Castilla: We have a precarious Government and an arrogant and abusive Congress, which is not interested in anything

Hours after this interview, the former Minister of Economy was more critical on the show’Clear and direct’, by LR +with the role of Congress in approving the 2024 budget. He regretted that the Ministry of Economy and Finance (MEF) has given in and accepted the blackmail of the congressmen, who increased his list by 200 million more. For all sectors the increase amounts to 12%, while that of parliament is 23% at a time when everyone is asked to tighten their belts. “I reject an expansive budget for an institution that harms the country,” he said.

He added: “the technocracy ate that frog and they will have to submit to realpolitik, where the congress governs and the executive is submissive.” “They do not put a stop to initiatives that undermine macroeconomic indicators and confidence in Peru,” he stated.

—Businessmen are very pessimistic, according to the Central Reserve Bank (BCR) survey. There is no confidence to invest.

—At the time of the pandemic we had a sharp drop, but it was an exceptional moment. This year, in the short term, there was a lot of pessimism, but with some anticipation that things would improve. The October measurement will show a worse photograph due to all the things that are happening. Economic stimulus programs have not changed distrust. There is concern about legal stability, institutions and transparency of public affairs.

—Before it was said that the economy and politics walked separate ropes, now they don’t..

—When there was that theory, we were in a bonanza of raw materials and very favorable external conditions. A turning point began in 2016 (PPK government), due to the exacerbation of political volatility and the shock of the pandemic. The pessimism and the impact of the political on the economic has more to do with the fear of making decisions and the inaction that has taken over the Peruvian State. It is very difficult for businessmen to have foresight about the future. The other thing is bureaucracy: hundreds of real estate projects are stopped due to laziness, lack of sense of urgency or blackmail from local authorities. In addition, there is a rarefied environment, another stripe to the tiger.

—But metal prices are not that low.

—Copper is above the average of the last 10 years. Gold, too. (…) What this immobility has basically done is paralyzed the country and we see it in the private investment figures. The institutional situation is taking its toll on us, the lack of respect in contracts, the violation of legal stability, from the mayor of Lima, Rafael López Aliaga, to other notorious cases. On the other hand, private consumption contracted, last year in this quarter, it grew almost 3%, this year it probably will not grow and that is the bulk of the country’s spending, it represents 60% of domestic demand. So we have this combination of stopped investment and consumption that suffers from a precarious situation in the labor market.

—Regarding respect for contracts, it was generally closely associated with ideology and left-wing leaders, now we see it on the right.

—Populism does not have a political ideology, there is populism from the left and the right. Today we are living from both, perhaps the most harmful is the right. In theory, it is supposed to be more respectful of property rights, legal security. Regulatory legislative populism plus paralysis is a complicated cocktail to digest.

—With a Congress with spending capacity endorsed by the Constitutional Court (TC).

—It’s a feast and with a conservative TC. Except for Judge Monteagudo’s vote, the rest are not stopping the wisdom of the rulings in economic matters. Congress just approved the budget, they conditioned it on a series of initiatives. The Ministry of Economy and Finance circulated a document of 900 requests, which added up to an additional expense of 16,000 million soles. From a direct source from the MEF we also know that they conditioned the approval of the opinion on a 23% increase in their institutional budget.

—And for what? To distribute bonuses?

—It is indicative that the basic concepts of budget balance and differentiated powers between powers of the State do not exist. Congressmen have probably been emboldened and have reached the deadline for approving the budget. I rarely saw that the vote on the budget law was left until November 30.

—This economic effort to inject S/18,000 million is not going to work.

—It didn’t work, public works have contracted greatly, the impulse was not effective. Regional and local governments are largely the executors of the budget and had big problems. The subsidized credit programs, Myperú, increased guarantees from 5,000 to 15,000 million soles. It is positive, but they have limited scope, it goes to those who have the capacity to repay, it is intermediated by private banking that filters many companies. More than 2 million companies will not have this type of support. I reiterate, the main problem is mistrust, not the macroeconomic indicators, but the entire institutional implosion and especially of two powers (Congress and Public Ministry), which were supposed to lead the fight against corruption and we see that they are corroded from head to toe .

—What is the way out?

—There will be a recovery next year, assuming El Niño is moderate and stimulus policies have an impact. But 2% growth is insufficient to generate employment. We have measures that can be politically costly, but since the agrarian promotion regime was repealed, 100,000 formal jobs have been lost in modern agriculture. We need to grow more, that implies stability. Labor reforms are missing, correcting failed decentralization and meritocracy, these issues should be debated in Congress, but they are more focused on their privileges, on earning the bonus, increasing their budget or on maintaining terrible impunity.

—Without capital or political decision, don’t you think the elections should be brought forward?

—I agree that political capital is required. We have a precarious Government and an arrogant and abusive Congress, which cares nothing. 12 months ago, when there was a change of Government, he thought that the country required that this Government conclude its management, but it has shown terrible paralysis. Many of us are reevaluating the position if it is not better to bring forward an election so that at least something happens, right? We can’t continue like this. The social cost of this can be very great, poverty grows due to the lack of economic growth. On the other hand, nothing guarantees that we will have a level of political fragmentation like 2021, with two candidates who do not add up to 25%, at ideological extremes.

—The political class does not have that level of reflection, everything has been relativized to a war against caviars..

—I agree with that assessment, there are critical issues such as the crime that the country is experiencing and calls for radical measures, the institutions are weakened and some are captured by clientelism. There are many who consider that being like this for two and a half years is a lot. Although the cadres improved (more technical ministries), but in the end the Executive ends up giving in to everything because what it privileges is its permanence in power. This is what the business elites are feeling, there is no longer that consensus that there was that, in the face of uncertainty, it is better to stay with what we have. We cannot afford to have another year in a situation in which we do not see leadership and all those individual and subaltern agendas take over the country.