Multilateral-Sponsored Municipal Bond Insurance: A New Approach to Promoting Infrastructure and Capital Markets Development in Latin America

Abstract

ACILITATING urban infrastructure development and promoting the growth of local capital markets are among the most important development objectives for Latin America.For the most part, however, multilateral development organizations such as the World Bank and the Inter-American Development Bank (IDB) have addressed these two development issues separately.Multilateral-sponsored infrastructure development initiatives have focused primarily on providing technical assistance, equity grants, and subsidized bank loans, while capital markets development initiatives have consisted largely of policy-based advising and advocacy of structural reforms.'This Note proposes the use of multilateral-sponsored, local-currency municipal bond insurance to the most credit-worthy Latin American municipalities as a more leveraged, holistic approach to promoting development.Of the few multilateral-sponsored credit guarantee programs that have been implemented, most are designed for private capital investments and, in limited circumstances, sovereign debt securities. 2 A multilateral-sponsored municipal bond insurance program could reduce municipalities' financing costs for specific projects and encourage decentralization within the region, while simultaneously promoting the growth of domestic capital markets by encouraging greater reliance on these markets by Latin *J.D.