Trust as a financial instrument for regional and local governments

Abstract

The purpose of this article is to provide the reader with some general guidelines of what a trust is, seen as a versatile financial instrument that can become an effective means of administration of the resources of the Regional and Local Governments, with the purpose of contributing to the efficiency and transparency in the management of the resources as well as the stability in the execution of the projects or mandates, regardless of the political circumstances that are inherent in these State entities. The first part of the document presents some basic concepts of what a trust is (characteristics, classification and tax aspects related to it). The second section shows the advantages of using trusts by Regional and Local Governments, exposing some practical cases of the usefulness of this instrument. Cases are described in which a trust serves as a means of payment in basic infrastructure investment projects, as a mechanism to expand rural finances and as a tool in the design of public-private schemes that promote investment in order to boost the competitiveness of the regions. Finally, by way of conclusion, some considerations are presented on the convenience of using trusts as a financial instrument that complements the goals and objectives of the State, ensuring the fulfillment of the projects it undertakes.