Buying in: as free trade looms, Colombia gets ready to spend big on ports, road and rail.

After decades of neglect, infrastructure improvement is a hot topic in Colombia, and nowhere is that more evident than in the sixth floor office of the country's Transportation Minister Andres Uriel Gallego. The conference table is covered with reports and charts while the wails are adorned with relief maps he uses regularly to show where projects are taking place or are planned. He speaks quickly and has a lot to say.

A longtime political ally of Colombian President Alvaro Uribe--he was head of public works in Antioquia when Uribe was governor of the region--Gallego is in charge of the sweeping effort by administration to bolster Colombia's long neglected infrastructure. "Economic limitations on fiscal resources has kept us from spending as much on infrastructure in the past," says Gallego. "Colombia has delayed investment in many sectors, not just infrastructure. Other economic and fiscal sectors have had a higher priority."

That is about to change. Currently there is more than US$5 billion worth of infrastructure improvements, both public and private, being developed. A free trade agreement with the United States, now a reality, has upgraded the issue from a priority to a critical necessity. Talks between Bogota and Washington ended in a deal in February encompassing $14.26 billion in total trade between the countries.

The task at hand hinges on the country's ability to attract new foreign investment, a tricky problem since the level of development that would draw investors requires infrastructure that the country currently lacks. "It is a question of establishing the right equation to balance the risks," Gallego says. "We have already seen foreign investor confidence in Colombia rise since the levels of risk have been reduced for them."

The centerpiece of the administration's infrastructure effort is an ambitious, countrywide highway project that will address Colombia's long neglected highway system. The $770 million project will include the construction and upgrading of more than 3,100 kilometers of highway by the end of the decade. More than 70% of cargo transported is by roadway, although less than 15% of the system is paved.

In addition, the government is moving forward on a battery of other projects. More than $156 million has been earmarked for port improvements in the next decade. There are more than 200 ports across the country that handle 80% of Colombia's international cargo. The five largest ports--two on the Pacific and one on the Caribbean coast--see more than 135 million tons of cargo each year. All of them have become overwhelmed in recent years due to a lack of upgrades and the upswing in trade as internal security has improved.

Lacking. Airports are another key piece of the country's development. A $500 million project to upgrade El Dorado International Airport in Bogota is the cornerstone of a multibillion dollar push by the government to improve airports across the country. Only 100 of the almost 1,000 airports in the country have paved runways and only 11 serve foreign flights. The railroad system is also sorely lacking. Once the primary means of moving freight in Colombia, today it only makes up about 27% of all cargo transported. Currently, more than a third of the country's 3,000 kilometers of rail lines are being refurbished. The government also is moving forward with plans to create another 7,000 kilometers of inland waterways.

While free trade is the impetus for infrastructure improvement, it is the relative economic stability that makes it a realistic possibility. Colombia, along with much of South America, rode a strong growth trend in the early 1990s that many expected would provide the answer for most of the country's ills. But the boom came as the drug trade and violent guerrilla movements engulfed the entire society.

By the late 1990s, weaknesses in the economic system had become apparent and things plunged downhill. "It was basically a huge housing bubble that went bust," says Juan Carlos Echeverry, an economist with the Universidad de los Andes in Bogota. "As confidence diminished, interest rates spiked and it began to snowball."

That has turned around in the past few years and the economic outlook for the country is positive, according to a consensus of experts. Investments and exports pushed the higher than expected growth. "The amount of infrastructure investment has been stable over the past few years but there is an increase in the amount being planned for the future," says Fernando Aguirre, infrastructure director for the Colombian Institute of Cement Producers. "We have a lot of projects being planned and we need a lot of investment."

Due to the limitations of the government to amass its own funding, private investment is key to moving forward on such projects, he says. One domestic financing option is Colombia's $11.30 billion private pension system. Luis Fernando Alarcon, president of Asofondos, Colombia's association of pension fund administrators, says fund managers are interested in investing in infrastructure projects. "The real problem we have seen in Colombia is that the private sector is just now beginning to understand the importance of going to capital markets," he says. "We have to better inform them of the opportunities for investment."

While the government is limited in the amount it can directly invest in infra structure projects, it has taken an active role in making Colombia more attractive to investors. The International Monetary Fund commended the Uribe administration's economic reform efforts in knotty areas of the economy that have previously hindered growth--pensions and taxes. "Many think that Colombia has come from being one of the worst areas for investment to one of the best" says Francisco Fernandez, an economic advisor at the U.S. Embassy in Bogota.

Despite the good news, real hurdles remain. Most observers say there are still huge problems with the legal and financial regulation foreign firms face when doing business in Colombia. Protectionist polices of prior governments still exist in the laws and regulations, analysts note, many of them maintained because so many special interest groups benefit from them.

Despite tax reforms, the system remains complex and relatively hostile to foreign investment. The legal system also lacks clarity. "What concerns investors, outside of the general economic climate, is if there is legal stability," says Alfonso Duarte, the president of the Colombian Society of Engineers. "They want to know taxes and regulations are not going to change from one day to another."

Another concern is the concession system. The first generation of contracts that followed reform in 1991 was marked by problems that cost the government millions and left contractors wary. According to the World Bank, credit enhancement and guarantees awarded in the first generation of concessions contracts have cost the government more than $1 billion and are estimated to cost another $3.50 billion by 2010.

Middle ground. As a result, the second wave of concessions, between 1998 and 2001, shifted much of the risk to the investors; understandably, foreign investment cooled. The third generation marks a shift to a middle ground. Yet the lessons of Colombia's economic misadventures are still on the minds of many. Conconcreto, Colombia's largest construction company, was forced into bankruptcy by recession. Jose Torres, the company's regional infrastructure director, says the company is now poised to take an active role in the push to improve Colombia's infrastructure, but that it remains pragmatic about the situation.

"The government is going to say everything is fine, but we have to take a realistic view of what may happen" Tortes says. "When the risks are very great, when you do not see that the conditions of the game are clear, when there are too many risks and you have to assume the cost the project, finally you decline to do it."

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C.J. SCHEXNAYDER * BOGOTA