Development Aspects Impressum Editors

Contractual arrangements and guarantees

One aspect that is extremely important to keep in mind when designing legal frameworks is to avoid granting excessive guarantees in order to attract the par- ticipation of private companies. These guarantees, which do not appear as direct expenditures at the time they are taken, can generate significant contingent liabili- ties further down the road (Solanes and Jouravlev, 2007). Unlike other countries in the region, especially Argentina, the privatization process in Chile did not include deliberate measures on the part of the state to reduce the exchange rate risk for foreign investors, and yet the lack of exchange guarantees did not hinder the incor- poration of foreign capital and the development of the sector.

9. International investment protection treaties

In some cases, for example in Argentina, the economic crisis, which was accompa- nied by a devaluation and financial collapse, aggravated regulatory conflicts and led to contract renegotiations, which, because they were not settled amicably,

ended up as demands in international arbitral tribunals.⁵ This experience illustrates the importance of structuring the legal framework to include avenues for local conflict resolution, thus avoiding the need for international arbitration. Further- more, regulation is better governed by a general legal framework, as opposed to specific contracts, since this provides greater protection to the authority awarding the contract in the case of disputes arising as a result of possible modifications or events affecting the contract’s environment.

References

Bohoslavsky, J. P. (2010). Tratados de protección de las inversiones e implica- ciones para la formulación de políticas públicas (especial referencia a los ser- vicios de agua potable y saneamiento). Project Document Series, LC/W.326. Santiago, Chile: Economic Commission for Latin America and the Caribbean. Available from www.cepal.org/publicaciones/xml/4/40484/lcw326e.pdf.
ECLAC (1989), La gestión de los recursos hídricos en América Latina y el Caribe, Estudios e Informes de la CEPAL, No. 71, LC/G.1523-P, Santiago, Chile.