Germán Chávez: We need a shock of confidence, there is fear to invest in Peru

The recession that the country is in seriously affects Arequipa. According to the economist German Chavez, a series of measures must be taken by the government to make the region grow again. The way out is to generate investor confidence.

–How is the recession going to impact the south?

Arequipa has suffered, after the pandemic, recessionary processes and economic contractions stronger than the national average. This was not like that. Until before the pandemic, Arequipa was growing above national average. The impact has been very strong. The pandemic has generated precarious employment, taking labor informality to levels, even above 80%. Arequipa is a region that has been left without megaprojects, which are those that generate employment through investment, because the only thing that can recover a region or a country from recession is investment. Private investment is four times greater than public investment.

–Are there no active projects in the region?

If we look at the megaprojects it had, they are not active, others are delayed. We already know that Aunt Maria It is a project that is not on the agenda of this government. Zafranal has all the authorizations, but there is a delay and it will probably be resumed in 2024. The Yura – La Joya bridge, which is a project paralyzed for many years, would only be resumed in 2024 and thus we can continue stating projects that do not allow the reactivation of the regional economy and, consequently, the generation of jobs from the public sector.

–Are there no solutions in sight?

We have two problems. One, the projects private investment and public are not occurring and the interest rate of the central government, from the Central Reserve Bank, remains high even though it is no longer justified. And that is generating a recession that, with the inflation we have, becomes stagflation.

–What does that mean?

In economics there are two serious problems. The recession that generates unemployment or inflation that debases money and leads to permanent and persistent increases in prices. But when both things happen it is called stagflation. And we are in a recessive and also inflationary process, which cannot be corrected despite such a high interest rate, which is no longer justified.

–What level could the poverty rate reach?

If we do a history of poverty, in the years 2002, 2003, 2004, which were prior to growth, we had 54 or 55% poverty. In the 12 years of growth, perhaps until 2013, poverty fell to 21%. From there came a contraction of the china economy, since it stopped growing urbanly and needing metals. For this reason, the price of metals fell worldwide and our economy no longer benefited.

Then it began to contract, but around 2016, which green Hill After its expansion, Arequipa’s economy flies, as it grows far above the national average. It reaches 25% growth that year, according to some sources of information, but that was growth based on a mining project. That is not sustainable.

So, after 2016, the economy has been contracting again and the crisis of the pandemic. There it was a collapse and we have increased poverty by 10 points. We are at 30% after the pandemic. We recovered in 2021, we went down 2 to 3 points, but now we are close to 30% again.

–Is it going to stay like this?

If this process continues, unfortunately poverty levels will increase. We need to grow at 4% to maintain employment levels for people. If we grow this year at 0.3%, we are going to have 400 thousand workers who are going to come in looking for work and cannot find it. Therefore, there are 400 thousand more people annually who will join the informal sector and consequently the poverty levels.

–What should the government do, reduce the interest rate?

Yes, in inflation we talk about two main causes: due to demand or due to costs. There is inflation Imported also when the exchange rate rises, everything we import also rises in price and affects the general price level. But we are no longer talking about that because the exchange rate is ranging from S/ 3.84 to S/ 3.86, that is not the problem. The problem is that if there is a lot of demand, prices rise, then the economy must be cooled, raising the interest rate so that consumption and private investment fall. If consumption and private investment fall, aggregate demand falls and then prices necessarily have to fall.

The other side is the increase in costs, which has happened with Ukraine, Cyclone Yaku, the El Niño Phenomenon and now the Israel – Hamas war, which is generating an exception worldwide that the markets are very volatile. All of this also generates inflation, but not due to demand, but rather due to costs.

– Isn’t there a recovery outlook for 2024?

A Proyect of reactivation of the economy It has a maturation process between 6 and 9 months. Everything that our economy does now we are not going to see this year, we will see it perhaps starting in the middle of next year. So, we will not see a reactivated economy. The actions that the Ministry of Economy is taking are not enough. That supplementary credit of 5 billion soles, who is it going to go to? To the consumer and if demand is going to increase, it is most likely that if supply does not respond, prices will rise again due to demand this time. I don’t see next year, at least in the first half, that we will have some policy results that can be made.

–So, what is the alternative?

What has to happen is a shock of confidence. What happens with private investment is that there is fear with the government’s lack of definition. There is no clarity that private investment is going to be supported, that projects are going to be respected, that investment in agriculture, in manufacturing, in the agro-export sector, in the mining sector. So, since there is no such definition, there is no confidence to invest yet.

Not because the president says Europe that Peru is an open door to private investment, this is coming, it is not like that. It is not that the president travels to the United States to say that Peru is open to investment, investment is coming, it is not like that. The Ministry of Economy, in any case, would have to encourage the offer, not with that supplementary bonus, but rather direct it to the producers, to the micro and small producers, Minister Choquehuanca is there, so that from there it is redistributed or distributed that supplementary credit to micro and small businesses that generate employment in the country.

–To generate that shock of confidence, the best thing would have been for the elections to be brought forward?

No, I do not believe that moving the electoral system is the best thing. It is entering again to destabilize the democracy in the country, It is not the best. That doesn’t look good internationally. We have to get used to the fact that when we elect a president we elect him for five years.