The economy of Peru, an “anti-seismic building” in the face of political earthquakes

Édgar Sáenz, 51, has been selling breakfast for three decades in a small street stall near Congress, in downtown Lima. He offers emollient, a kind of multi-herb tea, very popular in the country.

The recent demonstrations after the removal and arrest of former President Pedro Castillo, who attempted a coup on December 7, blocked streets and caused a social upheaval that harmed his business. But nothing stops him.

“We have been harmed by the marches and hopefully they will not be repeated because those of us who pay the piper are ordinary people. This is our job, if one day you don’t work practically that day you don’t eat, you have to work and move on.” , assures.

Despite the political crisis, the new Minister of Economy and Finance, Alex Contreras, appointed by President Dina Boluarte, Castillo’s successor, tells AFP that Peru “is like a kind of anti-seismic building.”

“It has some key columns that, despite the earthquakes, have allowed it to hold on,” he says.

– Economic foundations-

Peru, the world’s second largest producer of copper and silver, retains monetary stability, fiscal stability, and financial stability, regardless of any government.

“Those central columns are: an independent Central Bank, a Ministry of Economy that, despite the changes [cuatro ministros de Economía en un año] has maintained respect for fiscal rules, and a Banking Superintendency that has maintained financial stability,” explains Contreras.

He assures that 2022 will close “with a growth of 2.8% or 2.9%” of GDP. “There were important effects, stoppages in mining. Without these effects we would have grown 4%, above the region,” which has an average growth of 3.7%, according to Cepal.

Peru still has the second best country risk classification in the region after Chile, says the minister.

“That is the reflection of having the lowest public debt in the region. This year (2022) it will be around 33.8% [del PIB]. The fiscal deficit is at 1.6%, after having been almost 9 points as a result of the pandemic,” he comments.

Despite being a mining country, “you have to deal with 80% of the economically active population, which is informal, and 70% of business activity with small entrepreneurs, one-person companies (…) who have, for survival, to go out and work every day”, explains former Minister of Economy and Finance Luis Miguel Castilla.

“Yes ok [la informalidad] It puts a ceiling on development, keeps the economy going, keeps trade going. Trade and consumption have made Peru continue to grow this year at around 3%,” Castilla considers.

Peru has about 60,000 ’emolienteros’. “We are a job engine. We move a high economy, we are part of the country’s growth,” says the merchant Sáenz.

María Torres, 58, a children’s clothing seller in the center of Lima, is clear about it. “We are trying to reactivate ourselves as we can and continue advancing despite the protests. We have to continue working however we can.”

“In the short term [la informalidad] it’s an escape valve. But in the medium term it is a drag, even for the very effectiveness of government policies,” estimates former minister Castilla.

Although the informal economy moves the country, “the negative side is that there is a lot of lack of social protection (…) This was very evident in the pandemic,” says Minister Arce.

illegal economy

Peru is considered one of the largest global producers of cocaine, with some 400 tons per year, and mining and illegal logging operate in its territory, along with transnational organized crime.

Although there is no official calculation of how much the illegal economy contributes to GDP, examples can be given. “I would dare to say that the production of illegal gold in the country today exceeds the legal production (96.6 tons in 2021)”, considers the former minister Castilla.

And corruption “eats up” 20% of the country’s annual budget, he adds.

Despite the resistance of the economy, the constant crises have weighed down the rate of growth.

“It is no longer outstanding. After a long time, we are in the lower third in the region,” says former Economy Minister Waldo Mendoza.

Minister Contreras hopes to launch the “Con Punche (energy) Peru” program, which includes “tax flexibility, quick spending measures, support for vulnerable sectors.”

“I have set myself the goal of leaving the economy growing at 4%, we have the space,” he says.

The minister commented that although there are no immediate debt issuance plans, there is permanent interest in Peru.

“International investors see Peru in a different way, they are not afraid of volatility because they understand that there is an agenda on the institutional side in which to advance, (…) they have great confidence in the capacity” of the country, says Contreras.