Kurt Burneo: “The first impact of lower growth will be on employment”

In August, the Ministry of Economy and Finance (MEF) confirmed the downward bias that the GDP will have at the end of 2023, with indices that will be around 1.5%, although other agents place it between 0.8% and 2. 2%. The professor and former head of the branch Kurt Burneo points out that the monetary policies of the Central Reserve Bank (BCRP) influenced this slowdown scenario.

—How does such low growth affect us, as a country?

—The first impact is on employment. The greater the economic activity, the greater the demand for work in the firms and this influences a variable called the ‘salary mass’, which is multiplying employment by salary, and this is a determinant of private consumption, which explains almost 68% of all demand. In order to absorb the 300,000 young people who enter the market each year, we need to grow, given the current composition of the GDP, at least 5%, and there is a difference of 1.5%.

—What is the cause of this downward disclosure?

—Part of this result, I am not saying 100%, responds to the contractive monetary policy of the BCRP, which was based until three months ago on the rise in the reference interest rate to make credit more expensive and restrict the dynamics of consumption and investment . So, this 1.5% is also due to factors that the MEF does not manage and the analyzes do not refer to this.

—But aren’t we ready to reduce rates in Peru?

—I would not be so sure that the BCRP is on the verge of a reduction, because everything will depend on what happens with the FED rate. If it continues to rise, as it has been, obviously the international interest rate becomes higher and its differential with the local interest rate of any financial instrument becomes larger. And to the extent that this greater profitability becomes greater, it will create pressure for the BCRP have to raise your rates again, regardless of inflation. It must not be forgotten either that the effect of the cut is deferred, the rate is transferred to consumer or mortgage loans with a lag. For example, the effects on consumption rates only occur after 8 or 10 months.

“Would that make it more difficult to get out of the recession pit?”

—A disservice is done to the economy when many people talk about a technical recession as if we were talking about a discovery or a trip to the Moon. Do all those who talk about recession realize that they affect agents’ expectations negatively? You have to be very careful with terms that, theoretically, can be valid at the macro level. The discussion is what to do to make the economy recover faster.

—MEF continues in its commitment to increase public spending to close the year in green.

—Despite the fact that public investment is only a quarter of private investment, it is aligned in a favorable direction with expectations and facilitates investment projects. Public investment becomes an inducer of private investment, for example, in infrastructure: bridges, roads, irrigation canals. We are talking about useful infrastructure to attract more investment and, incidentally, a compenetre of spending and a greater product in the short term. But if we look in the long term, the advance of public investment facilitates private investment in the future.

—Do you consider it feasible to evade the fiscal rules for December, as the MEF said?

—I think there is still room to maintain and comply with them. Do not forget that, if fiscal policy becomes more lax, we are accepting a higher-than-estimated deficit. If the rules are broken or temporarily set aside, there will always be effects in terms of country risk. Rating agencies not only act based on the cost of sovereign bonds. It is enough for a company to be operating in a country where the rules are thrown aside for them to automatically have to offer much higher rates of return for financial vehicles such as their own bonds. With that, in passing, the cost of financing the country is waxing.

—Even so, Minister Contreras has stressed that his administration does not use bonds to reactivate the economy, as it did in previous administrations, which includes you.

—The bonuses that were given to the people played a role at the right time. Now we are not in such a condition, because in the end the international literature will always tell you that if you want to solve poverty problems, you have to increase the demand for employment, and the demand from companies depends on the reactivation. You have to put yourself in the shoes of the businessman, who requests loans for working capital and acquires raw materials to produce as long as it is clear that there is light at the end of the tunnel, the confidence that he will be able to sell what he produces. The issue of trust is very important.

-The collection has also fallen. Will we have a smaller budget in 2024?

—It is unlikely that the 2024 budget will show the nominal variation that was had in 2023 of more than 9% and, at the same time, a real growth, discounting inflation, to be around 4% or 5%. In a situation where the dynamics of tax revenue tends to slow down it is difficult to have a substantially larger budget to the one raised before. I don’t know if there is a possibility that it is less, because we must not forget that collection is one of the components of its financing. Even so, I find it difficult that, in nominal terms, the 2024 budget is less. What I do know is that resources are being considered to address the phenomenon of El Niño Global.