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Colombia's $15 Billion Road Plan Bounces Back From Bribe Scandal

Colombia's $15 Billion Road Plan Bounces Back From Bribe Scandal

(Bloomberg) -- Colombia’s $15 billion highway program has come roaring back to life as laws to protect investors help confidence recover from a massive kickback scandal that had paralyzed the sector.

Public works expanded 8.5% in the first quarter from a year earlier, a rare bright spot in an economy that has struggled to grow since oil prices crashed nearly five years ago.

Colombia ranks 102 out of 140 nations in road infrastructure quality, behind Bolivia and Sierra Leone, according to World Economic Forum’s Global Competitiveness report. Fixing that problem, which has bedeviled Colombian industry and agriculture for centuries, can boost growth for a generation, the government believes.

“Civil works is what’s going to save us this year,” said Sergio Olarte, head analyst at Scotiabank Colpatria. “It seems that the financing of the projects have become more stable.”

Foreign fund managers including Blackrock and Ashmore are providing financing for some of the latest projects. The FDN development bank forecasts 28 trillion pesos ($8.4 billion) in funding for a total of 20 projects by the end of 2019.

Colombia's $15 Billion Road Plan Bounces Back From Bribe Scandal

After Colombia’s oil boom ended after the 2014-2015 crash in crude prices, road-building became one of the economy’s main growth engines. But in 2016, Brazilian construction giant Odebrecht S.A. admitted to paying hundreds of millions of dollars in bribes across the region, including in Colombia, to win contracts.

A project to build a section of a 621-mile highway connecting the center of Colombia with the Caribbean coast was scrapped after Odebrecht admitted to paying a bribe to win the contract. Investors bolted on concerns of reputational risk and potential liabilities.

In an effort to turn sentiment around, Colombia’s congress in 2017 enacted legislation aimed at protecting so-called good faith investment in highway projects nationwide. Since then, banks are once again taking a more active role in financing the projects, Louis Kleyn, head of the country’s National Infrastructure Agency said earlier this year.

Early signs of a rebound in confidence could be seen last October: Bancolombia, BBVA’s Colombia unit and a BlackRock debt fund among others provided 1.7 trillion pesos in financing for a 120-mile-long project.

In March, a group including BlackRock, German development lender KfW, Sumitomo Mitsui Banking Corp and Societe Generale SA reached an agreement to finance a 2.23 trillion-peso project to connect Colombia’s northwest with its Pacific coast.

To contact the reporter on this story: Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editors responsible for this story: Matthew Bristow at mbristow5@bloomberg.net, Robert Jameson

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