Living in Peru : your everyday companion

Ricardo Serra Fuertes - El Comercio
Translation: Vanessa Castro Chesterton - Living in Peru

Augusto de la Torre, World Bank chief economist for South America and the Caribbean, recently came to Peru as a one of his many visits to the countries in the region as to get an idea of how the economy has been developing.

How is Peru doing in comparison to other countries?

Within the category of South American countries, Peru is seen as one of the strongest nations thanks to its macroeconomic policies as well as to its base structure. This does not mean that the blow coming from the outside will not hit hard. Peru, like every other country in South America, will be affected through international commerce channels; it has already been hit, look at the prices of commodities. However, employment is centered around other sectors which are not directly affected by the crisis on the outside. Peru has the necessary resources to protect itself for a period of one to two years. That being said, if this crisis can be resolved in less than two years one can expect Peru to pull through and for its economy to bounce back pretty quickly.

Are there changes in what was estimated to be the growth rate for Peru?

Estimations made on growth rates for countries in the region have stopped being an exact science and have become a difficult art. The reason for this is that there is so much uncertainty regarding the future of industrialized nations at the moment, especially the U.S. The results for the U.S., in Europe and Japan in the last trimester of 2008 were much worse than expected and as a result of that the predictions for growth for the world have dropped. In the World Bank we have decided not to make predictions due to the uncertainty in the world but we are following the consensus projections very closely. The projections of growth for Peru, those of 5% come from consensus figures; they still remain the highest in the region.

Within the context of the crisis will investment keep coming to Peru?

Certain types of investment I think will come, others will not. For example, long term investment plans will get here, those which are not based on a cycle or tied to economic timing such as infrastructure development. Of what I understand there are plans in place for important long term investment deals already in play.  

What do you think of the way the government is handling all of this? What should they be doing which they aren’t?

I have nothing to criticize. I think that the Peruvian government is acting in a very prudent manner and is making proactive choices. It isn’t waiting until it is too late to act. If we look at what is happening in Peru today compared to what went on in the 90s, it is clear the situation is very different. Latin America was in no position to devise a counter cyclical monetary policy before and in those times when external turbulence was coming we were unable to lower interest rates and we were forced to raise them. And instead of having a fiscal stimulus package we were forced to cut fiscal cost in order to convince investors that we had disciplined. Thanks to the past 10 years Latin America has developed a solid macroeconomic political frame.

Did the U.S. not learn from Latin America’s lesson 10 years ago?

The experience which exists in Latin America in regards to financial crisis management is huge and to a certain point the friends and colleges we have in Wall Street tell us that the analysts that now work in the U.S. are asking help from those who used to be analysts for South America. They have almost no experience while in Latin America have had plenty of experience in the 90s. That the exchange rate moves 10 or 15%, that interest rates move 10 points or that the PBI falls by 8 points, all of that is part of our history and we became accustomed to living with it. In the U.S. however they were used to a decade of almost no change macro economically speaking, moderate growth, constant raise in active prices, low interest rates, and disposable liquid assets. All this created a very stable environment. To go from that to the situation they are now living can be a very traumatic thing.

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