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Introduction

As several analysts have noted, project finance deals in Latin America showed a significant increase in 2017 compared with 2016 (both in volume and value), primarily owing to the continued recovery from the economic slowdown in the region that began in the second half of 2015 and continued into the second quarter of 2016.[i] A majority of deals in 2017 were power deals, with both telecommunications and mining deals also attracting a relatively high number of projects.[ii] As demonstrated in 2017, the Latin American economy continues to expand, driven by strong global growth, increased prices of key regional commodities, low inflation and relatively favourable monetary policy, although this growth slowed in 2018.[iii] The first quarter of 2018 showed a decrease in volume and value of project finance deals. Analysts attribute some of this decrease to slowdowns in key regional economies, Brazil and Mexico, explaining the remainder of the decrease as a seasonal fluke. Despite those initial weak numbers and recent erosion of regional currencies owing to general global geopolitical uncertainty and a tight monetary policy in the United States, project finance numbers were strong in the second quarter, and analysts expect that economic recovery will continue in the region.[iv] Latin America's existing infrastructure gap across the energy, transportation, telecommunications and water/sanitation sectors throughout the region is widely recognised and continues to require financing resources that are beyond government budgets.

While international commercial banks and investors are increasingly coming back into the project finance market in Latin America to participate in deals that in previous years were funded solely by multilaterals and export credit agencies, such as the renewable energy sector, there continues to be a heavy reliance on local banks, debt and equity markets and government agencies to make up for the shortage of credit. This could be a result of uncertainty arising from the recent change in the governing parties of Mexico and Colombia as well as ongoing NAFTA renegotiations. As a result, analysts continue to expect heavy investment from abroad and an increase in alternative lending vehicles such as public-private partnerships and project bonds to address shortfalls arising from the public sector's inability to fund many of the ambitious increases in infrastructure spending announced by governments throughout Latin America. As there is great demand in the governments of the region for investments of every type and as the number of international players continues to slowly increase, local counsel will continue to play a pivotal role in navigating the complex legal landscapes existing as a result of the ambitious programmes announced by such governments and any actions taken by their respective national regulators and central banks.



[ii] Mid-Year Review - 1H 2018 league tables, Project Finance International, 11 July  2018; available at www.pfie.com.

[iii] Economic Snapshot for Latin America, 7 March 2018; www.focus-economics.com/regions/latin-america.

[iv] Economic Snapshot for Latin America, 13 May 2018; www.focus-economics.com/regions/latin-america.

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