Germán Alarco: “The growth model was unstable and it aggravated inequality and did not solve poverty”

Was Peru well, economically, before the pandemic?

A colleague, a former Minister of Economy of the Francisco Sagasti government, pointed out that a great miracle took place and that in the last 30 years the GDP multiplied three times. I checked the information from the Central Bank and between 1952 and 1973, which is 24 years, the product tripled. In a complex period, 1922 and 1950, which are 27 years, it also tripled. And when the Hodrick-Prescott trend analysis is done, it is observed that the previous cycle, that of the developmental model, was longer than the current one, between 90 and 2020, removing the year of the crisis due to the pandemic. So, this saying of the great historical growth never seen before is not true. And if we review the problems, there were many.

Did the model not reduce the high rate of informality in the country?

Not only informality, but also inequality. The information indicates a worsening of inequality, not to mention the pandemic, where we went back ten years in the poverty figures. Neoliberal colleagues point out that the pandemic has nothing to do with the model.

And does it have to do?

Of course. The model downplayed the role of the State and meant the abandonment of public services, especially health, and was the central, basic element to explain the unfortunate death of more than 200 thousand Peruvians by Covid-19. Neoliberalism, apart from the ecological issue, is the first reason that explains the pandemic, it was the cause of those unfortunate outcomes.

Is GDP growth not enough to measure the level of development of the country?

No. We have the human development indices from UNDP. They not only include the GDP variable, but also the satisfaction of needs in education and health. It is a better indicator and economics students are told that the GDP has a series of advantages that allow us to compare ourselves, but that it has disadvantages and shortcomings that must be replaced by other indicators. The growth model was very unstable, a model that aggravated inequality, did not solve poverty, and has many elements to correct.

There is talk of headwinds for the economy due to high mineral prices. Is there good luck in the Pedro Castillo government to have those winds in its favor?

The headwinds are that this year we are going to have a growth of 13% and a fraction. The international rise in prices is there, but it is already anticipated before the rise that by the end of 2022 or at the beginning of 2023 a descending phase is coming again. It would be relevant for colleagues to review international commodity price projections. The scenario to the future does not look good. The executive secretary of ECLAC (Alicia Bárcena) said that the entity is concerned about the triumphalism of 2021. The countries are going to grow like never before, on average the region is going to grow 6% per year, but next year we are heading for a slowdown tremendous, which will lead to 2% growth again.

And this will have an impact on taxation …

And for those who oppose the tax reform, they forget that the profits obtained from mining are only temporary. Unfortunately, according to international projections, prices are clearly coming down from, it is not clear if in mid or late 2022 or early 2023, which will be clearly lower. Therefore, the reform must be done now, now.

Agribusiness and mining were key to growth, but what other engines can be ignited to prop up the economy, in times of storm clouds and a drop in the price of minerals for next year. To do?

You have to review what they say in the World Economic Forum and ECLAC. In the case of the Forum, the importance of facing high inequality is discussed, and this has effects on short-term macroeconomic management.

Because it is important?

Because by redistributing income, the propensity to consume increases, demand increases, and production increases.

And what do they say at ECLAC?

In Latin America there is talk of working on three issues. The ecological transition, productive diversification and facing high inequality. I propose as an agenda for the Government to look at what is being discussed outside and internalize it. Unfortunately in the country we have many who look only at the navel. You have to look at what the rest of the world is doing. The international financial crisis and the pandemic dealt a severe blow to the growth model. It is not about revolutionizing, but about making significant adjustments to our growth model, paying attention to the high inequality, the ecological transition and the key element for Peru, productive diversification.

He made reference to what was said by former minister Waldo Mendoza, who says that the economic model worked and that the proof of this is growth. Why should it be changed, and what type of model to advance to reduce poverty, generate employment, investment, development in the country?

I never said that you have to change the economic model. With that I argued with many colleagues. I insist that the economic model must be adjusted. Changing the model is talking about something structural, serious, big, and it is not overnight. Those who say that the model grew as never before by official statistics, is absolutely false.

Do you think that the Pedro Castillo government has the intention of changing the model, as we know it, or will it point to that refinement that it suggests in order to reduce social gaps in the country?

It’s not just social gaps. They are structural, regulatory gaps. I don’t think he can do it, and what he has to do is confine himself to a clear agenda to adjust this model. We must face the severe health and economic crisis, which implies permanently strengthening the public health system, we must advance in structural, regulatory, institutional and political reforms that are essential, we must face the impacts of the trends and challenges of the international economy and it is necessary to establish spaces for a new economic, social and political consensus. And for that, you don’t have to hold a constituent assembly, you have to convene experts like President Paniagua did and achieve greater awareness in society. ❖