After decades of economic growth that set Peru apart from its neighbors in the region and allowed its population to climb the poverty ladder, the South American country must now make up for the remnants of years of political instability, which has seen several presidential transitions and raised concerns about financial stability of the country.
Back in December, Peru’s leftist President Pedro Castillo was impeached and arrested after attempting to shut down Congress before it could launch a third impeachment trial against him.
Vice President Dina Boluarte replaced him. The appointment sparked protests across Peru, which turned violent in some areas and resulted in the deaths of 49 protesters. Nearly a year after the events, protests have subsided, giving the government room to shift its focus from damage control to boosting its economy.
Peru’s Finance and Economy Minister Alex Contreras spoke to The Banker about economic recovery, attracting foreign investors, addressing economic inequality and improving credit availability for local businesses.
Q: Where does the country’s economy stand almost a year after the impeachment of President Pedro Castillo?
A: Peru is a resilient country with strong macroeconomic fundamentals. This will allow economic activity to recover after being hit by several negative shocks in the first half of the year, such as social unrest, climatological phenomena such as cyclones Yaku and El Niño, as well as more adverse external conditions.
The recovery is supported by the implementation of the “Con Punche Peru” plan and the recent launch of the “Unidos” plan, both aimed at improving public and private investments. Domestic demand is expected to grow as shocks fade, financing costs fall, tourism flows increase and investor confidence is restored.
Q: What makes Peru suitable for foreign investment?
A: Important aspects to highlight are Peru’s macro-financial strength, financial stability and the soundness of its economic institutions, which have allowed the country to achieve remarkable economic progress in recent decades.
The solid macroeconomic fundamentals of the Peruvian economy are reflected in high international reserves, low public debt compared to our peers in the region, a robust financial sector with access to international capital markets, as well as one of the best credit ratings and lowest sovereign risk in the region. Furthermore, these macroeconomic fundamentals, together with prudent management of public finances, have enabled the country to respond effectively to adverse scenarios.
In addition, through public-private partnerships, we have consolidated a solid private investment system with clear rules so that companies – domestic and foreign – can also invest in infrastructure projects and public services. For example, in 2023 Peru awarded 14 of these projects worth $2.3 billion, mostly in electricity, telecommunications and health. This figure exceeds the amounts granted in the last three years by more than ten times.
Q: In which sectors of the economy do you want to boost foreign direct investment?
A: Peru continues to be an attractive destination for mining investment due to its high reserves and low production costs. To date, our country has a significant portfolio of 46 mining projects with a total investment of $53 billion, of which 72% is copper.
In addition, a portfolio of 70 mining exploration projects is being developed. It is important to mention that more than $12 billion in investments in the mining sector were recently approved for the coming years.
We promote foreign direct investment in infrastructure. Projects in the northern part of Lima will increase the potential growth of manufacturing, tourism, logistics and trade. Among the most important are the port of Chancay, the expansion of the Jorge Chavez International Airport and the expansion of the Muelle Sur del Callao container terminal.
Some industries are becoming new growth engines. Non-traditional agricultural exports have recorded uninterrupted growth over the last 13 years, mainly due to the increase in fruit shipments, making the country a leading agricultural exporter ahead of its regional competitors. We also promote the development of aquaculture, tourism and the marine industry, as well as the productive development of the Amazon region.
Q: Given the recent political instability, how can you confirm that Peru is still a viable place to do business?
A: Peru has a long history of macroeconomic strength. Government debt amounted to 33.8% of gross domestic product in 2022, which is in contrast to the average government debt of emerging markets.
In addition, the country has one of the lowest sovereign risks among Latin American and emerging markets. This shows the confidence of the financial markets in the country’s macroeconomic and fiscal soundness, which allows us to counteract many negative effects, for example in the political sphere.
Q: What are the main obstacles to Peru’s return to pre-pandemic economic growth?
A: The numerous negative shocks have had a longer-lasting impact than expected. However, we are confident that early next year we will have a robust and growing economy in line with internal and external forecasts. The economic stimulus programs currently being implemented will help stimulate the economy.
More recently, our “Unidos” plan includes a series of cross-sectoral measures to increase credit, reduce interest rates, promote high-potential sectors by reducing bureaucracy and develop mega-projects in water and agricultural infrastructure. The PPP project portfolio will also be significantly strengthened. The measures aim to stimulate economic growth again.
Q: What strategy are you pursuing to increase credit availability for Peruvian companies?
A: The MYPE business support program – IMPULSO MYPERU – was launched to support the process of economic recovery and growth of micro, small and medium enterprises [MSMEs] and promote their financial inclusion. The program issues government guarantees for up to 5 billion new sols ($1.34 billion).
The program reports a disbursed amount of 1.664 billion new sol in the form of loans with guarantees in favor of more than 72,000 MSMEs from all economic sectors across the country.
The program is currently being expanded to issue additional guarantees for 10 billion new sol, which will involve more than 87,000 new companies to reach a total of 334,000 beneficiaries.
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