Peru finance chief takes aim at fresh reforms
Peru looks to pursue new measures to boost growth despite expected political cost, Finance Minister Luis Miguel Castilla says
Peru’s government is poised to press ahead with further politically
hazardous measures to boost productivity in the face of slowing growth, following
the successful passage last week of new fiscal rules, according to its finance
“Our main challenge is to undertake reforms to boost
productivity, which become all the more important as the global situation
changes,” Luis Miguel Castilla told LatinFinance in an interview.
He added that Peru is eyeing a liability
management exercise and could also tap markets for fresh funds before
year-end as it gears up for additional spending on its domestic infrastructure
program. Easing the country’s infrastructure bottleneck will help the economy
reach its long-term potential growth rate of 6.5%, he said.
Among fresh measures under consideration are politically
sensitive changes to labor laws, which aim to increase market flexibility.
Castilla acknowledged that the pursuit of such reforms could
exact a further toll on the government’s already flagging popularity, but said
they were critical for sustainable economic growth.
“Part of the equation is to
make labor markets more flexible. There is always a trade-off between labor
rights and flexibility but that is something that Peru needs to tackle absolutely,”
he said. “Our government has always
shown a lot of will to change the status quo.”
Castilla added that the “urgency [of the reforms] will come
with a change in the external circumstances.”
Approval ratings for Peru’s president Ollanta Humala have
slumped from 60% in April to an all-time low of 27% in September, according to
polling firm Ipsos Peru. The economy has slowed this year, with the government
now forecasting gross domestic product to expand by 5.5%, down from its 6.3%
Last week’s fiscal measures seek to keep national debt in
check through the adoption in Peru of fiscal rules similar to those in Chile. The
measures render Peru’s fiscal framework among
“the most sound” in Latin America, Castilla said.
“The priority is maintaining debt sustainability, for more
predictability, taking away the cyclical component,” he said, adding that the
new measures represent “a necessary but not a sufficient condition to boost
The administration has already embarked on a broad set of
economic reforms, including a third round of capital markets reform and a
revamping of fiscal rules, in a bid to shore up growth. It has also sought to
minimize public sector bureaucracy, freeing up some $40 billion in investment
projects that were weighed down by red tape. He said the administration had
already finalized three-quarters of the economic reforms it had tabled when it
Castilla expects the economy to grow by 6% next year, in
line with most Wall Street expectations. This will be supported by a doubling in
copper production, which will see Peru become the world’s second largest copper
producer after Chile. Annual output is expected to increase to 2.8 million tons
by 2015 – 2016, offsetting a decline in prices.
30% of GDP, Peru’s investment ratio is the highest in Latin America, he said.