Financing for President Juan Manuel Santos‘ $25 billion highway project has been funded by a hypothetical bond that Colombia’s infrastructure agency helped create, Bloomberg reported on Tuesday.
The $25 billion project “highways for prosperity” has been a main issue in Santos’ re-election campaign, but financing for the project in fact does not exist, according to Bloomberg.
Colombia’s international infrastructure agency (ANI) has helped to create the artificial bond over the last two years since the project began in 2012.
The president’s “highways for prosperity” program was presented two years ago while the Santos administration has called its initiative a “revolution in Colombian infrastructure,” claiming it would create 23,000 jobs during the construction process alone.
According to Bloomberg, the hypothetical bond was to “serve as a model for peso-denominated notes that could be sold to fund projects.”
Global rating agency, Fitch Ratings, reported that this kind of security would — if it existed — merit an AA+ grade on its national scale.
The AA+ rating is only one level below the ultimate top rating AAA, but many levels above the actual credit rating Colombia has received by various rating agencies. The agency now shows the AA+ rating to builders to persuade them to find financing in the bond market, which is cheaper than the preliminary rates banks offer, Bloomberg reported.
As of yet, the Colombian government has only received seven proposals on the first four projects of the program. The government blames banks’ high interest demands for the few biddings, and this is where bond buyers come in.
Luis Andrade, head of the ANI, told Bloomberg, “If we let the market figure it out by itself, it’s going to take too long.”
Colombia ranks 130th out of 148 economies when it comes to quality of roads on the World Economic’s Forum competitiveness list.
On the 2014 world rankings of logistics and infrastructure, Colombia ranks 97 out of 160, partially due to the long transportation times in the country.
ANI announced on Tuesday that they had received biddings for the project Pacific 3 Concession in western Colombia’s coffee region, which is part of the “highway for prosperity.”
Out of ten approved bidders, the agency only received two proposals, according to Bloomberg.
According to ANI, the project will generate more than 4,100 jobs per year during the construction phase, which is 5 years.
Obstacles in road maintenance and poor infrastructure development have been some of the main issues Colombia has faced in terms of establishing free trade agreements with South Korea.
- This Nonexistent AA+ Bond Is Colombia’s Plan B for Roads (Bloomberg)
- International LPI Global ranking (The World Bank)
- ANI recibirá propuestas para Conexión Pacífico 3 de Autopistas para la Prosperidad, transmisión via streaming (ANI)
- Colombia Credit Rating (Trading Economics)
- Presentan oficialmente el proyecto Autopistas de la Prosperidad (Presidencia de la República)