraestructura en varias ciudades intermedias con activos patrimoniales. En el Reino Unido, Luis lideró un estudio de evaluación económica para el desarrollo de un proyecto de vivienda verde que entregará 2,350 unidades en Manchester. También trabajó exitosamente en una propuesta para la designación de un área de puerto libre en East Midlands. Luis también apoyó el desarrollo de un caso estratégico y económico para la regeneración de un sitio industrial en desuso en el norte de Inglaterra, que atraerá inversiones y creará nuevos empleos en sectores de alto valor. Actualmente, Luis es Especialista Sectorial en Vivienda y Desarrollo Urbano del BID en República Dominicana. Anteriormente fue Economista Senior en Vivid Economics del Grupo McKinsey & Company en Londres, Reino Unido. Luis tiene una Maestría en Desarrollo Económico Urbano de University College London y una Maestría en Planificación Urbana de la Universidad de Nueva York. También es un Analista Certificado en Modelaje y Valuación Financiera.

Editor: Daniel Peciña-Lopez

Daniel Peciña-Lopez is a specialist in international affairs, external relations and communication. He has more than 10 years of professional experience in diplomatic delegations, and international organizations in cities such as Washington DC, New York, Chicago, Madrid, Mexico City and Hong Kong, among others. Daniel is Master of International Affairs from Columbia University, Master of Science from the University of Oxford Brookes and Licenciado from Universidad Complutense de Madrid. In 2010 Daniel received the First National Award for Excellence in Academic Performance, from the Ministry of Education (Government of Spain) for being the university level student with the highest average GPA score in the country.

Reader Interactions

Comments

  1. GILBERTO CHONA says

    April 25, 2023 at 6:36 pm

    Buen blog! Eguino y Chona (2021) discuten en detalle la viabilidad fiscal y financiera de los municcipios en ciudades capitales (metropolitanas), incluynedo la posibilidad de crear fondos municipales de inversion.

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Este es el blog de la División de Vivienda y Desarrollo Urbano (HUD) del Banco Interamericano de Desarrollo. Súmate a la conversación sobre cómo mejorar la sostenibilidad y calidad de vida en ciudades de América Latina y el Caribe.

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