By Gianmarco Delgado.The public investment in Peru so far this year has surpassed the 49 billion soles (around 13 billion dollars), result that makes it foresee a new record will be reached in 2024 for this economic indicator, said the Minister of Economy and Finance, José Arista.
In an interview with the Official Gazette El Peruano, he makes an assessment of his management leading the Ministry of Economy of Finance (MEF), and described it as “very successful” due to the improvement of the financial sector, business optimism and the record levels recorded in public investment.
Minister, what is your assessment of the performance of the Peruvian economy this 2024?
I would describe this year as very successful for the Peruvian economy. We have done very well in the Latin American sphere in terms of GDP growth. In context, we closed 2023 with a drop of 0.6 % for various reasons, from climate to social problems. That year we had a high real interest rate because the Central Reserve Bank of Peru, in its eagerness to combat inflation, raised the interest rate and this definitely affected the entire financial market in the credit aspect.
What measures were taken in this context?
We applied an expansionary policy, mainly based on public investments. Thus, public investment grew significantly in the first quarter of the year. And now, almost at the end of 2024, it has exceeded 49,000 million soles (around 13 billion dollars), which would makes us foresee a new record. Peru has never registered such a high level of public investment which has helped us to reactivate the economy and become more dynamic at the end of the year.
Today, in December, the indicators makes us foresee that the economy would grow 3.2% or more, well above all the economies in the region.
How did private investment evolve in this scenario?
Currently, business optimism has greatly increased. The 12 indicators the Central Reserve Bank uses to measure the businessmen perspective, are in the optimistic range and not just now, but for the last six months they have remained there.
Real interest rates have also fallen and today there is talk of possibly lowering mortgage interest rates to 8%, business rates to 5% or 6%. These rates help to reactivates the economy. It is a force that generates a lot of economic movement on consumption, investments, and the working capital that generates employment and goods and inputs move.
The truth is that having a dynamic financial system with low interest rates is a great driving force for the economy.
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Do you think that at the macroeconomic level we continue with solid foundations?
Yes. The inflation rate is at 2.3 %, so I think it is quite controlled. Secondly, Peru's international reserves levels are spectacular. They are around 80 billion dollars which represent 29 % of our GDP. Brazil, Chile and Colombia have half of what we have.
I think it is a spectacular year and it is not just what I say, but also risk rating agencies such as Fitch and Moody's. We have analyzed and we see is that Peru is one of the least indebted countries in the region, perhaps we lead the list.
What are the 2025 projections based on the scenario described?
For next year we consider that the figures for public investment should be repeated. In fact, we also have a decentralized government budget because we have assigned greater resources to local governments. There will be facilities basically focused on the application of the new Law on State Contracts, whose regulations should be published no later than in one or two weeks.
With all this, I believe that we will have better rules of the game and a much more transparent and clear space for the execution of the works throughout the country.
So, what challenges are pending to overcome?
Peru has to continue making the economic reforms, and the judicial and police reforms has to advance in two or three urgent issues. Firstly, combat crime and provide greater security to the average citizen because he is the consumer, the small businessman and the entrepreneur.
Secondly, it has to combat all these black economies, whether it be drug and human trafficking, illegal mining. We should also seek a more frontal fight against corruption.
Do you think that we can grow at higher rates than those registered in recent years?
Crime takes away two points from our GDP and corruption another two points. I hope we can combat these problems. I think that Peru has the potential to grow at rates of 5 %, 6 % or 7 % , that is the potential of our current productive capacity.
What we have to do now is work on those items so that those rates become real because we have been growing around 3%, with very small rates that are not enough to provide well-being to the new generations. In Peru there is no room to be pessimistic, one must always be optimistic.
Fiscal deficit
The minister José Arista explained the reasons why Peru would have a fiscal deficit above the established goal of between 1% and 3% for this year. He said that the objective for 2024 was at all times to boost the economy through public investment.
“The country has a debt of 32% of GDP, something that few countries in the world have. So, if you have this advantage and you need to make an expansive fiscal policy to boost the economy, to generate employment, well-being, it is obvious that you have to use this tool (public investment) in order to achieve the established objective,” he said.
“What has been done is effectively generate a public investment shock using these resources, so the deficit was obviously going to rise, but it will not reach 4 % it will be much less” he added.
However, the result is an economic growth of more than 3.2% for this year, he pointed out.
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Published: 12/20/2024