Pedro Francke: “In periods of good growth, inequality was not substantially reduced”

As a result of the World Inequality Report 2022, which places us on the podium of the most unequal countries in the world according to an analysis of Latinometricsthe former Minister of Economy Pedro Francke discerns the factors that widen the gaps between Peruvians, in the midst of a system that has failed to ensure a fair quality of life for all.

— How to understand inequality?

Inequality has multiple dimensions. Income inequality is widely used by economists: how much is your salary and profits earned. Another variable is wealth inequality: how much you accumulated, although there is a paradox here.

Why a paradox?

For example, Google has lost a brutal amount of money in the last week, just like Elon Musk with Twitter, but they are still billionaires. So what does the income stream or lower value of their assets matter if they have that much money. Measuring accurately is difficult because the richest hide their wealth. Researcher Gabriel Zucman has reflected in recent years that they are hiding in tax havens, as has been seen in Peru and elsewhere. This information is partial, incomplete and not individualized. We don’t know how much money from Peruvian companies is in tax havens. We saw some cases in the Panama Papers, but we don’t have a precise measurement.

— Regardless of the technical debate, what factors should we look at?

Instead of reducing it to whether it went up or down, I think that there are indicators that show the concentration of wealth. The most important thing is to understand that there is a strong inequality in Peru, not only economic, but also in health, education and opportunities. The pandemic clearly reflected it.

— Any more flaws?

It is an inequality that has a very strong component of discrimination and racism. There are citizens excluded for 200 years who do not have the same opportunities as those who dominate the economy and politics. There is a good dose of open corruption or via accommodation of laws that favor this accumulation of wealth.

— What role do companies play?

— The profits of transnational companies had their record in 2021 of US$ 15.7 billion; and in the midst of a pandemic, when there were no beds ICU, this small group concentrated the profits. The traditional measures of inequality in Peru do not include this due to a technical and methodological issue.

— Nobody denies that we are a country with enormous inequalities.

– I do not think so. I don’t think anyone has said that. It would be difficult to sustain, regardless of whether we are ranked four in the world, or six or eight, it is clear that in Peru there are very pronounced inequalities and they affect the lives of millions.

– An example?

— Anemia in Puno is 60%, double that of Lima. We may be surprised that the people of Puno feel discriminated against by the State when the anemia is so great. In the pandemic, access to the ICU bed was not the same. The odds (of not dying) were not the same depending on where you lived and how much you had in your pocket. There are pronounced inequalities in various aspects that generate, in my opinion, an injustice for which it is reasonable for people to protest.

— Is it a consequence of the disconnect between macroeconomic strength and the prevalence of informality and stagnant income?

— The various estimates on informality are not conclusive. The key is that it is still extremely high. And it is that during the periods in which we had good economic growth, inequality did not reduce substantially. There is still 60% anemia in Puno. It shows a serious problem to be addressed.

— So, has this system in which it rains for everyone with macro growth been discontinued?

— Indeed, it shows us that in such sensitive issues as education, malnutrition, health and poverty there are huge gaps with respect, not only to individuals, but to entire districts, provinces and regions. This enormous inequality is behind the protests and the political fracture.

— Has the model already completed its cycle?

— I believe that a deep and structural change is needed that has to do with the economy, politics and the functioning of the State in the basic services it provides.

— The IMF once again recommended a tax on the richest, one of his letters when he was minister but that did not prosper.

— There is a discussion and there has even been an international agreement to establish a worldwide Income Tax floor of 15% because there is a global problem such as tax havens and that some countries try to take advantage of by having particularly advantageous conditions.

— And how do you see Peru?

— Here it is aggravated by the decision of the Constitutional Court that large debtors should not be charged interest. The banks do charge us interest and do not forgive us one day for anything, whatever the fault. The TC obliges the State not to charge these interests and now the companies will postpone. It is an incentive to corruption. We are going against the current of the world situation. Even Joe Biden proposed charging them more taxes.

— Is there a lack of political will to tax those who have the most?

– That is very clear. That issue (the refusal of wealth tax) goes through a decision by Congress, but, of course, the current Congress does not want that either and has maintained a series of tax conditions that favor large companies, and appointed a TC that has given a ruling without any economic, justice or financial sense.

— How much would a reform help?

— We plan to improve collection by about 2% of GDP. More or less US$4,000 million. It is not a big leap because the tax burden is 6 points below the Latam average and 20 below the OECD average. But recovering 2 pressure points is beginning to close the gap with our peers and a very small part of getting closer to the OECD criteria.