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Peru: Growth Opportunities in the New Global Environment

By Mateo Samper

Peruvian President Alan García joined AS/COA on November 3 for the fourth annual conference in Lima, where speakers examined Peru’s economic successes in the face of a global financial downturn.

Speakers:

  • Alan García Pérez, President of the Republic of Peru
  • José Antonio García Belaunde, Minister of Foreign Affairs
  • Martín Pérez, Minister of Foreign Trade and Tourism
  • Mercedes Aráoz, Minister of Production
  • Luís Carranza, Minister of Economy and Finance. View presentation (PDF)
  • Michael McKinley, Ambassador of the U.S. to Peru
  • Cayetana Aljovín, Executive Director, ProInversion
  • Mariano Berdegue, Regional Director, CANCAR, Monsanto
  • Pablo Bréard, Chief International Economist, Scotiabank Group. View presentation (PDF)
  • Steven Crowell, President and CEO, Pluspetrol
  • Richard Francis, Director, Sovereign Ratings, Standard & Poor’s. View presentation (PDF)
  • Luis Oganes, Head for Latin America, Emerging Markets Research Group, JPMorgan Chase
  • Murilo Portugal, Deputy Managing Director, IMF. View presentation (PDF)
  • Susan Segal, President and CEO, AS/COA
  • Luis Torres, General Manager, Microsoft Peru
  • Leonardo Villar, Vice-President of Development Strategies and Public Policy, CAF

Summary

The Americas Society and Council of the Americas hosted their fourth Lima Conference, “Peru: Growth Opportunities in the New Global Environment” on November 3, 2009. The conference, coorganized with the Ministry of Foreign Affairs, examined Peru’s economic prospects in the face of a global economic downturn. President Alan García participated for the second year in a row, highlighting the importance of the conference for the government and the private sector.

Remarks by President Alán García Pérez

President García closed the conference, voicing confidence in Peru’s continuing growth and development, thanks to sound macroeconomic policies and overall stability. Looking ahead to the 2011 elections, the president said that economic growth had brought political stability. During his presidency, poverty levels decreased from 48 percent at the beginning of his administration to 36 percent in 2009. Given this improvement, the President expressed certainty that voters would choose a moderate centrist leader over a populist one. As more people rise out of poverty and have more at stake, the more they will think carefully about their vote, he said.

Investment Prospects in Peru

Panelists from varying sectors discussed Peru’s investment opportunities and some of its pending challenges. Proinversión’s Cayetana Aljovín said that private investment in the country shot up from 8.1 percent of GDP in 2004 to 25.6 percent in 2008. This trend would likely continue as more Peruvians rise out of poverty, and as government reforms reduce red tape and streamline the tax system.

Pluspetrol’s Steve Crowell highlighted that firm’s work at the Camisea field in Peru since 1985. He said Peru offered long term legal and political stability, two key issues for the energy business. Mariano Berdegue from Monsanto, said the country demonstrated potential in agriculture; improving intellectual property rights could attract investment while approving a biotechnology/biosecurity laws that would likely boost growth in the sector.

On the subject of technology, Microsoft’s Jorge Torres warned that Peru’s broadband penetration rate was quite low compared with other countries in Latin America. As an example, he compared Peru’s rate of 0.5 percent to Uruguay’s 9 percent. He stressed the need for more public investment in information technology, which in turn could speed up growth and boost efficiency.

In a discussion on capital markets, CAF’s Leonardo Villar talked about capital markets and how they could contribute to growth. He mentioned that the Peruvian capital market currently represents 4 percent of GDP in comparison to 8 percent in Colombia and 40 percent in Brazil. In as much as capital markets provide liquidity along with the means to finance businesses and new projects, Peru should try to further develop its own. Villar was upbeat about the ongoing project to integrate the Chilean, Colombian, and Peruvian capital markets.

The economic outlook of Peru, Latin America, and the world

In the second half of the conference, economists emphasized that the Peruvian economy ranks among Latin America’s best performers. Having grown 9.8 percent in 2008, it is forecasted to grow by an estimated 2 percent this year. This contrasts with the average for the rest of the region, which JPMorgan calculates will contract by 3.7 percent this year.

Both IMF’s Murilo Portugal and Scotiabank’s Pablo Bréard agreed that the global economy showed signs of improvement but that recovery was expected to be sluggish. They did say that emerging markets were forecasted to grow faster than developed nations, possibly reaching an average growth of 5 percent in 2010 compared to only 3 percent in the rest of the world. Portugal said that the IMF continues to advise countries to maintain their fiscal stimulus. However, he mentioned that the unprecedented levels of debt in many nations will require implementing structural reforms in the near future, including to health and pension systems. The impact of an ageing population, he sais, was likely to be ten times higher impact on economies than that of the current crisis.

In line with Portugal’s comments about the fiscal stimulus, Minister Carranza discussed the importance of Peru’s stimulus package in the economy. He said that the government was planning to spend around 4.9 billion dollars (3.6 percent of GDP) on stimulus programs the next few years. A big emphasis is being placed on infrastructure, where the government has plans to spend $3 billion dollars, or about 2.2 percent of GDP. In 2009, public investment as a percentage of GDP was the highest in 23 years, he added.

Despite Peru’s strong economic outlook, speakers highlighted challenges ahead. Standard & Poor’s Richard Francis mentioned that the country still relied too heavily on commodities and noted that the twin woes of poverty and inequality could affect political stability and upcoming elections. The Minister of Foreign Trade and Tourism Martín Pérez said the government was doing much to address precisely these issues. He mentioned that his ministry was doubling their efforts to promote Peruvian exports by better advertising the country and helping different businesses reach more markets.

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