Peru’s minister of finance and economy, Alex Contreras, explains why firms should still invest in the South American country as it regains its balance following years of social, political and economic commotion.
After decades of economic growth, which has set Peru apart from its neighbours in the region and allowed its population to climb the poverty ladder, the South American country now finds itself picking up the pieces of years of political instability, which have seen a number of presidential changes and raised concerns about the country’s financial stability.
Back in December, Peru’s left-wing president Pedro Castillo was removed from office and arrested after attempting to close Congress before it could undertake a third impeachment effort against him.
Vice-president Dina Boluarte replaced him. The appointment sparked protests across Peru, which turned violent in some areas and caused the death of 49 protesters. Almost a year after the events, the protests have subsided, giving the government leeway to shift its focus from damage control to boosting its economy.
Peru’s minister of finance and economy, Alex Contreras, spoke with The Banker about economic recovery, attracting foreign investors, removing economic inequality and boosting credit availability for local businesses.
Q: Almost a year since the removal of president Pedro Castillo from office, where does the country’s economy stand?
A: Peru is a resilient country with strong macro fundamentals. This will allow economic activity to recover after having been affected by multiple negative shocks in the first half of the year, such as social unrest, climatological phenomena like cyclone Yaku and El Niño, and less favourable external conditions.
The recovery will be supported by the implementation of the ‘Con Punche Peru’ plan and the recent launching of the ‘Unidos’ plan, both with the objective of improving public and private investment. Domestic demand is expected to grow in a scenario of dissipation of shocks, lower financing costs, higher tourism flows and the recovery of investor confidence.
A: Important aspects to highlight are Peru’s macro-fiscal strength, financial stability and the soundness of its economic institutions, which have allowed the country to achieve remarkable economic progress over the past decades.
The solid macroeconomic fundamentals of the Peruvian economy are reflected in high levels of international reserves, low public debt compared with our peers in the region, a robust financial sector with access to international capital markets, and one of the best credit ratings and lowest country risk in the region. Also, these macroeconomic fundamentals, jointly with the prudent management of public finances, have allowed the country to respond effectively to adverse scenarios.
In addition, we have consolidated a solid private investment system through public-private partnerships, with clear rules so firms — national and foreign — can also invest in infrastructure projects and public services. For example, in 2023, Peru awarded 14 of these projects for $2.3bn, mainly in the electricity, telecommunications and health sectors. This figure has exceeded the amounts awarded in the past three years by more than 10 times.
Q: Which are the main economic sectors where you are looking to boost foreign direct investments?
A: Peru continues to be an attractive destination for mining investment, given its high reserves and low production costs. To date, our country has an important portfolio of 46 mining projects with a total investment of $53bn, of which 72% corresponds to copper.
In addition, a portfolio of 70 mining exploration projects is being developed. It is important to mention that investments in the mining sector have recently been ratified for the coming years for more than $12bn.
We are promoting foreign direct investments in infrastructure. Projects in the northern area of Lima will boost the potential growth of manufacturing, tourism, logistics and trade. Among the most important ones are the Port of Chancay, the expansion of the Jorge Chavez International Airport, and the expansion of the Muelle Sur del Callao Container Terminal.
Some sectors will become new engines of growth. Non-traditional agro-exports have had uninterrupted growth during the past 13 years, mainly due to the increase in fruit shipment, which position the country as a leading agro-exporter above our regional peers. Likewise, we are promoting the development of aquaculture, tourism and the naval industry, and the productive development of the Amazon region.
Q: Given recent political instability, what reassurance can you give that Peru is still an worthwhile place to do business?
A: Peru has a long record of macroeconomic strength. Public debt was equivalent to 33.8% of gross domestic product in 2022, which contrasts with the average public debt of emerging markets.
In addition, the country has one of the lowest country risks among Latin American and emerging markets. This shows the confidence of the financial markets in the country’s macroeconomic and fiscal soundness, which allows us to counteract many negative effects such as those related to the political sphere.
Q: What are the main obstacles for Peru’s return to pre-pandemic economic growth?
A: The multiple negative shocks that occurred have had more prolonged effects than expected. However, we are confident that by the beginning of next year we will have a robust and growing economy, in line with internal and external forecasts. The economic recovery plans that are in execution will help to boost the economy.
More recently, our “‘Unidos’ plan includes a series of multi-sectoral measures to increase credits, lower interest rates, promote high-potential sectors by reducing red tape and unlocking water and agricultural infrastructure megaprojects. There will also be a strong boost to the PPP project portfolio. The measures are aimed at resuming the growth of the economy.
A: The MYPE Business Promotion Programme — IMPULSO MYPERU — was created to support the process of economic recovery and growth of micro, small and medium-sized enterprises [MSMEs] and promote their financial inclusion. The programme issues guarantees from the government for up to 5bn new sol ($1.34bn).
The programme reports a disbursed amount of 1.664bn new sol in loans with guarantees in favour of more than 72,000 MSMEs from all economic sectors throughout the country.
The programme is in the process of expanding to issue additional guarantees for 10bn new sol, which will incorporate more than 87,000 new companies, to reach a total of 334,000 beneficiaries.
Source : The Banker