Financing urban services in Latin America : spatial distribution issues

Abstract

This paper discusses urban services finance in the Latin American context of rapid urbanization, severe fiscal constraints and democratization of administrative systems. Analyzing the situation in thirteen different countries, it draws several conclusions which may be helpful in the design of new lending operations. The report's main theme is that the World Bank's approach to the urban sector needs to be re-directed. The structure of the report is as follows: first it reviews the rising demand for urban services, noting the positive correlations of rapid urban growth with national development, but also the corresponding, incremental fiscal pressures. The macro-economic constraints to urban expenditures are summarized and the adverse circumstances limiting new capital formation and service provision in Latin American cities is mentioned. The report also discusses whether Latin American governments are truly decentralizing and reviews the strategies to relieve the fiscal gap of subnational governments, including changes in the existing systems of revenue sharing, reassignment of public service functions, pricing adjustments, deregulation or privatization of certain services, technical assistance, and restructuring of institutional credit. The main findings and recommendations are organized according to three main groups: country concerns; theoretical concerns; and operational concerns. The text is accompanied by three case studies in Argentina, Brazil and Mexico.