With global economy stuttering, governments urged to open purse

Thu Oct 9, 2014 5:05pm EDT
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By Howard Schneider and Anna Yukhananov

WASHINGTON (Reuters) - Advocates of a global infrastructure push foresee hundreds of billions of dollars of efficiently managed projects springing up across developed and developing nations alike, putting the unemployed to work while paving the way for stronger economic growth in the future.

But the effort could well founder on the politics tied to public spending in high-debt nations like the United States, as well as the realities of infrastructure itself: for every well-designed road or port, there's a "bridge to nowhere," an underused Olympic stadium or a pork barrel project that has added to government debt without a clear economic payoff.

The International Monetary Fund, a prime mover in the call for some governments to ease their fixation over debt and invest in economically worthy projects, warned in a recent report that while the best projects can pay off, “in practice, public investment decisions frequently are not guided by economic rationale."

Studies done by groups like the McKinsey Global Institute estimate the world needs to spend tens of trillions of dollars on airports, roads, bridges and power plants over the next 15 to 20 years.

It won't come fast.

In the United States, an Obama administration proposal to overhaul roads and bridges is stymied in Congress, evidence of the difficulty even wealthy nations may face in deciding between higher debt today and future productivity.

Canadian Finance Minister Joe Oliver, speaking to reporters on the sidelines of the IMF and World Bank fall meetings in Washington, also said there was no rush in his country.

"We understand the importance of infrastructure. The question is how much you devote to it. But we think Canadians, who are paying on average I think it is 43 percent of their income on some form of tax, ... are paying enough, too much actually," Oliver said.   Continued...

International Monetary Fund (IMF) Managing Director Christine Lagarde holds a news conference during the IMF-World Bank annual meetings in Washington October 9, 2014.  REUTERS/Jonathan Ernst