Peru maintains growth despite global recession
BY JOSEPH A. MANN JR. email@example.com
While much of Latin America is facing negative economic growth this year, Peru is weathering the world economic recession far better than most of its neighbors.
It is expecting economic growth of 4 percent in 2009, said Luis M. Valdivieso, Peru's ambassador to the United States, at a recent Miami conference.
If it achieves this target, Peru will outstrip all other nations in the region in 2009, according to the most recent projections by the International Monetary Fund. Last year, Peru's economy grew by more than 9.8 percent, beating out other top performers like Panama (8.7 percent), Uruguay (8.2 percent) and Argentina (6.3 percent).
''Peru had the highest annual average growth in Latin America over the last 15 years, averaging 5 percent per year,'' the ambassador added.
This year, the IMF is projecting the biggest economies in the region will all be in negative territory. It estimates declines in growth of 1.3 percent for Brazil, 3.7 percent for Mexico and 1.5 percent for Argentina.
Valdivieso, an economist who worked at the IMF for almost 30 years and served as Minister of Finance under Peruvian President Alan García, said that the country has been following sound economic polices for years.
Maintaining strong international reserves, sharply reducing international debt, exercising control over government spending and driving down inflation have helped put the economy on solid footing, he said, while Peru has worked to reduce poverty, attract foreign investment and expand nontraditional exports.
The ambassador's presentation at the conference, which was organized by The Florida Bar's international law section, was aimed at encouraging foreign companies to invest in Peru.
Joseph Ganitsky, a University of Miami professor, agrees that Peru will probably experience the highest growth rate in the region this year, but he believes the country faces serious challenges and takes a dimmer view of its future. ''Peru might continue enjoying good economic conditions in the foreseeable future, so their short-term macro-economic perspective might be bright,'' he said in an interview.
''Most of [the Peruvian government's] economic efforts, such as new subsidies, have focused on small businesses, and that is quite good,'' said Ganitsky, who specializes in strategic planning and Latin American and international business. ``But García has missed the opportunity to invest in long-term projects like education and healthcare that might start addressing Peru's structural problems.''
Like other countries, Peru has been hit hard by declining prices and demand for key exports such as copper. But Peru also exports gold and silver, high-value metals that helped cushion the decline in revenues from other raw materials.
Peru, in addition, has encouraged production of nontraditional exports, the ambassador said. Such products -- which include chemicals, asparagus, giant squid, cotton clothing and other items -- brought the country more than $7.5 billion in 2008. And while they are expected to decline by more than $1 billion this year, these exports will still help the balance of payments and keep part of the workforce employed.
Peru also has relied less on government spending than some of its neighbors. About 20 percent of total investment comes from the public sector, Valdivieso said, while about 80 percent is derived from private investors.
The García government has implemented a stimulus plan, the ambassador said, ''even though we didn't need it.'' The plan, which includes public works, assistance for schools and local governments and aid for low-income families, was put into effect to avoid a negative reaction to the economic decline, he said.
Still, UM's Ganitsky said, ``The economic conditions of those at the bottom of the pyramid are not improving much, if at all. The gap between rich and poor will continue threatening the stability and viability of the existing system.''
The country has signed agreements or is in the final stages of talks on large private investments for concessions in water treatment, highways, broadband and port development totaling more than $1 billion. It is also seeking international bids for $4.7 billion in other projects, such as energy, ports, telecommunications and transportation.
Ganitsky sees investment from China and other nations continuing to play an important role in Peru's economy. ''I suspect that China would rather invest their reserves in metals/food than in weakened currencies, whether the U.S. dollar, yen or euros,'' he said.
While Peru is in better shape to handle the economic downturn than many other countries, Valdivieso noted, risks clearly exist.
The world recession is lasting longer than expected and new protectionist policies will be damaging to Peru's economic recovery. If international credit flows dry up, the country will not be able to move ahead with its big private investment projects. And if Peru's economic recovery is delayed, there will be strong political pressure to increase government spending.
In addition, the ambassador pointed out that to maintain long-term growth, Peru must effectively deal with problems like rigid labor laws, poor infrastructure, an outdated court system and the quality of public education.