Saturday, June 25, 2011

Spain ghost airports: symbols of boom turned bust

We could learn from infrastructure investments gone bad in Spain.
The glittering buildings rise up from Spain's arid central plain.

Draw closer and there's something eerie about Ciudad Real's Central Airport. There's hardly a plane in sight. Nobody's around. Cars can only be heard faintly in the distance.

This is one of Spain's "ghost airports" — huge projects often funded by taxpayer money that helped drive Spain's economic boom and now symbolize the wasteful spending that contributed to its spectacular bust.

But signs abound that Spain has not fully learned the lessons of its profligate spending. Spain recently announced a high-speed rail link to the sparsely populated northwest region of Galicia, a plan many economists see as an extravagance. Bridge and highway projects are plowing forward in the face of criticism that Spain just can't afford them.

"We had great hopes for Central, we believed in it, dreamt about it, we thought it was going to be the region's salvation," said Ciudad Real taxi driver Enrique Buendia, who can hardly remember the last time he got a run to the airport.
"But, when you mix politicians and business it's bad news."

Indeed, it's an unhealthy mix of politics and business that critics blame for white elephants such as the airport in Ciudad Real, a city of 74,000 people. Spain has a history of pouring public money into dodgy projects to fuel the careers of ambitious politicians and local entrepreneurs.

The airports and other projects illustrate how regional governments and government-linked savings banks drove themselves into a debt swamp from which it will take years to emerge.

"We have substituted our obsession with bricks and house building with an obsession for highways, high speed trains and airports, but it's the same rubbish," said Fernando Fernandez, a macroeconomics Professor at IE Business School in Madrid.

"It's like a drug addict trying detox," he said. "The economy has been growing through construction for the last 10 years and that creates all sorts of bad habits."
"This is a country of fiefdoms, like the Middle Ages, you know 'I want my airport ... my convention center and my high-speed train,'" said Stephen Matlin, managing director of the Matlin Associates investment banking firm in Madrid.
But analysts say that unless Spain learns fast and begins investing in a new economic model by pouring billions into education and research and development, it could be headed for disaster.

"What we're doing is maintaining the old economic structure of the country," said Fernandez. "Instead of investing in new skills for people ... we spend money on keeping them busy to give the appearance of bring the unemployment figures down."

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