Peru's government is pressing ahead with a series of
measures aimed at preventing the economy from flagging as
external headwinds gather pace, finance minister Luis Miguel
Castilla told a LatinFinance forum Tuesday night.
A landmark capital markets reform bill - submitted to
lawmakers last week - and new regulations to speed up
infrastructure projects are among the measures Castilla said
would keep growth at high levels.
He expressed confidence that private capital inflows would
not diminish in the short term. "Peru, due to its fundamentals,
will continue to attract investment," Castilla told
LatinFinance's 7th Andean Finance &
Investment Forum in Lima.
His comments come as Peru registered its weakest quarterly
growth since 2009 in the first three months of the year, when
gross domestic product expanded by just 4.8% compared to the
same period last year.
The lackluster expansion in the first quarter raised fears
that Peru's economy is coming off the boil after years of rapid
growth, driven by a commodities boom that has seen investment
But Castilla said the economy would nevertheless rebound,
with low inflation, thanks to more than a decade of sound
macroeconomic policies, integration through trade agreements,
improved productivity and policies to attract investment.
The finance ministry has said the economy will likely expand
between 6% and 6.3% this year as the country's trade surplus
shrinks to $644 million on weaker mineral exports. It expects
the economy to grow between 6% and 6.5% in 2014.
FDI saw the fastest increase in the region last year,
jumping 49% from 2011 to $12.94 billion, with absolute flows
placing Peru fifth in the dollar amount of investment,
according to the Economic Commission for Latin America and the
Castilla said reforms were needed to make investment easier,
to sustain capital inflows and guarantee growth.
A major step came last week with submission of a bill, under
discussion for over a year, to reform the county's capital
"This is important opportunity to make capital markets a
leverage for future growth," he said.
The thrust of the bill is to provide opportunities for small
companies and micro enterprises to access capital markets. It
should also make it easier for Peruvian firms to raise capital
locally instead of having to turn to the international markets
when issuing paper.
The country's banking system continues to be the primary
source of funding, covering around 70% of the investment
requirements for local firms.
Tackling the infrastructure deficit
Stronger capital markets could also help Peru close its
infrastructure gap, which is widely seen as one of the
principal drags that could keep the economy from growing at a
sustained rate for the coming decades.
The government has pushed other reform measures, Castilla
said, noting that congress is debating legislation to reform
the country's civil service.
The administration also published three executive orders in
May that should go a long way to speed up approval of
extractive and large-scale infrastructure projects. The new
regulations call on state agencies to streamline processes for
approval of environmental impact assessments, hopefully getting
through the state's bureaucracy in less than 100 days. The
government expects the steps to eliminate obstacles on
approximately $15 billion in investment.
While Peru performs well in international rankings on
macroeconomic performance and government efficiency, its scores
plummet when it comes to infrastructure: it ranks 89th out of
144 countries for infrastructure in the World Economic Forum's
latest Global Competitiveness Report, while it comes in 21st
for macroeconomic environment.
AFIN, the organization that groups together private
companies operating public services, estimates the
infrastructure gap at $88 billion. The government's investment
promotion agency, ProInversión, currently has projects
ready for tender for approximately $12 billion.
"We need to close the infrastructure gap," said Castilla.