Ricardo Valcarcel | Peruvian economy slumps for five years | Comment

It is practically true that 2023 will be a year of recession for the Peruvian economy. There are arguments for a repeat of 2024, completing a five-year period of almost zero growth.

Various analysts studying our economy and public and private, local and international organizations believe that this is not the case. with confidence. But those expectations are based on factors that are more difficult to meet.

The Covid-19 health emergency seems to have already largely passed; Former President Pedro Castillo remains in prison; Inflation begins to decline; Violence has decreased significantly from December 2022 to February 2023; Our macroeconomic indicators are still showing some solidity; Or that the sale of tickets to see Luis Miguel was a big hit, it wasn’t enough.

Sure, we may have been worse, but that doesn’t mean we’re in good shape or headed for a solid recovery in the short term to have a healthy economy with good growth. In fact, we are badly financed and in trouble. There are no elements that can shake us out of the current organizational crisis.

This quagmire occurs mainly in the political sphere, causing great uncertainty and subsequently damaging the economy. Various alternatives such as early elections or “re-rolling the dice” with the Constituent Assembly may not work or we may make the situation worse.

The basis of a complete political evolution lies in political parties, today without leaders who win over their own members, much less citizens, by personal interests and serious questions.

Standing still is not a solution. We face continued instability while the economy slides into the aforementioned recession. Obviously, everything has its limits. If the poverty of families continues, there will come a certain moment when despair unites the social forces, today dispersed, and chaos returns.

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The situation is complicated when many countries of the world suffer from their own stagnation at the same time. The IMF and the World Bank have already estimated very low global growth figures for the biennium 2023-2024. It is serious as the major developed countries, trading, financial and investment partners of the Peru Agreement.

Hope in China? There are serious doubts whether this great country will achieve the goal of 5% growth and helping the world. Its statistics are not very transparent, in addition, the countries it mainly trades with, the United States, Japan, Germany and the United Kingdom, are struggling with their own recessions and will have a negative impact on the Asian country.

There are several issues weighing on the Peruvian economy over the next 18 months. In no other order are they:

1) Reduced consumption by firms and households due to lower incomes, higher costs and breakdown of the supply chain

2) Energy and food prices remain high due to the protracted Russia-Ukraine war, protectionism in many countries favoring the domestic market, reduced local yields due to lack of fertilizers and the effects of the upcoming El Niño. event.

3) The price of metals we export will be lower than estimated by MEF and BCR. This will reduce the inflow of foreign currency and tax collection.

4) Possible criminal activities of drug trafficking, illegal mining, illegal fishing, illegal logging and smuggling. It is convenient for them to create anarchy to facilitate their illegal activities, and they find people in poverty, yearning for “change for change’s sake”.

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5) Greater vulnerability of private investments in the face of great current uncertainty. Added to this is the well-known inefficiency in implementing public investment. This is very serious because it complicates medium and long-term jobs and development of the country.

6) Increase in current expenditure in the public sector, mainly on bonuses and subsidies, increases fiscal deficit. This runs the risk of downgrading our credit rating, making international credit lines more difficult.

7) The financial system becomes very weak when there is an increase in bank credit and consequent credit constraints to customers. The government should continue to support various companies with guarantees, and stimulate mergers and capitalization.

What powerful forces lurking today could, during the rest of the year, prevent what is mentioned here from happening, but rather the opposite? We will continue to pay for a prolonged recession With you and mine Well, “let’s go with hope” doesn’t work in economics.

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