Waldo Mendoza: “It is clear to me that the president must govern the five years”

You defend the economic model, but isn’t it time to make a self-criticism?

This model that we are going to call “neoliberal” allowed the pie of the economy, of the GDP, to grow in an impressive way, as we have not had in history.

But it was not sustained, because there were many potholes and the growth was very low …

I knew you were going to ask that. The GDP in real terms this year is three times more than the GDP of the 1990s. That did not happen in contemporary history. The set of policies, the liberalization of the economy, the macroeconomic policies, allowed to triple the pie. And you would say, well, the cake grew, but I don’t see it. When I look at public spending in 2020, it is 14 times that of 1990, and the model allowed it to go up. Suddenly the allocation was not correct, surely we must advance on other fronts, we have to spend better, or raise a little more. Corrective measures always have to be done, but every time we hear opposition to neoliberalism, we ask what model do we replace it with?

Talking about corrections implies that something was not done well, including low growth and stagnating poverty. Where is the self-criticism?

The growth was remarkable in the 90s of this century. Regarding the neighborhood, we are superior despite the modest growth in recent years. That had to do with two or three factors. We have gone from doing exotic things to something that allowed us to take a huge leap. Mining and agro-exports are beautiful examples of re-interventionist policy that turned out well. It is not neoliberalism, that is interventionism. I don’t know how they came up with it, but they did it right. More things of this type should be done, with more growth engines. What was done in mining? Special laws, legal stability contracts, tax stability, constitutional security in contracts were given. What gave us the mining stones? The infinite export market. Agro-export is good looking. Before, US $ 200 million were exported per year, and huge irrigation projects were placed on the coast, an agrarian promotion law, Senasa was modernized and the FTA also contributed, and now we export US $ 8 billion. There is room to make those impulses, but not in any sector. Because if it is to the mypes, how is it done? It is very complicated. On the other hand, even though the numbers for spending on health and education skyrocketed, our starting point was so low that the pandemic grabbed us almost naked. It is a lack that has nothing to do with the model.

When you talk about President Castillo’s luck of having favorable winds, don’t you think that the model was also based on the good luck of good mineral prices?

Of course, and there are several jobs that say that. Almost half of the growth has nothing to do with us. When you study the history of these decades, the 80s were unlucky, the 90s a little better luck. Toledo started with bad and ended with good; Alan was very lucky.

In his letter to Pedro Castillo, he says that the main variable that connects us with the world is the terms of trade index, the relationship between the price of exports and imports. If it goes up, good luck; if it goes down, too bad. Doesn’t that mean that the decade of the model’s supposed success was basically a stroke of luck, due to an external factor? It happened with the mineral boom between 2003 and 2014 …

I have an article that I wrote a long time ago. “Peruvian miracle, good luck or good policies.” And I do an evaluation of the 90s until 2010 or 2011. There I say, this miracle is the confluence of a development model that we can criticize, but that is infinitely better than the one we had.

What is that indicator of good luck?

The most important channel that connects us with the world is the commercial one. Just as a growth in the price of copper is good news, a rise in oil is not. When you look at the projection of the terms of trade for this year, they are the highest since 1974. No one, no president, after 1974, is as lucky as Professor Castillo. In this figure of the development model, public management, and luck, we are doing spectacularly. The footnote is that inflation is a problem and comes from the international context and for the US Federal Reserve inflation is already a threat, which means that they would apply a more contractionary policy that implies raising the international interest rate. That is bad luck.

We continue with a very low tax pressure, and that is not from the last months, it comes from behind. Why didn’t the model generate adequate funding from the State?

For public spending to be financed healthily, it has to be with revenue. In relative terms, it rose along with growth, along with international prices. That is why real public spending today is double that of 30 years ago. Could it have grown more? Sure, but few countries in Latin America can show that. Can more be done? Sure, but you have to be careful when someone says we’re going to increase the tax burden by two or three points because I don’t know if he thought it through.

And because?

Because we have a huge informal sector. How much room is there to significantly raise taxes? I would say, a point and a half and consider yourself well served. As taxes have to do with growth, it is more sensible to insist on economic growth that allows more revenue than to try to do a tax reform. The minister (Pedro Francke) is in this endeavor and I believe that, regardless of the qualification that one has on the reform, the moment is difficult for them to give him the powers. He’s almost lost that.

And why was informality not resolved in so long the application of the model?

It has nothing to do with the model.

Why?

Professor Figueroa (Adolfo), one of the country’s great economists, presents Peru as a dual economy. A modern, capitalist sector, with high activity and a huge one of small producers. This modern, capitalist sector made the informal sector wage earners and they disappeared in countries like Chile, where there are entrepreneurs and wage earners and few informal ones. When they say they will increase the tax burden by 3 points, they are joking. With informality it is the same: when it is said that it will drop by 10 points, they are joking, because lowering it like this would mean that street vendors, micro-entrepreneurs, peasants, become productive, and their productivity, by magic, will rise. Informality is reduced to the point of economic growth, there is no other recipe.

What would you recommend to the Government and Minister Francke?

I would say to the president of the republic, you have to make a trap and talk at length. Perhaps with the premier and the ministers, on the economic situation, because for free, for pleasure, a capital flight of the largest in the history of Peru was promoted, causing an increase in the exchange rate that exacerbated the inflationary problem, harming the poorest people.

And it is that there is also political and ideological confrontation. They describe the government as communist, as terrorist, and on the other side as well, they call them vacancies, coup plotters, among others. It is a confrontation that hurts the country a lot …

And who fixes that? It is absolutely clear to me that the president was elected in fair and transparent elections and should govern for five years. That is very clear, but for the thinking or suffering community, if these five years of government are going to be these four months multiplied by 20, it is clear that we are screwed.