Peru: Investment, Inclusion, and Social Responsibility

Keynote speakers:

• Alan García Pérez, President of the Republic of Peru
• Antonio Brack Egg, Minister of the Environment
• Rose Likins, U.S. Ambassador to Peru
• Ismael Benavides, Minister of Economy and Finance

Welcoming Remarks:

• Susan Segal, President and CEO, Americas Society and Council of the Americas
• Ambassador José Antonio García Belaúnde, Minister of Foreign Relations

Conference Panelists:

• Felipe Cerón, Roberto Melzi, Director, Emerging Markets Research, Barclays Capital
• C. Felipe Jaramillo, Country Director for Bolivia, Chile, Ecuador, Peru and Venezuela, The World Bank
• General Manager, AES Gener, The AES Corporation
• Javier Manzanares Gutierrez, President, Grupo Telefónica del Perú
• Luis Montoya, President, Latin America Beverages, PepsiCo International
• Ricardo Salinas Pliego, CEO, Grupo Salinas

Summary

On November 3, 2010, the Americas Society/Council of the Americas and the Peruvian Ministry of Foreign Relations hosted a conference addressing the roles of the public and private sector in advancing investment, inclusion, and social responsibility in the country. Discussion centered on Peru’s rapid and continued growth; the country’s successful macroeconomic policies; and what this growth means for improving access to infrastructure, technology, entrepreneurship, and the environment. Both the public and private sector highlighted their achievements, as well as suggestions for future sustainable practices.

The Effects of Economic Growth, Macroeconomic Policy, and Foreign Investment on Poverty Reduction

Over the past decade, Peru has experienced sustained, rapid economic growth and sound macroeconomic policies that allowed the country to achieve one of the highest savings rate in Latin American, the lowest inflation rate in Latin American, and rapid recovery from the worldwide financial crisis. Indeed, Peru’s economy grew at an annual rate of more than 6 percent between 2005 and 2008, with a record-high rate exceeding 9 percent in 2008. Only Panama and the Dominican Republic had comparable growth rates amongst Latin American countries. Minister of Economy and Finance Ismael Benevides mentioned that the engine for this growth was private investment, and that this growth led to increased formal employment, greater public investment and a reduction in poverty.

According to the World Bank’s Felipe Jaramillo, the international financial crisis hurt the Peruvian economy, specifically its export sector, but Peru’s record savings aided in its recovery through various stimulus packages. As a result, Jaramillo acknowledged, “Peru’s recuperation was rapid and robust and the economy has returned to the same level as before the crisis.” Jaramillo was also quick to mention that recovery included an increase in formal employment, a return to normal levels of consumption, investment in infrastructure, as well as improvement in the education and health sector. Robert Melzi from Barclay’s Capital stated: “Policymakers value macroeconomic stability as a fountain for prosperity.” Thus, Peru’s responsible macroeconomic policies not only prevented depreciation of the currency and minimized vulnerability to external shocks, but also demonstrated to the world that Peru is an emerging market capable of overcoming crisis. Out of Latin American countries, Peru ranked in the top 10 in a World Bank report that measures the “ease of doing business in 2011.”

Much of Peru’s foreign investment has come from the United States, but China has also played a major role in Peru’s economic emergence. Both Ambassador Rose Linkins and Foreign Relations Minister García Belaúnde stressed the importance of Peru’s free trade agreements (FTAs) with various countries in achieving economic growth and poverty reduction. Minister Belaúnde said that such types of agreements have “served as anchors for creating conditions for more international investment.” Ambassador Linkins specifically mentioned that the FTA with the United States not only opens up new markets for commercial gains, but includes provisions for intellectual property, workers’ rights and the environment. Peru has also benefitted from its trade deals with China. However, Melzi cautioned that Peru must think of its long-term strategy in terms of Chinese ties, because economists predict that Chinese growth will eventually slow, causing connected markets to slow as well.

