Political uncertainty reduces forecasts for economic growth in Peru

For several years, the Peruvian economy remained impassive to the fluctuations of domestic politics and achieved sustained growth that only the pandemic stopped dead.

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The country was beginning to climb the hill of recovery, but today the climate of violence and protests in the streets seems to have ended up discouraging growth and putting a large part of activity on hold.

After 42 deaths In the demonstrations against the government of President Dina Boluarte in just over a month and around 300 million dollars in losses, analysts forecast a slowdown in the economy and a drop in GDP growth to 2.5 percent in 2023 .

“The scenarios that are open are multiple, but none positive. That growth of around 2.5 or 3%, being optimistic, now is the best we could hope for in the short termbecause all the scenarios are with a downward risk”, declares the former Minister of Economy Alonso Segura.

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By the end of 2022, the Peruvian economy grew 2.9 percent, despite serious allegations of corruption and requests for the dismissal of the then president Pedro Castillo, who, finally, tried to carry out a coup d’état, when he felt cornered by suspicions of corruption, and precipitated his vacancy.

Its then vice president Dina Boluarte assumed the head of state and presented a cabinet of technicians, that promised to restore calm economic actors and relaunch a reactivation package.

Nevertheless, the streets exploded in the south of the countrywhere there are important mining and gas deposits, with demands for new immediate general elections, a constituent assembly and the resignation of Boluarte.

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For this reason, Segura mentions that there are “too many variables that are up in the air. All of them generate two things: very strong uncertainty and discontinuity in terms of productive capacity”, especially in activities such as mining and hydrocarbons.

For the Institute of Economics and Business Development (Iedep) of the Chamber of Commerce of Lima, the Peruvian economy would register a slowdown in 2023, with a growth of around 2.4 percent.

He attributes this behavior to the “complicated local scenario” and despite the fact that mining will achieve an estimated rise of 5.7% due to the entry of new copper units.

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Precisely, mining is one of the sectors “constantly affected because of the protests and waves of violence in the country”, as indicated in a projection by Óscar Chávez, head of the IEDEP.

The service sector, which contributes half of the GDP, will also fall to 3.1% according to the Iedep and its recovery will be “conditional on social stability that guarantees the freedom of its operations”, affirms Chávez.

Segura adds that if “violence continues, the first thing the risk rating agencies are going to do is lower the ratings” and the country could go to the bottom rung of investment grade.

Last month, for example, agency S&P Global Ratings downgraded Peru’s long-term foreign currency debt rating to negative.

Likewise, Fitch Ratings lowered Peru’s rating to negative in October due to a deterioration in political stability and in the effectiveness of the Government.

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And it is that although the Boluarte government received the vote of confidence from Congress, it’s hard to see the protests slowing down anytime soon.

Yesterday, in fact, the protests spread to Lima, the country’s capital, while roadblocks persisted in the southern Andes, affecting the tourist city of Cusco and the train to Machu Picchu.

Arequipa, the country’s second city, was also practically blockedwithout land communication with the neighboring Andean regions of Cusco and Puno.

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Yesterday, regional governors, such as those of Puno, Apurímac and Cusco, and various professional associations in Peru joined the request for the resignation of President Boluarteaggravating the political situation in the country.

In addition to the 42 deaths registered since the start of the protests more than a month ago, there are 531 injured -355 civilians and 176 police officers- and 329 detainees, according to what the prosecutor said yesterday.

angie nataly ruiz

INTERNATIONAL WRITING