Strengthen wages and expedite investments to boost GDP

Peru, in recent years, has been a melting pot of misfortunes. Political and social struggles and even Mother Nature have not ceased to agitate her fiercely. Although people do not eat GDP – an indicator defended by a political sector as a barometer of well-being – the prospects are grey: we would grow below 2% for various organizations. Only the Ministry of Economy and Finance (MEF) is optimistic and expects an advance of 2.5%.

Political instability

The World Bank (WB) has already been emphatic in explaining the meager progress of the national economy, and they assure that the latent political instability scares away investors. Collateral damage weighs on consumers and businesses. The World Bank reduced its projection from 2.4% to 2.2%.

Tanja Goodwin, WB senior economist for the Andean subregion, Bolivia, Chile, Ecuador and Peru, considers that not only the political will limit the GDP in the remainder of the year, but also climatic events and disasters, added to social conflict – The days are tense in the face of a possible third takeover of Lima in rejection of the Government of Dina Boluarte.

What does it mean to grow so little? The former head of the MEF, Pedro Francke, considers that rates close to or less than 2% “are very poor” since several decades ago there was not such a low variation.

And, given a lower national production rate, household incomes, especially the most vulnerable, weaken, added to the loss of the ability to create jobs and reduce poverty, which by 2022 reached just over 9 million people. Peruvians.

Francke argued to LR+ that in recent months there has been a 5% reduction in real wages, and that is why it is observed that self-construction and the internal market for the industry is extremely depressed.

In his opinion, the destiny of the country depends on political change to generate greater social confidence.

“We are in a rather difficult and complicated situation that could be prolonged if there is no change in the helm (…) You have to think about early elections. The citizens demand it. Recover the structure of a democratic government and that Congress acts responsibly to give more confidence. Inequality and distances must be addressed, ”he added.

Can you fall more?

Setbacks in the production of fishing, construction and agriculture, for example, they can sink the result of the GDP more towards December, according to the former head of the MEF, Luis Miguel Castilla.

Besides, the prolongation of violent social mobilizations “would affect the most vulnerable” – he adds – as was seen less than six months ago in the south of the country, when tourism and commerce were paralyzed.

“I understand the right to protest, but under no circumstances should it be allowed to get out of hand. Peru is on the path of lower economic growth below 2% and it may fall further, ”he told La República.

For the former Minister of Economy Kurt Burneo, we must consider El Niño Global as a “more than moderate” event, since there will be less capture of water resources, which would translate into less electricity generation and will affect the operation of hydroelectric and thermal power plants in diesel-based, which It will mean more expensive electricity in tariffs and rationing. “The problem of electricity rates is not assessed towards the last quarter of the year,” he referred to LR +.

sung solutions

Another of the factors that would slow down the product is the contraction of private investment. For this year, this indicator is expected to fall 2.5% according to the Central Reserve Bank of Peru (BCRP). Before, the forecast was that it would barely contract 0.5%.

It is worth clarifying that the BCRP not only was he honest with his estimates of private investment –which includes almost 80% of gross fixed investment– but also that of the economy for the current year: he reduced it from 2.6% to 2.2% and with a “strong bias downwards”, in the words of its president, Julio Velarde.

Here, Castilla proposes accelerating preventive interventions in the face of the El Niño phenomenon, considering that the execution of municipal government items has been low; while on the private side, he recommends unlocking the barriers in sectors such as the mining.

The former minister points out that mining investment has an impact on other related sectors and would increase the role of mining in the economic result by up to 40%. He also believes it is necessary to comply with the deadlines for granting licenses and permits required by projects in their environmental impact study, exploration and exploitation phases, since there is almost never consistency for the dates, and that generates a bad image.

For her part, Tanja Goodwin recommends that the Executive complement public investment with “actions that promote institutionality and management in the provision of public services.” And, for the medium and long term, the lifting of “the barriers to the growth of productive companies” that will contribute not only to GDP growth but also to the creation of more quality jobs.

support income

“They thought that the peace of the cemeteries was going to solve the issue of private investment, but they were totally wrong,” sums up Francke about the pessimistic reading of investors towards our market.

So, your proposal –in a context where inflation fluctuates between 11% and 12%– revolves around the urgency of a policy that restores the income of workers, as well as active policies to defend the dented real wages to reduce the urban poverty “which is severe”, according to Francke Ballvé.

Burneo, in this regard, confirms that the most sensible thing for Peru is to promote and finance renewable energies and to focus on deliberately promoting private consumption.

Is it enough to increase the minimum wage? With the daily income without fully recovering, inflation forces household income to strengthen. Here, the discussion of raising the RMV is not executed after the abandonment of the business arm.

unplugged

The new head of the MTPE, Fernando Varela, announced that the issue is not on the agenda, despite the fact that the cause moves the masses.

“What we are looking for is that, for the first time, the increase in the minimum wage is technical, that is, that it is discussed in a supreme decree about when the opportunity is and what the economic factors are. What has happened for a long time is that, arbitrarily, it has increased. We are not denying the possibility of an increase, but the previous step is to make that decision technical.” Varela said a few weeks ago.

In times of job insecurity and inequality in the income received by the workforce, Julio Velarde, head of the BCRP, considers that “compared to the average salary, our minimum salary is very high.”

“Salaries do not rise by decree, otherwise it would be easier to be rich,” said the banker at an event in Cusco.

What awaits the exchange rate for the rest of the year?

The dollar closed the month of June at S/3,626, its lowest level in more than two years. The last time it scored a similar value was on April 15, 2021, when it reached S/3,628, according to the Central Reserve Bank of Peru. In detail, the US currency completed five consecutive months of decline and accumulated a 4.75% decline compared to the S/3,708 registered in the last session of 2022.

For the economist Washington López, the depreciation of the dollar responds to various factors, such as the consecutive drop in inflation in the United States, which in May stood at 4.0%. “This, in turn, encouraged the Federal Reserve (FED) to lower its interest rate hike for the first time in 10 months,” he pointed out.

While for Gonzalo García Arboccó, director of X Prime, the estimate is that the Peruvian sol will tend to depreciate in the remainder of the year due to a decrease in the interest rate differential and capital outflows.

The specialist also specifies that the exchange rate will be between S/3.70 and S/3.80 per dollar at the end of 2023, range that could be maintained until 2025.

reactions

Tanja Goodwin, Senior Economist at the World Bank

“Climatic events and disasters, political uncertainty and conflict will affect the rest of the year. Confidence in the private sector has already been affected and influenced investment prospects”.

Kurt Burneo, former Minister of Economy

“Definitely, we must put ourselves in circumstances where the El Niño phenomenon will be more than moderate (…) The null growth of the wage bill makes private consumption modest.”

Pedro Francke, former Minister of Economy

“Everything depends on political and economic conditions. You have to think about early elections. The citizens demand it. The political change that generates the greatest confidence is early elections.”

Julio Velarde, president of the BCRP

“There is a slight improvement (in business expectations), but they are being very gradual, very slow. Unfortunately, it is such a slow improvement that any better news is delayed.