It is impossible to make reforms with a weak government and a congress in total disrepute

In this interview, the Argentine economist Juan Pablo Ronderos, explain why inflation Peru remains high despite the slowdown in this indicator in the world. Based on the study of MAP Economic & Business Advisor argues that food prices remain high. That prevents puncturing this distortion that devours the purchasing power of salaries. Ronderos lives firsthand the effects of inflation. His country has an annual projected rate of 150%, 19 times more than that of Peru. “For 15 years we have been enduring double-digit inflation,” he adds. People survive with micro-decisions, going ahead to consume something that tomorrow will have a different price, listing in different stores to choose the cheapest and the poorest simply do not eat. According to Ronderos, poverty in his country reaches 44%, 16 points more than Peru. Unemployment is low, there is formal work, yet even well-paid employees are struggling to avoid falling into poverty. “The mechanisms for adjusting wages are always behind inflation,” he says.

– Globally, inflation has started to fall, but in Peru food prices are still expensive.

The slowdown in food prices is very strong according to FAO. The same is not the case in Peru. We have three hypotheses. The first, the blockades, inflation in January is higher in areas where there was that cut. Then, the climatic phenomenon. The third factor is political and social volatility, which generates a lot of noise and leads to speculation, not from a negative place. It is a defensive behavior in the face of uncertainty, a trader stocks up without knowing how much prices will be worth later.

– In Peru we have a free market economy, but it is argued that monopolies influence prices.

When macroeconomics does not solve the problems, scapegoats begin to appear (…) Peru is a free market country, open to exports, with free trade agreements. Those monopolies or oligopolies are broken with free trade. In a closed economy, with few players, I buy that argument. If you cannot import and there is no competition and nobody can enter, those players do what they want. But in an open economy like Peru’s, that argument is somewhat watered down.

– There is a lot of talk about Peru’s macroeconomic stability, that its currency is strong. Is it worth it if you can’t buy enough with that currency?

Inflation is macroeconomics. Only with good macroeconomics is not enough to change to a situation of development. But without macroeconomics, you can’t get out of poverty or expect wages to grow hand in hand with productivity. Peru failed to make the leap from Chile. This has had macroeconomic stability and made reforms to horizontal policies, taxes, labor, infrastructure, energy, education, etc. And it also had some decisions for some particular sectors that made its economy dynamic.

– The levels of informality are dramatic in Peru, would the formalization of the economy help?

It depends how it’s done. To make reforms you cannot be a weak government. If there is a divided Congress like today, with absolute discredit, with a president who does not have a strong image to carry out these reforms, I do not think they will be able to do it without the people not opposing it.

– Is inflation eating up wages?

In countries where inflation accelerates and is hard to slow down, what suffers is the salary. The main objective of Peru should be to lower inflation, then the problems begin to be solved or you can start to solve them.

– How to lower inflation, if you have a tense political climate and add other factors, such as weather?

There are no magic recipes, but Peru cannot stop doing what it did 20 years ago: sound monetary policy, serious interest rates, independence from the Central Reserve Bank, and fiscal discipline. If you abandon it, it will end up being worse. The redistribution of income sounds very good, but it is not achieved in the short term, first you must create more. If Peru makes the decision of other countries, such as Argentina, to distribute what it does not have, the end will be more inflation and poverty. We must continue to support macroeconomic policy and understand what was missing to solve the problems they have today. Untangling the knot he’s in politically, without that it’s going to be very difficult.

– With the price of oil falling, the cheap dollar, you don’t think inflation is going to subside.

It doesn’t matter what I believe (…) Internal phenomena make the process more arduous and longer. In other countries it has been much faster (…) Peru has been in great political turmoil for many years, and yet inflation has been stable. He has a phenomenal asset even with political crisis.

– They are the two sides of a coin, economic stability but political instability.

Latin America, between 2015 and 2019, before the pandemic, was the region that grew the least among all the emerging countries, the worst performance in the last 40 years.

– And because?

They only generated macroeconomic stability. It is difficult for it to establish itself on the boards of directors of multinational companies, as a place where there is an opportunity for above-average growth. Asia beats him. Brazil, Mexico or Argentina, which were the largest (Argentina has already lost weight a long time ago) have a few minutes to explain. Latin America failed to make the changes necessary to become a dynamic place for business. It seems that it is not a Peruvian phenomenon.