There are more than 9 million poor people in Peru, according to INEI. Photo: EFE
This Friday, the Minister of Economy and Finance, Alex Contreras, recognized that Peru is in recession. His statements coincided with a Moody’s report. The risk rating agency reduced its projection of the economy from 1.3% to 0.6%, with the risk of it falling even further. “It’s a pretty bad and lost year,” he reports.
You may be interested in: Alex Contreras, head of the MEF, recognizes the critical moment of the economy in Peru: “It is, without a doubt, a recession”
Given this situation, it is valid to remember when was the last time the country went through a similar situation and how it was managed to get out of it. Gonzalo Llosa, professor of Economics and Researcher at the Universidad del Pacífico, reviews the recent economic crises.
He points out in principle that what happened in the last years of the eighties, with the first government of Alan García, was an economic depression that in a few years set the country back nearly 30 years. So it is not comparable to what we live today. “It was another Peru and the causes were also other,” he tells Infobae Perú.
You may be interested: Moody’s affirms that Peru is already in recession: “2023 is quite bad and lost”
For Llosa, the closest thing in terms of magnitude to the contraction occurred after the abrupt departure of Alberto Fujimori. “The global economy was going through a recession in previous years; several crises had been reported in emerging countries, which increased the cost of financing. We were a country with more public debt than we have today. We were, definitely, less resilient and with lower levels of macroeconomic strength,” says the specialist.
Alberto Fujimori (president of the republic 1990 – 2000). Photo: Social networks.
It details that Fujimori’s resignation generated a setback in economic activity, which was offset mainly by external and internal factors. The external part had to do with the fact that China began to grow much more, and that is when it integrated into international trade and began to show higher growth rates and began to demand more commodities. “A commodity supercycle was generated that helped us for about a decade, and there was also a reaction from the Central Bank to make its monetary policy more flexible, which helped the economy recover,” says Llosa.
“The next episode of strong deceleration was what came as a result of the global financial crisis [año 2008], but we were one of the few countries that did not experience a recession. The GDP did not contract, but we went from growing 7% to growing almost zero,” says the researcher.
In that case, the recovery was again due to external factors: a lot of international liquidity, capital flows that entered Peru, China had issued a series of monetary fiscal packages that at the time helped commodity prices recover. Domestically, there was a fiscal policy and a non-aggressive flexible monetary policy, acting in a countercyclical manner to stabilize the product. That way, we managed to get out.
Mining in Peru
As the interviewee indicates, this time there are several factors that are different from other stages, and certain things that overlap with previous cases. For example, the political crisis that was generated with the departure of Fujimori is, in a certain way, similar to the political crisis that we are experiencing today, “in the sense that there is no clarity regarding the direction of the country, because there is a high turnover of authorities and that prevents the implementation of pending economic and social reforms, which affects the country’s growth prospects.”
You may be interested: Carlos Anderson launches sharp criticism of the Minister of Economy, Alex Contreras: “He should resign”
At the same time, he points out that the current political crisis has other nuances, is in itself different from the previous one, and has more to do with political polarization. The other thing that is new, he explains, is the fact that interest rates are rising to curb inflation, which has also been in line with interest rate increases in the world, especially the United States Federal Reserve. . This has been generating a higher financing cost that makes investment difficult.
Additionally, there is the withdrawal of the fiscal stimulus. “We have had a fiscal consolidation process after having made an enormous effort to combat the effects of the pandemic. That stimulus has been withdrawn, and that has definitely reduced the dynamism of the economy,” he admits.
To date, 6 AFP withdrawals have been approved, from 2020 to 2022. Photo: composition Infobae/Andina
“The State is carrying out fiscal consolidation, but part of the expenses that should be made on the public investment side are not being executed because there are political restrictions. The other thing that has also happened is that the recovery of 2021 and 2022 freed up resources for people, access to their CTS and AFPs accounts, and those resources have definitely been spent in a certain way. So the consumer has less support on that side and, on the other hand, a higher cost of credit. That also has a negative impact,” she said.
Among the external factors, Llosa details a lower growth of our commercial partners and an increase in the cost of financing that is making financial conditions a little more adverse.
The researcher stops at a point that is persistent and that is worrying because it not only affects what we are seeing in terms of recession, but because it affects the long-term prospects of Peru. And it is the political environment.
Dina Boluarte in the Congress of the Republic. (Photo: Andina)
Firstly, the political crisis that we are experiencing, and secondly, that this political crisis does not allow us to attack the structural flaws that the economy has, he maintains. “In particular, I am very concerned about the poor management capacity that the public sector has to provide services and to facilitate the growth of the private sector.”
He points out that the institutional weaknesses that we have been showing in recent years do have a more long-term effect. But in addition, there is no ability to reformulate this situation and get out of this crisis.
Despite the crisis, Llosa indicates that there is no doubt that the country has a financial and macroeconomic quality that is envied in the region. “The cyclical effects that we are seeing now are a sum of non-external, local economic factors, but also political ones that should be resolved. But still, the stock of macroeconomic strength has been preserved,” he adds.
Alex Contreras, head of the MEF, recognizes the critical moment of the economy “It is, without a doubt, a recession”
Another aspect that Llosa highlights as worrying is that although Peru may grow less this year, a greater impact could be that when we return to growth there will be 2% parking. “That would mean that we lag behind the rest of the countries, there will be no economic convergence and that is very sad, because it means that, in a country where poverty levels are still high, we are not growing,” he declared.
On the other hand, the positive side of this crisis is that companies in Peru are not over-indebted and our public debt levels are also quite low.
The interviewee concludes by pointing out about this situation that, on the one hand, the cyclical part of the economy is fundamental, that fiscal efforts be accelerated to reactivate it and, on the other hand, that the Central Bank’s position be made a little more flexible, which which will provide opportunities for certain markets that are a little weaker today to be reactivated.
“It is very important that structural reforms be deepened, for that a lot of political cohesion is needed. We are going to see what happens, but more coordinated management of the political factors is needed to be able to move the situation forward,” he notes.