Latin Finance - September/October 2014 - 84

PERU
ECONOMY

Peru's government has taken decisive action to counter a sharp growth
slowdown. But the measures have risks, as well as benefits.
By Lucien Chauvin

Helping hand

he Peruvian authorities
may want to forget the second quarter of
2014: the worst three-month period for the
economy since the global financial crisis.
But with new fiscal and monetary stimulus
measures announced this summer, they
have high hopes for a recovery in the remainder of the year and into 2015.
Central bank governor Julio Velarde
acknowledges the second quarter was
"very bad", but says he is confident about a
recovery. "We hit an unexpected pothole in
the second quarter, but everything points
to a much better scenario in 2015 and 2016.
Two factors - recuperation in mining,
and increased public investment - have
already started. We are talking about unprecedented sums of investment," he tells
LatinFinance.
The economy, which had been slowing
for the past year, decelerated further in the
second quarter, with growth at just above
1%. Inflation also picked up, approaching
the upper end of the 3% target, as did the
trade deficit. Velarde lowered base interest
rates to 3.75%, from 4%, in June and cut
reserve requirements for banks to 11%, from
14% at the start of the year.
The central bank then slashed its growth
forecast for 2014 in July to 4.4% from 5.5%.
It had originally anticipated 6% growth
for the year and announced on August
14 it would likely lower the forecast a few

84 L ATINFINA NCE.COM - September/October 2014

was a temporary fall in production of metals like copper, Peru's main export, and
gold, which has seen a global price dip. In
addition, there was a decline in the second
quarter in public spending at the regional level,
where some governments have been hit by
corruption scandals
(four of the 25 regional
presidents have been
arrested since May).
Moving into 2015,
Finance Minister Luis
Miguel Castilla remains
remarkably upbeat,
and trumpets fiscal
measures to boost
business confidence.
He tells LatinFinance he
maintains a 6% growth
forecast for 2015. "I am
optimistic, despite the
slower growth we have
experienced in the second quarter. We expect
an improvement in the
third quarter and a full
recovery by the end of
the year," says Castilla.
"The new mining
projects, which are
going to increase the volume of copper
exports next year by 20%, and the efforts
underway to deregulate the economy, are
going to get us past this rocky road, boosting investor and consumer confidence, and
increasing our optimism."
©REUTERS

T

BOOSTING GROWTH: Peru's finance
minister Luis Miguel Castilla has overseen a slew of tax cuts and spending
increases, announced this summer

LUIS MIGUEL CASTILLA, FINANCE MINISTRY

"I THINK WE HAVE
DONE WHAT IS NEEDED"
more decimal points. Most private-sector
and multilateral economists now estimate
growth closer to 4%, while some have their
forecasts as low as 3%.
One factor behind Velarde's "pothole"

Filling in potholes
Castilla hopes measures unveiled in June
and July will pump the equivalent of 1.7% of
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