Dina Boluarte’s management prolonged economic pessimism

“Talking, reaching an agreement is something as simple as it is so impractical in recent months,” said Dina Boluarte when she was sworn in as president of Peru a year ago, questioning the secrecy of her predecessor Pedro Castillo.

The dialogue seems not to have transcended enough to straighten our course because the economic indicators have deteriorated after the massive social rejection of Boluarte: the GDP will close close to 0% or negative, in its worst figure in more than two decades – not counting the pandemic—, business confidence remains in pessimistic territory despite the change of government and private investment has been negative for five consecutive quarters (see infographic).

latent instability

Carlos Casas, dean of the Faculty of Economics of the UP, maintains that political conflict accompanied Boluarte all year, and with the recent catastrophe involving the Prosecutor’s Office and Congress—and incidentally the pardon for Alberto Fujimori—“for the interests behind it, a sense of disorder is perceived” that scares away private investment.

The former Vice Minister of Economy maintains that citizen insecurity also affects the economy, especially small businesses. “We see extortions or murders, like in Poderosa (mine). A small business is decapitalized by extortion or theft. It prevents the option to grow. It is harmful,” she told La República.

“Nothing new to recover”

Luis Arias Minaya, former head of Sunat, regrets that the Ministry of Economy and Finance (MEF) has taken so long to recognize the recession, also generated by exogenous factors such as El Niño Costero, Cyclone Yaku and that, in the face of El Niño Global, They can sink us further.

It is worth mentioning that the aforementioned weather phenomena and social demonstrations cost Peru S/11.9 billion, according to the MEF.

Arias Minaya announced at the end of the third quarter that “the Government of Dina Boluarte has no economic direction” nor for “the fight against citizen insecurity and corruption”, beyond inheriting an economy in constant deceleration since 2014.

Along these lines, he considers that Con Punch Perú and Unidos are “very timid programs” to get out of the recession, and they have a routine nature that does not generate attraction of private investment and is rather committed to increasing public spending despite the fact that tax revenues They are falling and there is a risk of breaking the fiscal rules – the deficit is set at 2.4% of GDP.

“(The Executive) is making up the figures to comply with the (fiscal) rules, embedding spending and delaying returns. Transfers of profits from the Banco de la Nación were approved and all of this will take effect next year,” he said.

For his part, Casas alleges that the Executive’s plans to mitigate the adverse outlook are to inject liquidity into the economy, but agrees that we have a reduced fiscal space and expanding spending is not prudent, although it is already contemplated within the recently approved public budget in Congress.

Thus, it is described as an “expansive budget” and the salary increases committed to in these documents raise concern, since, if the fiscal rules are broken, the immediate effect is the loss of credibility in the eyes of the international rating agencies.

Poverty grows

In essence, the slowdown leaves us with a Peru with poverty ratios of 30% – a third of the population going hungry due to lack of income – and with households that, despite the decline in inflation, continue to allocate the little they earn to pay for basic services. Economist Armando Mendoza labels these consequences as mere failures of the economic model and makes it clear that “the trickle-down established in the 90s” has not worked to close gaps because “it arrives late, badly and never.”

For his part, the Minister of Economy, Alex Contreras, estimates that Peru will grow on average 3.1% annually between 2024 and 2026, and December will mark the start of the recovery, which will be vigorous in the first quarter of next year. However, BBVA Research considers that signs of improvement will be seen in the second half of 2024.

Anti-poverty policies in debt

As this newspaper warned, of the S/214 billion budget for 2024, only 3.4% goes to social protection. Items stand out to expand the coverage of Pensión 65 or the delivery of food in Qali Warma or to finance the Glass of Milk, but nothing new is presented to reduce the increase in poverty, according to the principal researcher of the IEP, Carolina Trivelli.

“Except for some additional items in Juntos for families with pregnant women or minor children, there is nothing new. The problem is that poverty has changed. Its location has changed and its type is different. We need new instruments and more resources, although there is a little more, but it is to do more of the same,” she pointed out.

Reactions

Carlos Casas, dean of the UP Faculty of Economics

“The (Government through the) MEF tried to generate good expectations and do the best within this disaster that comes from all sides. “He may be an optimist, but that’s his job.”

Luis Arias Minaya, former head of Sunat

“It took too long to recognize the recession. Very timid programs were applied to get out of the recession and with routine programs, nothing new, without greater attraction to private investment.”