Crisis in Peru: when the economy is an “anti-seismic building” in the face of political earthquakes

Over the past five years, Peru has had six presidentsonce closed Parliament and recently suffered a coup attempt. But his economy resists and even grows despite the persistent political crises.

Édgar Sáenz, 51, has been selling breakfast for thirty years in a small kiosk near Congress, in downtown Lima. Offers emollient, a kind of herbal tea, very popular in the country.

The recent demonstrations following the removal and arrest of former president Pedro Castillo, who attempted a coup on December 7, they blocked roads and caused social upheaval that harm your business. But nothing stops him.

“We have been damaged by the marches and we hope they don’t repeat themselves because those of us who pay the piper we are ordinary people. This is our job, if one day you practically don’t work you don’t eat that dayyou have to work and keep going,” he says.

Despite the political crisis, the new Minister of Economy and Finance, Alex Contreras, appointed by President Dina Boluarte, Castillo’s successor, says that Peru “is like a sort of anti-seismic building“.

“It has some key columns that, despite the earthquakes, have allowed it to hold on,” he says.

Peru, the world’s second largest producer of copper and silver, preserves monetary stability, fiscal stability and financial stability, independent of any government.

“Those central columns are: an independent central banka Ministry of the Economy which, despite the changes (four Ministers of the Economy in one year) has maintained compliance with the fiscal rules, and a Banking Superintendency which has maintained financial stability”, explains Contreras.

He guarantees it by 2022 will close “with growth of 2.8% or 2.9%” of GDP. “There have been important effects, interruptions in extraction. Without these effects we would have grown by 4%, above the region”, which has an average growth of 3.7%, according to Cepal.

Peru still has the second best country risk classification of the region after Chile, says the minister.

Informality

“This is the reflection of having the lowest public debt region of. This year (2022) it will be around 33.8% of GDP. The fiscal deficit is at 1.6%after being almost 9 points due to the pandemic”, he comments.

Despite being a mining country “you have to deal with 80% of the economically active population, what is informal and 70% of entrepreneurial activity with small entrepreneurs, sole proprietorships (…) who must, in order to survive, go out and work every day”, explains the former Minister of Economy and Finance Luis Miguel Castilla.

“Although (informality) limits development, keeps the economy going, trade goes. Trade and consumption have ensured that Peru continues to grow this year at around 3%,” notes Castilla.

Peru has a few 60,000 ’emolienters’. “We are an engine of work. We move a high economy, we are part of the country’s growth,” says trader Sáenz.

María Torres, 58, a children’s clothing seller in downtown Lima, says it clearly. “We are trying to reactivate as we can and continue to advance despite the protests. We must continue to work as best we can”.

“In the short term, (informality) is an outlet. But in the medium term it’s a hasslealso due to the very effectiveness of government policies”, estimates the former minister Castilla.

Even if the informal economy moves the country, “the negative side is that they exist much lack of social protection (…) This has been very evident in the pandemic”, says Minister Arce.

Illegitimacy or corruption

Peru is considered one of the world’s largest producers of cocaine, with about 400 tons per year, and within its territory illegal mining and logging operate, with crime organized transnationally.

While there is no official calculation of how much the illegal economy contributes to GDP, examples can be given. “I would venture to say it Illegal gold production in the country today exceeds legal production (96.6 tons in 2021)”, considers the former Castilla minister.

Y corruption “eats” 20% of the budget country’s annual report, he adds.

Despite the resilience of the economy, the continuous crises have weighed down the pace of growth.

“It’s not great anymore. After a long time, we’re in the bottom third of the region,” says former Economy Minister Waldo Mendoza.

Minister Contreras hopes to launch the “Con Punche (energy) Peru” program, which includes “fiscal flexibility, rapid spending measures, support for vulnerable sectors”.

“My goal is to leave the economy grows by 4%We have the space,” he says.

The minister commented that while there are no immediate debt issuance plans, there is a permanent interest in Peru.

“International investors see Peru differently, they don’t fear volatility because they understand that there is an agenda on the institutional side in which to advance, (…) they have great faith in the country’s capacity,” says Contreras.

AFP extension

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