LatinFinance - September/October 2016 - 28

PPK: The slowdown in China has affected metals prices. It's affected our exports.
But we can, I think, double our exports in
the next seven years despite this.
We have a lot of new mines coming on
stream. We have the tourism, we have agroindustry. I am not so worried.
Peru for years and years exported a
billion dollars. When I was deputy governor of the central bank we exported
$800 million. During the 1990s we stayed
at $6 billion, we didn't move. And then
suddenly we went to $46 billion, in 10
years. Now we're down some. But we can
get back up to $70 billion, $80 billion.
Chile is $60 billion, Colombia is about the
same. Colombia is of course a much bigger
country. Chile is a smaller country than

Peru and they export much more than we
do. We have a surplus with Chile.
I think we can get there. It's a question of
infrastructure and proper macro policies
and it'll take care of itself.
LF: What do you want your legacy
to be?
PPK: I'm not so concerned about my
legacy. A lot of people in politics think
about their legacy. What I'm interested
in is that Peru, when it reaches its 200th
anniversary of
republican government in 2021, five
Watch LatinFinance's full
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Although public investment fell by 5% in June, pundits such
as Spain's BBVA predict a pick-up in the final quarter of 2016,
forecasting public investment will end the year around 6% above
2015 levels.
Thorne said that the government has identified $18.8 billion
in public/private partnerships that have been awarded but have
snagged in bureaucracy. The government is confident that major
public works projects, including the $6 billion second line of Lima
Metro in the capital and several other large-scale investments,
will take off. Planned investment in the Metro for 2016 is pegged
at $685 million, but only 17% of that was invested in the first half
of the year, according to the Transportation Ministry.
Transportation Minister Martín Vizcarra announced in early
August that the government had already uncorked one project,
the long-stalled construction of the $1.1 billion second runway
at Lima's international airport. The runway was included in the
initial concession granted to Lima Airport Partners 16 years ago,
but delays involving expropriating properties and finishing basic
infrastructure mounted. Construction is now slated to start in the
first quarter of 2017.
The government also plans to move quickly to fulfill Kuczynski's campaign promise, which he has repeated daily since taking
office, of providing water and sewage services to all households,
as well as increasing the budgets in education, healthcare and
security.
It is a tall order. A report by AFIN, an infrastructure association
of private companies, estimates that Peru needs to invest $68.8 billion between 2016 and 2020 in infrastructure, including $19 billion
in the water/sewage, education and healthcare sectors. Transportation improvements will cost even more, at $21.3 billion.
Increased public investment will coincide with measures to
stimulate private investment, which dropped by 4.4% in 2015.
Credicorp Capital forecasts private investment will decline another 4.5% this year.
A critical issue is finding a way to get mining companies to
move on large-scale projects. Mining groups invested $42 billion
between 2011 and 2016, but no new mega projects are under development. Investment in mining was a paltry $1.6 billion in the

28 L ATINFINA NCE.COM - September/October 2016

Peru to be a little bit on the path to being a
modern country.
Less poverty - we're winning the war
against poverty but we're still at 23%. We
should be down to 10%. Infant mortality is
high, it's at 17 [deaths per 1,000 live births].
It should be 5. I don't think we can do that in
five years, but maybe in 10.
I would like formal employment to
dominate in Peru. Today it's informal employment that dominates. And a reasonably
modern education system, which we're
slowly getting to but we have a long way to
go yet.
That's what I would like. It's not going
to be my legacy, it will hopefully continue
to the next person in charge, and the next
one after that. LF

first five months of this year, according to the most recent data
from the Energy and Mines Ministry, down 44.7% compared to
the same five months of 2015 (see mining article on page 29).
The government hopes to boost private investment through an
array of proposals, including tax breaks for large companies that
reinvest and lower taxes for small and medium-sized enterprises.
The president harped on his long-term goal of formalizing the
economy during his inaugural address. Kuczynski pledged to
double to 60% the number of workers on payroll and receiving
benefits, up from just 31.7% now in the formal economy.
A major component of Kuczynski's plan to grow the formal
sector involves reducing Peru's value-added tax (VAT), from 18%.
The government has said it will shave off one point in January
and work toward lowering it to 15% by 2021. The logic is that a
lower VAT would encourage small businesses to formalize their
employment practices and also put more money in workers'
pockets, stimulating growth from the private sector.
Potential gridlock
Lowering the VAT, as well as running a higher fiscal deficit,
could put the administration at odds with the dominant party in
Congress, Fuerza Popular, headed by Keiko Fujimori, who the
president defeated in the June election.
Fuerza Popular holds 73 out of the 130 seats in the unicameral
Congress, giving it enough votes to reject legislation for lowering
taxes or increasing the debt ceiling. VAT collection was down
6.2% in July compared to the same month last year, the steepest
decline in 14 months, according to BCR.
The Fujimoristas in Congress have argued that a reduction in
the VAT rate would make this shortfall worse. The government
counters that tax collection could increase by two points if government policies are implemented.
The government's not-so-secret weapon, say Hurtado and
Collins, is the president himself, who has spent his long career
moving between the public and private sectors, piling up contacts. "Kuczynski is the driver for foreign investors looking at
Peru," says Collins. "He is a well-known quantity and this is what
investors like." LF
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Table of Contents for the Digital Edition of LatinFinance - September/October 2016
