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Models for financing clean infrastructure in middle income countries

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A. Sahoo
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Many rich countries can rely upon sophisticated financial systems, established regulation and policy, a large pool of institutional investors and governments with relatively strong financial positions to help them meet the infrastructure investment needs of their relatively slow growing economies.

The investment needs of poor countries are often relatively small and these countries can predominantly rely upon the international development community to help them address their needs.

But what if a country is in between? What if it is big and fast growing, with substantial infrastructure investment needs, but immature financial systems and a scarcity of domestic long term investors? Failure to meet these infrastructure investment needs can stunt a country’s growth, but wasting money on too much of the wrong infrastructure can wreck an economy.

Add to this the challenge of climate change that can add substantial infrastructure investment needs to countries rich, poor and in between. India and Brazil are two countries in this middle ground that have tried very different solutions to address this challenge.

Brazil has used a highly centralized model with a strong national development bank (BNDES) to provide stable and relatively low cost finance to infrastructure projects.

India has used a more decentralized approach with a diverse set of public and private financial institutions delivering finance on more or less commercial terms.

[Extracted from author abstract]