The economy is growing at very low rates and there is a feeling of frustration and setbacks, according to an economist

Inflation has become a headache for Peruvians. The purchasing power of families decreased by 20%. The perspective is that the price of the basic family basket will go down, but with the new climatic events that would be cut short. in this interview louis castilla He maintains that political instability does not attract private investment either, key in the generation of new jobs.

– In the recent household survey, inflation and low wages appear as a concern of Peruvians.

– Low wages are a legacy of the pandemic. The recovery of employment was in technical activities and informal work. There was a lower level of recovery than we had before the pandemic. For this reason, in the survey, this concern emerges. Second, we are almost two years away from high inflation, which reduced the purchasing power of Peruvians by more than 20%, the basic basket, consumption. That increased poverty, we have three million additional poor people.

-In the face of inflation that does not subside and people who demand better salaries, what should the government do?

– The policy of supporting the family economy increasing transfers to rural and urban areas, with “Con Punche Perú” and support for common kitchens. But, it is up to the government to promote investment. It’s very low. If we do not have investment we cannot create jobs. The government must support the reactivation of the projects (…) There are no investments because the horizon has been cut off, we don’t know what will happen. The political and the institutional is the great stopper for economic growth and, until that is not on track, the investment for more efforts made by the government, will grow below potential and that causes the economy to stagnate. Instead of growing at 5% or 6%, we will go to 2% and 3%.

–A growth of 2% does not help the generation of employment.

– Not at all, at least 4% is required to absorb labor, about 400,000 young people who enter the market every year for formal positions. Since there are none, most are used informally.

– Could this dangerous cocktail between inflation and low wages activate the climate of social upheaval?

– Inflation will drop because there cannot be a permanent supply shock, probably by next year, depending on the impact it will have The boy. The BCR’s policy has been effective and has raised the interest rate from almost zero to more than 7% in 18 months. It is a strong increase. Economic stagnation, the lack of job creation, is the greatest risk. If you look closely, in Puno, the people were complaining, but they could no longer afford to protest in the streets because they had to eat.

–How do we have a logic to create jobs if some regional governments, such as Arequipa, sabotage Zafranal, whose investment amounts to $1.2 billion.

– The country’s leaders at all three levels, especially the Executive, Be aware of supporting projects, small and large. There are many ventures that do not take place due to lack of financing, procedures, bribes that are asked for or lack of urban authorization. If there is no awareness of printing a better regulatory quality and legal certainty, it will be difficult for the national and regional economy to reactivate. Here come the problems, people are going to start getting annoyed again. The economy is growing at very low rates and there is a feeling of frustration and setback. I am concerned that next year we will again see an increase in poverty and that this could become a breeding ground and in the end there will be no political response, rather there is a lot of short-termism.

–This paralysis is also due in part to the lack of legitimacy of Congress and the Executive.

– We are not well, but we are better than the neighborhood of Latin America, which is a disaster, as Julio Velarde said. Definitely the fact of having a weakened democracy and crisis of legitimacy of the authorities with approval of 10% to 15%, does not give political stability. An investor will not put his bullets in a country that is totally unstable, the legitimacy crisis causes governance problems.

–Consumption became an engine of growth. Many people had money from the AFP and spent it, now there is nothing like that.

– With the confinement due to the pandemic, many expenses were postponed. This was reflected in high rates of private savings, which gradually de-accumulated. We see that there is no longer that extraordinary contribution that forced and private savings gave it. These injections of liquidity contributed to the pocket of the formal workers. Now we are in a labor market dynamic where precarious employment that pays less grows more and inflation does not go down.

–An Argentine economist indicated that inflation was dropping substantially around the world, but not in Peru.

– Inflation, in an overheated economy, is controlled with an increase in interest rates, to cool the economy, but when the source of the increase is imported products or fuel, then the policy Monetary is less effective. Inflation control is more subject to the continuation of the supply shock that caused its growth. We have problems in the supply of certain foods or supplies. (…) This obviously affects purchasing power. Costs are being high for businesses and families across the country

– But is there a prospect that it will go down? In Arequipa, there is already a shortage of farm products. The onion from S/ 2 has now risen to S/ 4.

– When there are frosts in the south, production is spoiled. But we must add the fact that last year fertilizers were not available. Given the probability of a severe or moderate El Niño, the sector most affected is agriculture, with supply problems and price increases. This is probably the new shock we are facing, not so much due to imported inflation, but because the food supply to Peruvians is affected by these supply interruptions associated with natural disasters, which are expected both on the country’s coast and in the high Andean areas.