Has the Government endangered fiscal stability?

“It is not known who manages tax policy”

Pedro Francke, Former Minister of Economy

Authoritarian measures are being added, one after another, such as the case of Harvey Colchado, but in the economic field there were few cases as flagrant as what happened in the Fiscal Council. Minister José Arista has acknowledged that they will violate the 2% fiscal deficit rule and since he does not like to be reminded of his obligations, he fires the messenger.

It is an example of the deterioration of the democratic institutions that the country registered a couple of years ago, and that now reaches the economic institutions. This favor is added to the MML for unjustified debt.

He moves away from responsible fiscal management due to issues of political pacts, to get the votes (of Renovación Popular) and to do anything to have their votes in Congress.

The Government is much more oriented towards not respecting fiscal institutions and the risk of irresponsibility is growing. There are signs of fiscal mismanagement, because otherwise it is not explained that the new Minister of Agriculture comes out to say that they want more tax exemptions for large agro-exporters and the MEF has not denied it. So it is not known who manages tax policy.

“They must be aware of the blow to credibility”

Alonso Segura, member of the Fiscal Council

Political conflict and inability to reach consensus generate negative forecasts and continuous revisions. There is an institutional erosion.

President Dina Boluarte was within her rights to remove Carlos Oliva of the presidency of the Fiscal Council, but it is a regrettable decision not to ratify a person with his career. The Fiscal Council is autonomous and what happened does not precisely align with the intention of institutional strengthening. Autonomy should have been respected because the five members asked for its renewal.

The powers of the State need to be aware of the blow to the credibility they are giving to the country.

With what has been said by the Fitch and S&P rating agencies, we are with conditional registration. Peru was a rock years ago but since the end of 2020 the slide began. We have been going downwards for several years now and the political class does not realize it. The over-indebtedness guaranteed to its ally the Metropolitan Municipality of Lima or the seventh withdrawal of the AFP, and not even complying with the formalism of observing it, are things that confirm the reading of the classification companies: the Executive does not defend its jurisdiction.

“Let’s look for a social pact to give a better signal”

Juan José Marthans, former head of the SBS

We have to worry about the political weakening of governance with the deterioration of the credit rating of Fitch and S&P. Although Moody’s maintains it at BBB+. There is not complete agreement yet, but once two of the three largest rating agencies in the world agree, it would raise major concerns and limitations.

Distrust has increased as constitutional sustainability is called into question. I do not think that the fiscal accounts will be affected, whose deficit is now at 2.8% of GDP but if mineral prices remain the same, they would bring us closer to 2%. But we should not interpret it as a victory because the real origin of the problem is not solved.

The corrective that I propose is to achieve a social front in the short term with the possibility of creating a pact in favor of development and infrastructure and investment for the next 30 years. That is the solution, and not so much by imposing more taxes or reducing them. This will give better signals to the risk rating agencies because regardless of who governs, the way to transparently promote megaprojects would be guaranteed.

“President Dina Boluarte does not want critics”

Alfredo Thorne, former Minister of Economy

In terms of public finances we are getting very complicated. Leaving people aside, I think that institutionality is at stake. In our system, the Ministry of Economy and Finance makes economic policy and the Fiscal Council, as autonomous, comments on deviations from those policies. That they remove the president of the CF (Carlos Oliva) violates the transparency of fiscal management. On the other hand, his criticism of transfers to people close to the Government also touches on a very sensitive issue. When it comes to technical issues, the CF enlightens us all.

It is a clear sign that President Dina Boluarte does not want critics in economic issues, just as she has violated institutions in education or the Police as a reformist process.

On President Boluarte’s side, she is a constant and wants to distance herself from critics of her. There are rumors that Alex Contreras would assume the vacant position, I think that would be a mistake. When he was minister, he manipulated figures.

S&P Global Ratings indicates that there is no consensus to make a transparent policywe need a serious and rigorous change.