Peru: Infrastructure for development


AmCham PeruInfo provided by the
American Chamber of Commerce of Peru (AmCham Peru)

Without doubts, the infrastructure gap in Peru is nowadays a very clear obstacle to development and, according to the Ministry of Economy, the gap amounts US$ 10,495 billion dollars (excluding telecommunications). Then, it is not surprising that several international reports locate us -year after year- in the bottom positions of the world ranking when evaluating this important competitiveness pillar.
Up to the first semester of the year we had a fiscal surplus equivalent to 5.1% of the GDP, however, we are not only incapable of sustaining high growth rates in absence of adequate infrastructure, but our export sector is also being affected in terms of competitiveness. Then, it is difficult to understand the announcement of MEF of the objective of reducing public investment from 4% to 3.8% of GDP with the excuse of moderating the economy to face inflationary pressures and international turbulence.

The truth is that, with balanced fiscal accounts, a sustainable deficit in the current account (financed by direct foreign investment and explained mainly because of the increase of imports of capital goods that improve productivity) and a well supervised financial system, it should not be necessary to reduce investment.

On the other hand, it is clear that internal inflation has risen and the effect is mainly affecting the poorest, given the higher concentration of food on the consumption basket. Then, MEF faces a dilemma by choosing between maintaining the economic growth with the risk of increasing inflation and the option of moderating growth to reduce it. In this context, the reduction of the current expenses is positive but investment should not have followed the same path.

On the contrary, investment should have been encouraged. In this sense, the decrees promoted by the Executive Branch have pointed in the correct direction, even when regulations and more initiatives to increase the quality of public investment are still pending.

Finally, it is evident that our country needs to face the infrastructure bottle neck that restrains our economic growth but without neglecting inflation, especially between the least favoured groups. If we assure that investment keeps growing at 20% annual rates we will increase the export sector’s competitiveness and we will be able to fight inflation, because if we rise the potential GDP (with greater productivity), supply and demand would fit without recurring to desperate measures that distort the market and create unmeasured fiscal costs.