LatinFinance - May/June 2015 - 48

PARTING
SHOT
Despite the external shocks, Peru's economy
can return to faster rates of expansion, says
Alonso Segura

The pursuit of growth
The real challenge for Peru is to ensure it can continue growing at
about 5%, and hopefully more, in the medium term. We cannot
run countercyclical policies forever, that's why we have started a
very gradual consolidation from 2016, 2017. But we have room to
maneuver, and we have room to support the economy now. And
that's what we're trying to do.
We devised a very large fiscal package, not because we think
we will be able to deploy the full package: we know we will have
problems executing. But our target is to have a fiscal impulse of
about 1% of GDP.
The economy hasn't recovered as we expected, not at the speed
we expected. The external shock to the economy exacerbated in the
last part of the year. Petroleum dropped 50%, and so did copper.
With petroleum, the impact on the economy is mixed. It should help
the real sector, but it hits public revenue and it also hits expectations.
We had devised a response in advance. The national
government's public investment is growing at over 20% annually.
In the first quarter it cannot compensate the drop in sub-national
governments' investment, basically because they're new. But on a
calendar year basis, we will push investment upwards.
In the end, we're going to have a fiscal impulse, and we're going
to help the economy grow. It's going to be noticed more as the year
unfolds.
And then next year, we should be above 5%. Because we do still
have this push of the mining sector, investment production from
new mines and expansions.
Having said this, we are working to raise potential GDP, because
potential GDP is not the same as in the past. Our estimate is that
potential GDP stands at about 5%. It has been gradually declining.
We have three or four core areas that should support productivity
and hence potential GDP.
The first one is human capital. There's two key areas there: all the
public sector reforms, reforms in the civil service, teachers, health
sector, pay for performance, evaluations for promotions. That's
going to elevate human capital in the public sector. The second one,
is allocating significantly more resources to the education sector.
And it's not just more resources, but a comprehensive strategy to
elevate education standards, expanding infrastructure, increasing
years of schooling, changing the curriculum, pay for performance
and evaluations for promotion, scholarship programs.
We're starting to see results, and we're doubling up our bet.

48 L ATINFINA NCE.COM - May/June 2015

The second one is
infrastructure. We're
investing strongly in
infrastructure. As opposed to
other countries, we're trying
to protect about 6% of GDP of
public investment.
The third leg of this is the
twin agendas which are the
competitiveness agenda,
which is focused on doing
business indicators, and
the national production
diversification plan, which
basically seeks to find ways to
identify alternative channels
of growth. In that agenda
we're investing strongly
in innovation, centers for
transfer of technology and
those types of mechanisms.
There's another agenda
which is critical for us, which
will help us as a catalyst
for reform, which is our
aspiration of future access
to the OECD. We have been invited to have a country program and
in that country program we've put several areas in which we want
to cooperate with the OECD. That should help us improve on public
governance and identify the barriers to development.
It's very comprehensive agenda. Potential GDP won't jump
automatically. But we think we have all the pieces in place, so
that gradually as these reforms materialize, these policies get
implemented, you will start seeing more clearly the impact terms of
improving productivity.
We're aware that Peru cannot grow at 6.5%, 7%. Nobody in Latin
America can do that. But we can sustain rates of growth about 5%
once things stabilize. LF

"POTENTIAL GDP
STANDS AT ABOUT
5%. IT HAS BEEN
GRADUALLY
DECLINING"

Alonso Segura is Finance Minister of Peru. This is an edited transcript of
his comments in an interview with Katie Llanos-Small.
http://www.LATINFINANCE.COM
LatinFinance - May/June 2015

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