To allow the private sector to invest in Argentina's infrastructure, radical new payment mechanisms have been found by the government to reduce risk.
The Argentine government is plainly aware that if it is to shake off the current economic gloom it must invest in the nation's dilapidated infrastructure.
Key areas for the Ministerio de Infraestructura y Vivienda and for minister of infrastructure and housing Carlos Manuel Bastos are improvements to Argentina's vast national road and rail networks and its neglected water supply system.
But the delicate nature and balance of the Argentine economy means that it is virtually impossible to predict from one month to the next whether funds will be available for public investment.
Faced with virtual bankruptcy, Argentina must look to private - more accurately foreign - investment to provide the funding for these vital needs.
This is a very tricky task as the country or sovereign risk is climbing.
Thanks to the spiralling debt burden and political instability, this is now approaching the levels seen in Nigeria.
However, there is investment happening. Already, the UK's privatisation models have been followed to hive off once public assets such as natural gas, electricity and telecommunications to private sector ownership and control. And there are also some toll financed and operated inter-city highways. These sectors are seeing higher levels of investment and growth.
But the UK's private finance initiative models are also seen as a key route towards securing much of the necessary funding in the roads, rail and water sectors.
To reduce risk and encourage investment, a clever mechanism has been devised by minister Bastos' office using independent trust funds to finance private sector concessions. The trusts effectively insulate the development of infrastructure from the nation's economic roller-coaster by staying wholly outside the budget.
The need for this insulation is graphically illustrated by the problems seen on current privately financed road schemes in Argentina. The lack of cash in the nation's budget means that there is not sufficient money to repay the concession companies - deeply damaging to the confidence of investors.
But under the new plan, hypothecated taxation from a new half cent a litre diesel fuel levy and 75 cent/100km road tolls will be ploughed into the fund and kept totally separate from the government's other financial commitments. According to Mariano Mirotti, the chairman of the trust fund, some $740M will be generated each year.
'We have been searching for better instruments to enable investment to go ahead, ' explains Mirotti. Under the plan, he is confident that banks will be able to commit to funding.
This cash will go towards enhancing the integrated federal road and rail systems with 80% of the fuel tax and 100% of the tolls funding the roads. The remaining 20% of the fuel tax will be ploughed into rail projects - a figure resulting largely from the high lobbying pressure from the huge road haulage industry in Argentina.
'The private sector now knows that it can rely on future cash flows to get work done, ' explains Mirotti. 'We are calling for tenders worth $3bn (£1.88bn) in roads and $550M (£345M) in rail between now and 2003.' (See box).
And the plan sounds attractive. On the face of it, sovereign risk, the major hurdle to outside investment, has been reduced if not cleared. A similar trust fund is now being approved by government for the water sector.
According to Peter Garratt, chairman of Knight Piesold, the trust fund plan shows that the government is working hard to overcome some big obstacles.
Having worked in the area for many years, this, he says, represents positive thinking.
However, there are still concerns to overcome before banks can be convinced to lend contractors the cash to take on the concessions.
First, high interests rates mean that it is impractical to let concessions beyond six or seven years. While this allows investors to be repaid quickly, there is a fear that it will provide little incentive for contractors to invest in long-lasting infrastructure. Therefore, once the initial concessions have been concluded, the risk of taking on a second term would preclude the private sector from getting involved.
Also, without government guarantees backing the trust funds there is no contingency against them running out of cash, though this is unlikely at present.
And these fears are increased by the government's need to accept the lowest priced tenders and its requirement that a performance bond of only 10% of annual capital be put up.
'What happens when, as is likely, locally based contractors bid very low prices just to secure the work is unclear, ' explains Garratt. 'With such a small bond there is a danger that many concessions will unravel when contractors are unable to deliver.'
But Mirotti defends the arrangements by highlighting the tough prequalification procedures and wellthought through penalty regime for nondelivery to specification. This includes both fines in proportion to the savings made by cutting corners and a points system for offences which ultimately leads to contract termination.
He also points out that all penalties will be paid from the performance bond and so will not affect the repayment schedule to investors.
'We have been able to keep the bond relatively low because on six to sevenyear concessions, termination of the contract represents a major loss, ' Mirotti explains. 'But all disputes are subject to international arbitration and, where appropriate, appeal through the courts.'