| This paper reviews the Latin American experience with highway privatization during the last decade. Based on evidence from Argentina, Colombia and Chile, we find that private financing of new highways freed up fewer public resources than expected because public funds were often diverted to bail out franchise holders. Furthermore, many of the standard benefits of privatization did not materialize because of pervasive contract renegotiations. We argue that the disappointing performance of highway privatization in Latin America was due to two fundamental design flaws. First, countries followed a privatize now, regulate later approach. Second, most concessions were awarded as a fixed-term franchise, thereby creating a demand for guarantees and contract... |
