Julio Velarde: GDP growth is key to reducing poverty

The numbers overturned the story of Dina Boluarte’s Government: in September the GDP fell 1.29% and accumulated three consecutive months in the red and, in year-on-year terms, it was anchored at 0%, which bodes well for several consulting firms and financial entities that 2023 closes in negative.

This freezing of national production – labeled by researcher Waldo Mendoza as “the longest recession since the 1990s” – implies, among its most tangible consequences, the increase in poverty.

Julio Velarde, president of the Central Reserve Bank of Peru (BCRP), urged the Government to commit to reforms to recover Peru’s potential economic growth, considering that before we were at 6% and now, close to 2%.

Along these lines, he proposes to “analyze well” the labor and capital markets for both reforms, coupled with better governance because some laws of Congress or the Executive “without realizing it end up having a fairly high burden.”

“There is no country that has reached development without a civil service that is professional (…) When I say governance I mean knowing how to interact with the private sector. Have the ability to respond quickly. Have professional officials in health, education, investment. Our civil service must improve substantially,” he said on the last day of CADE.

On the oven door

The latest official data from the INEI, revealed in May of this year, states that 9,184,000 Peruvians are poor, and of this group, “9 out of 10 compatriots have a bad time” in the urban spectrum, according to IRD researcher Javier Herrera. .

The head of the BCRP agrees with this conclusion, and pointed out that 11% of the poor are close to abandoning monetary poverty, which measures the purchasing capacity of a household to meet its basic needs.

“Urban poverty has grown a lot (…) 3% of the population, that is, 11% of the poor, at this moment, lack 11 soles or less per month to leave poverty. That is, sell one more emollient or half a kilo more potatoes. They are almost on the edge. Really recovering (GDP) growth can help us get out of poverty,” she commented.

It is worth mentioning that given the economic slowdown, poverty would once again exceed 30%, affecting a third of Peruvians, and until 2028, it would remain close to that ratio, according to reports from BBVA Research and the World Bank.

The starkest view is held by the Private Competitiveness Council: poverty in Peru would return to the pre-pandemic level (20%) only in 2053 if the GDP continues at an annual rate of 2%.

Protests do not weigh as much in the fall

Within the cocktail that pushes GDP to its lowest variation in more than 20 years, not counting the pandemic, Velarde maintains that exogenous factors (2.3%) – such as the increase in the bond rate in the United States or the reference of the Federal Reserve –, followed by the protests (0.8%) and the droughts of recent months in some regions (0.1%).

Would inflation normalize sooner?

Inflation in metropolitan Lima, during October, was -0.32%; and in year-on-year terms, it continued to decline and reached 4.34%. Julio Velarde alleged that the BCRP “is controlling inflation but there is no need to claim victory”; and he projects that in the last two months of the year they will be 0.20% and 0.25% on average and, with this, inflation would end the year at 3.4% or 3.5%.

And, if El Niño is not as strong as expected, inflation in April would reach 2.9% or 3.0% (in the target range).

Figures

• 2053 only in that year, if the GDP continues at a rate of 2% annually, poverty would equal the pre-pandemic level (20%).
• 30% of Peruvians will fall into poverty in 2023.