Peru’s impressive growth rate, responsible macroeconomic practices, and increased international investment have aided in poverty reduction. According to Minister Belaúnde, in 2004, nearly half the Peruvian population was under the poverty line, and today that number has almost been cut by half, which means that Peru has used its economic gain to advance social development. He noted that Peru’s commitment to democracy, globalization, and social development have led to poverty reduction, and that as a result, Peru is also able to achieve some of the United National Millennium Development Goals ahead of schedule. Despite these impressive numbers, not all people have benefitted from Peru’s economic success. Minister Benavides, said that there was still a lot more room for improvement. In particular, focus should be given to improving income inequality, access to credit for poor people, and infrastructure. Ambassador Linkins added that the United States hoped to cooperate with Peru in promoting democratic government, security, clean energy, improving inequality and human rights.

The Private Sector and Social Responsibility

Where the public sector has fallen short in providing access to infrastructure, technology, entrepreneurship, and the environment, some private sector initiatives have compensated. The conference showcased several private companies including the AES Corporation, Grupo Telefónica del Perú, PepsiCo International, and Grupo Salinas, who are promoting inclusion by expanding telecommunications coverage, more electrical coverage, microcredit, art and culture, projects for young people, and programs for the environment. Participants of the panel encouraged creating a culture of social responsibility as part of doing business rather than viewing such activities as philanthropy. They also stressed that creating a culture of social responsibility is healthy for business, as workers feel proud of their company and participate more in its success.

Two major themes resulted from the discussion. First, a major focus for programming centers on young people, who are seen as sources of human capital. Second, the businesses identified small-scale entrepreneurship, encouraged by programs such as microcredit, as the gateway to exit poverty. Next steps include evaluating how the private sector social responsibility programs can better collaborate with the public sector and civil society to enhance their sustainability, and to looking at ways to measure the benefit of such partnerships.

Investing in the Environment

Despite the fact that Peru’s Ministry of the Environment, inaugurated 2008, is a relatively new initiative of President García’s administration, the ministry outlined various ways in which the government combines environmental protection with economic entrepreneurship and takes initiative to fight climate change.

Environment Minister Antonio Brack Egg stressed that there’s no need for conflict between Peru’s international competitiveness in resource exportation and environmental protection. A rather large part of Peru’s export of natural resources and agriculture are organic and certified. In other words, a large part of Peru’s competiveness stems from quality production. Over the last few years, 55,000 new small businesses devoted to organic and eco-friendly goods and services have sprung up, making Peru a strong emerging market for environmentally friendly products.

Minister Brack also clarified that Peru is committed to international climate change agreements. The government has taken various steps to decontaminate its water and air, to protect and conserve national forests, reprocess and recycle waste, eliminate old cars from the street that use diesel, and restrict the importation of old cars. Another component of Minister Brack’s proposal includes environmental education in four areas: education to create eco-efficient cities, eco-efficient schools, an eco-efficient public sector, and eco-efficient business so that not just the government is working towards protecting the environment, but rather it is an effort undertaken by all sectors of society.

Remarks by President Alan García Pérez

With presidential elections approaching in April 2011, President Alan García concluded the conference with a clear message to his successor: his government policies of the last five years were successful in creating economic growth and reducing poverty, and should be continued. The president stressed the need to create the right conditions for foreign investment, because only with investment is there more growth and reduced poverty. His five-year model centered on democracy, freedom, and decentralization of the market. As he stated, “there is no employment without investment, there is no investment without adequate conditions.” With the resources generated from private investment, he opted to spend over $2 billion in government projects to help generate jobs, build roads and hospitals, improve the quality of education, and develop programs for protecting the environment. He linked this spending to a reduction in poverty from 48 percent in 2005 to a projected 31 percent in 2011. García also emphasized the importance of considering Peru’s long-term economic health. He was proud that, despite the international financial crisis, his economic policies have left future savings for public investment in gas, mining, agriculture, infrastructure, ports, and airports.

As President García exits office, he has left behind an impressive record. Not only has the poverty rate nearly been cut by half, but the banking system is solid and stable, Peru has one of the lowest rates of inflation, one of the lowest levels of external debt, and seen a rapid growth in private investment—all conditions for more sustained, economic growth. This growth would not be possible without cooperation between the public sector, private sector, and civil society. García stressed that this model of economic development combined with promotion of democratic principles is the only way to ensure future economic and social success. “We cannot go towards the right, nor the left, only forward towards the world economy,” he stated.