Capital Financing for Municipal Infrastructure: Choices as Viewed by the Enterprise and the Investor
Johnson, R. W. (1997). Capital Financing for Municipal Infrastructure: Choices as Viewed by the Enterprise and the Investor.
It has become commonplace to estimate the demand for capital to finance infrastructure investments in emerging market countries, and to note that the traditional sources of infrastructure investment capital in these markets -- central government budgets and multilateral development agencies -- are not adequate to meet the demand.The menu of financing choices that municipal governments and municipal enterprises is rapidly expanding, but there has been relatively little said so far about how to make selections from that expanding menu. Service suppliers (municipal governments, local enterprises such as water authorities) may be able to access private capital markets through a variety of mechanisms -- issuing bonds, borrowing from an intermediate financial institution such as a municipal development fund or municipal bank, and securing equity investments in a variety of ways from private investors. But how do the municipal service providers choose from the menu? And how do central governments and local governments, acting together, develop the policy framework to encourage the expansion of this menu of choices?This paper examines choices among different mechanisms for accessing investment capital. We view these choices from two distinct viewpoints, that of the individual service enterprise, and that of the investor. The aim of this examination is to encourage policy makers to consider the decisions they make on policy, and on technical assistance and training, as setting the framework within which municipal governments, municipal enterprises and the capital markets will conduct the transactions that will produce the infrastructure so badly needed.