Withdrawal of the AFP will not reactivate the economy and harm ordinary citizens | economy

One in seven Withdrawal of AFP Pension Funds He said it would harm the country's economic recovery and affect all Peruvians because the government would have to allocate more resources to pay the debt because interest costs would increase and it would reduce spending on defense, health and education. Jaime Reisch is the vice president of Moody's, an American risk rating agency.

“There are many problems with this withdrawal. One is that the effect of the withdrawal is not understood. We are already far from the effects of the pandemic, from last year's contraction, from the economic recovery. If the purpose of this move is to stimulate economic activity and this is to stimulate consumption, it will not have an effect. There will be more consumption. Those who are inclined, who have withdrawn from their funds, have already consumed those savings. Interestingly, what remains are the rich, who have high purchasing power, who are not going to spend this money on expenses or high internal savings or depositing in banks, but mostly take these savings out of the country,” he said. A An interview with a local newspaper.

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Reusche said the increase in interest rates for the government for the seventh withdrawal and the fact that AFPs are major players in the sovereign debt market will put more pressure on the fiscal deficit by having to pay higher interest on debt. Either to expand or the government will have to make spending cuts in other areas to reduce that deficit, which is the target this year because it is so high.

“We see it because the Ministry of Economy is trying to impose almost Franciscan austerity on the level of the entire state to achieve the goal. If this effort includes more financial costs for the government, it means less spending on things that citizens want: security, education, public works, health. “This has real costs for the average citizen. And it doesn't benefit anyone except the high-income earners,” he said.

Referring to the argument of the legislators of the Economic Commission of the Congress of the Republic who approved the seventh withdrawal of 4 tax units (S/ 20,600) for all members of the AFP, it will have the effect of reactivating internal demand. , Reusche said that this reasoning is not valid because average and low-income workers have already withdrawn all they can from their pension funds, and since contributors to pension funds are a small part of workers in Peru, this does not. Creates the impulse to consume.

“The recovery we see in the economy has more to do with the rebound effect than anything else. So, demonetisation is not the right mechanism to stimulate economic recovery. It will not have the effect of helping the economic recovery; it will have no effect on economic activity, but it will have a negative effect on the country's financial accounts. It is negative. And affects the citizens of the country because it means cutting costs,” he added.

Finally, he said Moody's plans to change the country's outlook from negative to stable in the second half of the year, but this will happen if the AFP announces its seventh withdrawal of financial and corruption scandals that have rocked the political scene. Evaluation must be done and will be delayed.

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Jose Carlos Lay