Interview with Diario Gestión
Insecurity is a risk factor for investments and different executives from abroad are beginning to ask about this issue, said Hugo Santa María, chief economist at Apoyo Consultoría, in Gestión. Learn the details.
Hugo Santa María, partner and chief economist at APOYO Consultoría, spoke with Gestión about the waves that the country must go through in the coming years, especially in view of the 2026 elections.
“Why don’t we grow more?” Santa María asks. Faced with this, he believes that there is a policy of very low visibility and degradation of services that limit the country.
“The economy is stronger (than before), but it is still weak.” One sees a second half of better performance in several consumer markets, investment is going to close the year “in the blue,” but why, despite that, is the economy still weak?
On the family income side, income from work, we are still at levels almost similar to those of 2019. If we analyze the GDP per capita, in real terms, in the last five years, we are practically flat.
When the pandemic hit us, we thought it would take us about three years. We didn’t imagine it would take us almost six years. There are several factors. If you look back, Peru has been hit by all kinds of shocks. The pandemic, El Niño, and of course politics.
It has been a conjunction of factors to which something has been added that has been eating away at us: the degradation and deterioration of public management and the provision of services.
We think that Peru can grow, with a calm world, between 2.5% – 3%; and 2.6% by 2025. For the next few years it may increase between 2.5% and 3%. Why are we not growing more? Because of this very low visibility policy and the degradation of services.
There is a conviction that, despite the political uncertainty, the low visibility policy, companies, organizations and the country have to move forward. They are not going to close. Everyone wants to grow, but, all slower and more difficult. Along the way, some public efforts stop happening.
We tend to talk about presidents, about the Executive Branch, but this deterioration of the administration is at all levels. For example, if one wants to get a license, one must deal with uncertainty in the municipalities, which sometimes apply the norm in another way or, as has been seen in the Metropolitan Municipality of Lima (MML), issue ordinances that are supposedly illegal and have to be negotiated.
There is a conviction that we must continue investing, generating employment and trying to grow. But there are many obstacles and gasoline is not enough.
It is always said that Congress is populist. But populism aims to give people what they want to have, it causes short-term benefits, but long-term costs. However, I see a Congress, although not all congressmen, selfish and individualistic. In the regulatory agenda of Parliament, there is not always populism, sometimes there are interests that are very strange to interpret.
That said, it does create a problem. From the point of view of the economy, one of the fundamental pillars of financial and macro stability has been fiscal discipline. When one looks at the picture, Peru still has reasonable ratios. But Parliament approves a series of regulations that are simply spending initiatives.
We have made a very easy calculation, regulations already approved or to be approved by Congress are equivalent to about 10 points of GDP. Not all of them are paid in one year, but they leave expenses or obligations created.
Then, you have a bad regulatory hyperactivity of Congress, at the sectoral level. Today Parliament approves just over 25% of the rules by insistence, against the technical opinions of the Executive. That does introduce uncertainty.
I don’t think I’m being too harsh. If you look at institutions like the Fiscal Council, they are doing their job and what they have to do is shed light on the risks.
There are some who look at the photo of the fiscal deficit and others who look at the movie. This year, according to APOYO Consultoría, the deficit will be around 3.5% of GDP. It is the highest in the last 25 years, not counting the pandemic. If you look at other countries, we look good comparatively, but the movie shows a slow deterioration.
For next year, our fiscal deficit projection is 2.2% of GDP. The authority could say: “So many criticisms, but we have gone down from 3.5% to 2.2% of GDP.” But, that 2.2% is with historically high metal prices and with interesting income from a particular operation. Without these two effects, we are above 3% of GDP again. Peru should now have a lower deficit.
There are two concerns. A slow deterioration, although it is not a reason to be desperate; and a deterioration in the composition of spending. Am I worried that Peru will lose its investment grade? Yes.
Yes. Something that is happening to me very frequently is that foreign investors or the regional or global heads of international companies that operate in Peru begin to ask (about this issue). When you ask people about their main concerns, there is work and security. For companies, it is also in the “top 2.”
What could she leave behind? I think none. What I would like her to leave behind is political reform. All reforms require a long-term vision, technical discussion with responsibility. That is why we need a political reform, that is the zero (reform).
It is difficult to anticipate the Fed, but we think we will see two cuts this year. I do not think the Fed will be very quick to reduce its rates. As good central bankers, they are cautious. Our BCRP is also cautious. We are expecting (in Peru) an interest rate of 5% for this year and 4.5% for the next.
Minimum Vital Remuneration: “The Minimum Vital Remuneration (RMV), from a strictly economic point of view, is wrong. It reaches a small percentage of people, it is a measure that only has political benefits,” commented Santa María. He added that the vast majority of Peruvians are indifferent to an adjustment in the RMV or it harms them. “It is fair for the few who benefit, but it is unfair for those who move away from formality or simply leave,” he said.
“We will arrive earning the same as 5 years ago”
Facing a pre-election year, Hugo Santa María, took a look at the short-term opportunities. “With all these infrastructure projects stopped, there is a quick opportunity to generate growth and employment,” he said.
He recalled that there are infrastructure projects, such as irrigation, that could be accelerated. Added to this is that this complicated world can be an opportunity for Peru because “we are well positioned in terms of trade agreements, geographic position, product offering.”
“We have everything to try to get one or two more points out of economic growth. Our main challenge is to value those opportunities,” he stressed.
Here another question arises: with what spirit will Peruvians arrive at the 2026 elections? The population will arrive worried about insecurity and the family economy.
“By 2025, the GDP per capita will only be 2 percentage points above that of 2019. That is, practically the same. We Peruvians will earn more or less the same as 5 years ago and generate that income with lower quality employment. Because the main generator of employment is private investment and this has thousands of obstacles to development,” he warns.
When asked what worries Santa María as a person, he replied that “it is that Peru will always remain in this trap.”
Previously, the country grew twice as fast as Latin America and generated twice as much employment. No longer, we are average. Peru has become an average country. We cannot remain at these levels of income, this quality of employment, this quality of income and this poverty line,” he concluded.
