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Alonso Segura: “(The crisis will cause) the decline in private investment to continue”

Alonso Segura: “(The crisis will cause) the decline in private investment to continue”

The disclosure of chats that reveal an exchange of political favors between legislators and operators of the Attorney General, Patricia Benavides, has unleashed a new institutional crisis. The former Minister of Economy Alonso Segura explains what the effects will be on the Peruvian economy, already hit by the recession.

—A new chapter of the political crisis has begun, will it have any impact on the economy in the short term?

—Yes, actually, the consequences, at least the short-term ones, are going to depend on how all this ends. But let’s say, the turbulence is very strong, there are multiple people involved, the Prosecutor’s Office, Congress, even the press. This is serious.

—What will be its impact on business confidence?

—Obviously, this is going to negatively impact business confidence, investment decisions and economic decision-making. In the latest survey, the Central Bank asks a question to thousands of businessmen who say what are the main variables that impede the growth of their company. Five of the six reasons are non-economic, and the first is political instability. So how do you make investment decisions, business decisions, job creation decisions, when you don’t know now if this is going to trigger a new election, if the Government falls, the government closes? Congress(if there will be) more social conflict.

—What sectors of the economy would be affected?

-Depends. You now have a generalized infection, but you don’t know where the pus is going to come from. It’s very difficult to say. Obviously, private investment is in free fall, and what this is going to do, most likely, is continue the pessimism and continue the fall in private investment.

—But I pointed out that there will be an impact on economic decision-making…

-Clear. If you have to pay for your children’s school, you will do it no matter what, but if you wanted to buy an apartment, you say “I’ll think about it.” If you wanted to expand your offices, too. So, in everything that has to do with more medium-term investments, uncertainty does not benefit anything. Everything that is expendable for a company or for a home is what is most likely to be affected.

—What other negative effects do you perceive?

—We are in such a deteriorated situation that you see no possible way out in the short term. This affects, for example, credit ratings, which already have a negative outlook on the entire institutional side. So, with this latest episode (the rating agencies could lower the grade again), what does that mean? Less access to financing from the country, which is more expensive, companies probably fall to a speculative level.

—And will the Government’s recovery programs help at all?

—The programs were a ‘crazy’ thing. It was to add bonuses to public employees that allowed you to add public spending in December and January, it gives you an upward boost, there are statistical effects that are going to help as well. It is practically impossible for the economy to remain in the red in December, January, February. If it is in the red in those months it is because the economy is already collapsing. But what could happen to you is that it rebounds slightly in January, February, March, and you start again and fall into a new recession. Or you are left with very weak growth, 2%.

—What do you think of the new MEF United Plan?

—United, what is positive about it is that, for the first time, it shows a change, and does not seek to make everything about public spending. Recognize that we need private investment, that is the positive side. The issue is that it was difficult for private investment to arrive if they did not have concrete actions, beyond speech, concrete achievements that generate trust, and what has happened now? Not generated by the Executive, mind you, but with this (the crisis), do you think someone is going to say today “I’m going to bring my money to Peru”? No. I hope I am being very pessimistic and wrong.

—Has the time come for a renewal in the MEF? Should Alex Contreras leave?

—I’m not going to go into that as a matter of professional courtesy. But in other portfolios, yes, I think there is a lot of complacency in the Government. There is no sense of urgency in the vast majority of portfolios. The feeling they convey is that everything is fine here, there is no urgency about anything, triumphalist messages everywhere. Yes, I think the Minister of Economy is very erratic. He had to recognize the recession because it was basically costing him his head.

Source: Larepublica

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