Economic strength will encourage investment and protect us from external shocks

After Bloomberg placed Peru as the strongest economy in Latin America and the Caribbean -displacing Chile-, the economist Armando Mendoza explained that this news is encouraging in the midst of a pandemic no expiration date, the constant political instability and the increased risk perspectives of some international agencies.

“It is a positive message, considering that at some point Peru’s risk rating was lowered. It is an important signal that the waters return to their course. Peru is recognized as an institution where economic policy maintains its level of stability beyond any difference”, manifested.

For his part, the former head of the Superintendency of Banking, Insurance and AFPs (SBS) Juan José Marthans argued that, despite the fact that Moody’s, S&P and Fitch Ratings reduced their risk rating for Peru, they continue to see us as a destination of great investment; and if we add here the good image of our banking system -of 80.72 pts. for Bloomberg-, it is robust enough not to be affected by external shocks, such as the already announced increase in the reference rate of the US Federal Reserve (Fed).

“In a context of adjustment of the US reference interest rate, the chances of capital leaving Peru are not very high. The BCRP would react by also adjusting its reference rate. Peru’s economic stability would not be broken. We are in a good relative position”, he stressed.

bank soundness

Marthans stressed that, at the beginning of this century, it was common for institutions to go bankrupt because there was no trust in the banking system and the superintendent body. However, the panorama changed when the system began to be reorganized by strengthening its assets and aimed at preventive work, promoting policies within each one so that they are managed with equity and capital ease.

“This slack has allowed that, regardless of the cycle, including in stages such as the 2008 and 2009 crisis, as well as that of covid, the needs are satisfactorily covered from the financial front,” he stressed.

Likewise, Marthans considered the execution of a program such as Reactiva Perú to be correct, which, despite the limitations that marked it at the beginning, managed to face the crisis without the banking system suffering from its quality position in the loans granted.

preserve principles

The economic stability of Peru fell from 78.13 to 68.30 units (while Chile has 73.92 points). The dean of the Faculty of Economics of the UP, Carlos Casas, recalls that in the southern neighbor the constitutional changes that are proposed can deteriorate its performance, for which he determines that our country had a much better role, despite the noise caused by the arrival of Pedro Castillo to the Government.

“After the panic that (Castillo) entered the Government meant for investors, I think the dust is settling. Beyond the speeches of some officials, in practice the rules remain the same, ”he noted.

It is worth remembering that a couple of weeks ago Bloomberg assured that foreign investors once again looked enthusiastically at Peru after Congress rejected a motion to initiate a political trial against Castillo.

Here comes carving the political landscape, which for Bloomberg reaches just 17.71 points of stability. A very different panorama to the 73 points of Chile.

Mendoza considered that this indicator is equivalent to a wake-up call for the political sectors, since a minimum governance agenda is needed for agreements and consensus that push the reactivation.

The decisions made to assign officials to the portfolios involved will also be crucial, since it is important to “keep the rules clear”, using the example of Castillo’s visit with the former head of the MEF, Pedro Francke, to the United States. where they did not stop calling for private investment.

The word

Pedro Castillo, President of the Republic

“We ratify our objective so that Peru continues to be a model of economic strength, and future member of the OECD, with a competitive and inclusive economy for all Peruvians”.

keys

Merit. According to Mendoza, the strength of the MEF was key in maintaining principles such as control of fiscal accounts, deficit reduction and tax reform.

Challenge. Moody’s downgraded Peru from A3 with a negative outlook to Baa1 with a stable outlook. In other words, it can fulfill its obligations, but with a more adverse outlook.

Route not to leave the fortress

Spotlight By: Kurt Burneo, Economist and Researcher

These Bloomberg indicators reside in the stock of macro strengths. These will not stand alone, there must be consistent policies. We are looking at the photo of what is there, but it is not foreseen what scenario comes next.

A pending task to maintain macroeconomic strengths has to start with improving the effectiveness of tax collection. Let’s look at the ratio between VAT collection and its potential: an effective collection of 10%, and a potential of 18%, which reflects that there are eight points in between to improve efficiency. We are at a level of deficiency of just over 55%, considering that countries like Chile have levels of VAT collection effectiveness of 75%.

Another element is how to sustain economic resilience after the slowdown observed in recent months; It remains to be specified how it will be done to underpin the recovery after the 13% rebound in 2021. This is a huge rate, but if we compare it to 2019, growth was only 0.8%. It is an obviously negligible growth if you want to absorb the almost 300,000 workers who annually join the labor market and if you add the more than 2 million unemployed left by the economic contraction of 2020.

At the moment there is no definition of economic policy for the short, medium and long term, which is aggravated by the greater caution of investors and the political friction between the Executive and Legislative Powers.