Interview with the Minister of Economy of Peru: “This country is a problem and an opportunity”

Alex Contreras Miranda He’s been sitting at the economy button for 10 days Peru. Appointed by President Dina Boluarte, during the administration of former President Pedro Castillo, deposed and arrested for attempted self-coup, he was Deputy Minister of Economy and Finance.

With a master’s degree from the United States, 12 years of management at the Central Reserve Bank of Peru, the specialist in monetary statistics and macroeconomics chosen by Castillo’s former deputy spoke with clarion.

Talk about the impact of the political crisis on numberspeak inflation of 8.1% per annumthe dollar, the “social spending”, of how corruption hampers the economy and central bank independence to lower inflation.

-You were Deputy Minister of Economy during the administration of Pedro Castillo, how would you define the economic policy of former President Castillo?

-During my stay at the Ministry, I shared my work with six Economy Ministers. President Castillo was evidently a man of the left who decided to elect a well-known leftist technician, the economist Pedro Francke, with whom we managed to put together an economic policy agenda based on maintaining fiscal stability, on increase in social spending. At that time, a tax reform was undertaken. I immediately resigned. President Castillo announced the coup attempt. What we want to do now is to relaunch some measures that help stabilize the country economically after the post-conflict, keeping the accounts in order, but using the fiscal space gained by Peru to address urgent needs. Leaving aside the violence that some vandals can have. Behind many of these protests there are legitimate demands of the population who want work, sanitation. I firmly believe that there is room to do it but with efficiency.

Due to the epidemic, some Peruvians have looked at the dollar again…

-After the electoral volatility, there was once again a partial return to the dollar. But when President Castillo chose his economy minister, ratified Julio Velarde (BCR president), the exchange rate stabilized. Currently, people don’t pay much attention to it, but there have been difficult times when the exchange rate has broken through the four soles per dollar barrier. Right now it is at 3.83 and the fundamentals say that this appreciation trend should continue in the coming months, as soon as the social unrest subsides.

-Do you have a calculation of the monetary losses that Peru has suffered due to this crisis?

-On average, what we have estimated is about 100 million soles (26 million dollars) per day, we are talking about a total cost between 1,200 and 1,500 million soles. These are the last numbers I have. These are the losses in terms of GDP, they don’t consider the additional effects that may exist, such as deteriorating expectations, the impact that could have on future investments.

-There have been six presidents in six years and in general political crises do not affect the macroeconomic one. What is this for?

-Yes, Peru has been characterized by what many specialists have called resilience. An economy with a kind of near-indestructible strength that has experienced a series of political shocks, including the latest coup attempt, and is still healthy. The fiscal deficit is regular, inflation is high on average over the past 20 years, but on a downward trend, debt is low. As someone said, Peru is a problem and an opportunity.

Corruption

-The macroeconomy has been stable in recent years, why have social inequalities not reduced?

– If you look at the evolution, inequality has been reduced, but it hasn’t been reduced enough. One of the causes of this social discontent is that the decentralization process has not worked. There has been a process of decentralization of spending, but not of institutional decentralization. If you look at the statistics on corruption at the level of subnational governments in Peru, it is alarming. This generates a series of contradictions among the ordinary citizen, who sees that health and education budgets are actually improving, the macro numbers are fine but there are no improvements in services in particular, as said in the regions. I firmly believe that this political transition must go hand in hand with a series of fundamental reforms that focus on the country’s sustainability.

– Will you send Congress a package of transparency measures to prevent corruption?

-We have sent some measurements, we are working on new measurements. The comptroller’s office is playing a key role in trying to reduce corruption. In fact, many of these cases of corruption were precisely the product of control actions and we do not rule out continuing to advance along this line. Corruption has not only economic costs but it corrodes society.

Tourism

-Have you calculated the impact of the crisis on tourism?

-The Ministry of Foreign Trade and Tourism will be like a kind of balance when the convulsion passes. Tourism at the moment is at 25% of its pre-pandemic capacity, some impact it will have not only due to the effect on the country’s image, but also because there are airports in tourist cities that will not be fully operational in a few months. That is why we are investing all our energies in this rapid recovery plan which has a regional vision. We are trying to revive the affected regions, but also the economic sectors within which tourism is one of the most affected together with transport, some important services and trade.

-What is the Execution Plan?

-It’s basically a plan to increase demand through current spending, capital spending. Start designing the recovery plan for tourism. This will be key for the next few months. The idea is to be able to coordinate with Mincetur (Ministry of Foreign Trade and Tourism) this specific plan for this very important sector with great potential in Peru and which has been affected by the pandemic, in addition to this conflict.

Inflation

-What are the short-term measures to lower inflation?

-The Central Bank (BCR) is doing a good job. Expectations are starting to moderate, inflation rising over the past two weeks to 8.1% (inter-year). Inflation took a small jump last month. But there are clearly very transitory aspects that have prevented this reduction in inflation from being any more rapid. Unemployment itself has been a factor, but the trend is downward. We hope that in the second half of next year we can return to the objective of the Central Bank, it is the task of the BCR but on the part of the Ministry of Economy and Finance we are trying to promote some measures such as subsidies for transport, energy electricity, which help to mitigate this effect, in addition to the role played by the fuel price stabilization fund. One of the reasons why, despite the increase in inflation, inflation in Peru is in relative terms one of the lowest in Latin America, precisely because we have been able to absorb part of the shock through this price stabilization fund made of fuel.

-These measures that you mention, in Argentina would generate the debate that they would no longer generate inflation.

-In Peru, the Central Bank is prohibited from financing the treasury. The monetary variables are independent of the fiscal variables. We are funding the entire plan with resources from the treasury. In Peru, financing through monetary issues is prohibited. And the boost to demand that we want to give is a moderate boost because this inflation in Peru is essentially due to supply, to cyclical factors, which is why we don’t expect this reactivation plan to generate a reversal of the downward trend in inflation .

Lima, special envoy

ap​