Policies for low-income groups
Latin America is a region with high levels of poverty and extreme poverty, and the worst income distribution in the world. Of greatest concern is the fact that in recent years it has virtually not shown any significant signs of positive change. For this reason, the sector policy must contain specific mechanisms for effective subsidies to address this issue. This requirement is even more pressing if tariff ad- justments are planned in order to approach self-financing levels, and, additionally, access to services needs to be expanded since in both situations there is a conflict with the low ability to pay of major groups of the population. Here, once again, the Chilean experience is worth noting because a subsidy system has been in place since 1990 to help pay the drinking water and sanitation bills of the low-income population. It is a direct subsidy, financed with national budget resources, and it is granted in a targeted manner through a formal survey, the bases and guidelines of which are established by the national government.
Financing policies
One of the main characteristics of the drinking water supply and sanitation in- dustry is that it is very capital intensive. This feature of the sector’s assets, along with the size of investments required in most of the region’s countries, shows the importance of having an adequate, long-term financing structure in place that will make the sector strategy sustainable.
In this sense, the experience of Chile and of some companies in Brazil has les- sons to offer in terms of using the capital market to secure long-term, low-cost financing. The experience of services in Argentina, on the other hand, shows that certain excessive external borrowing practices are best avoided because they carry high risks, especially in very volatile economies with recurring crises and macro- economic instability.
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