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WB: Stimulus Funds Able to Generate at Least 2 Million Jobs in Latin America

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  • Every US$1 billion invested in infrastructure projects can generate 40,000 new jobs
  • Road maintenance alone would create 200,000-500,000 jobs per every US$1 billion spent

August 3, 2009 - Veteran truck driver Fernando Villa gazes at his calloused hands which, he says, have saved his life on several occasions on the winding roads of rural Peru.

“Those roads are like the lines you see here,” he adds, showing the grooves and scratches forming a chaotic pattern on his right hand in need of attention, especially now that they are idle due to the lack of cargo to deliver.

Although Villa knows Peruvian roads like the back of his own hand, he is happy that the Government is investing millions of dollars to repair inland roads. The investments are part of an incentive package that will create thousands of jobs and, combined with other efforts in the region, could even generate millions of employment opportunities, according to World Bank estimates.

The projection is part of a study conducted by World Bank experts on the job creation potential of several fiscal stimulus packages that are being implemented in some of the region’s largest economies, including Peru, Argentina, Mexico and Brazil.

According to the study, "Infrastructure Investment and the Potential for Employment Generation,” such fiscal tools have the capability to generate at least two million new jobs per year in public works, one of the primary investment targets of the stimulus packages.

In this context, the maintenance of rural roads and sanitary projects are the main potential sources of job creation due to their relative ease of implementation.

According to World Bank expert and study author, Jordan Schwartz, projects on rural highways alone can generate from 200,000 to 500,000 jobs per every US$1 billion invested. Schwartz estimates that the regional total of economic stimulus packages for public works is US$25 billion, causing job creation potential to dramatically jump to between 5 million and 12 million jobs annually, depending on the local pay scale and other factors. Total regional commitments to public works projects in 2009 is US$125 billion.

Infrastructure Investment
Click the image to enlarge

Resource Injection
Schwartz states that the maintenance of rural roads injects resources directly into the heart of local economies, since about 90 percent of the investments are allocated to paying workers, who, in turn, spend it immediately on basic needs such as medications, food and clothing.

“All this quickly spills over into the economy and creates a stimulus chain effect,” he adds.

This is good news amidst a somber outlook of economic downturn resulting from the global financial crisis, which is raising regional unemployment rates to above historical averages. During the first three months of 2009, Latin America had an 8.5 percent unemployment rate, a jump of more than half a percentage point as compared to the same period last year (7.9 percent).

Individually taken, countries across the region show higher unemployment rates and falls in net job creation, according to the World Bank.

Chile, which largely managed to deflect the impact of the crisis, posted an unemployment rate increase of 2.1 percent last month, as compared to the same period a year ago. Colombia and Mexico registered almost a full percentage point change while Brazil remained at 0.4 percent. Each of these cases has been accompanied by important falls in net job creation since mid 2008.

In this context of a rapidly deteriorating labor market, the job creation function of infrastructure investment is not to be underestimated, according to Schwartz.

The World Bank is involved in several public works projects via its Sustainable Development unit, which include initiatives in Peru, Argentina, Guatemala, Paraguay, Mexico and Jamaica, among other countries.

The Peruvian project is in the final stages of discussion and includes US$450 million in funding for the maintenance of rural routes which, Villa noted, are the arteries of the Peruvian roads network.

Similar initiatives are underway in Argentina, with US$400 million for urban and rural roads; Colombia, with US$600 million for the national 2009-2010 urban transportation program; and Mexico, with its urban transportation program amounting to US$700 million in loans and investments. Other projects, although smaller in size, include: rehabilitation and maintenance of roads in Paraguay with funds totaling nearly US$70 million; and public works in Jamaica which amount to US$15 million. Click here to view projects’ details .

Trabajos en caminos

Roadblocks ahead
Not everything is a bed of roses, however. Latin American governments face several challenges along the way to ensuring that stimulus packages achieve the expected outcomes.

The first challenge is timeliness. A key aspect for the success of any fiscal injection is the psychological factor. In part, this strategy seeks for the public to realize that the economy is improving and thereby increase their consumption habits.

“If projects take too long to be implemented, the opportunity is missed and package impacts weaken,” says Schwartz.

On the other hand, there is also the risk of spending in a hasty and disorderly manner, for which middle ground must be achieved, says the expert. Ideal projects, he emphasizes, are those which already have supporting feasibility and technical studies to guide them.

Other potential threats for success include balancing contradictory forces such as the immediate need to create employment versus long-term goals, such as the fact that building new roads could increase carbon emissions.

Additional factors that play against the successful implementation of public policies include corruption and the government’s capacity to fund the proposed projects, which could vary depending on each government’s budget leeway.

“What we want is for governments to be aware that stimulus packages have an enormous job creation potential, but at the same time, the impact will depend on what they do with their money and how they do it,” stressed Schwartz.

For potential beneficiaries like Fernando Villa and millions of workers who could benefit directly and indirectly, this is a bet that, if made wisely, could put those experienced, but now idle, hands to good use.