Fiscal prudence is the key to Perus economic progress,
Mercedes Araoz, economy and finance minister, has told
We continue to maintain strong fiscal prudence,
because we do not want the economy to overheat. We have to
prevent inflationary pressure, Araoz said.
Her remarks come against a background of warnings that
too-rapid increases in fiscal spending could undermine recovery
in several Latin American nations.
In Peru, the private sector is forecasting stronger growth
by at least one point than more cautious
government figures. Most economists believe growth will be
greater than 6% in 2010.
Part of the reason for this is political: the government
massively missed its growth target for 2009, expanding by 0.9%
instead of the 5% originally forecast. But the other issue is
the fear, expressed by Araoz, that the economy could grow too
quickly, leading to inflation and other unwanted pressures.
Inflation in 2009 was 0.25%, the lowest in eight years, but
it has crept up in the first two months of this year, even
though low. Inflation was 0.62% through February. The target
for the year is 2%.
The government is also paying close attention to resources
flowing into the country, fearfully that strong growth could
attract fly-by-night capital. Araoz said: Peru is going
to be an important destination for capital, and we want to
orient this capital.
We dont want to introduce controls on capital,
but we have to ensure that flows do not affect the
macroeconomic management. We want long-term capital.
President Alan Garcias administration believes that it
will have no problem attracting this dedicated capital. In
fact, while it is cautious with GDP numbers, the administration
is expansive about investment, forecasting a minimum of $30
billion in private investment in the mining, hydrocarbon and
energy sectors through 2015.
Araoz said investors recognize that Peru provides legal and
fiscal stability for their investment and that the
administration will continue improving the climate for doing
business in the country.
Her office is working on new mechanisms to expand capital
markets. In the second quarter of the year it is expected to a
set of instruments and mechanisms to protect small-scale
investors, as a way to stimulate both foreign and internal
The administration is also confident that five free-trade
agreements implemented over the past 14 months, and several
more in the pipeline as well as investment grade
rankings from the three principal agencies will
contribute to a virtual cycle of growth for the coming five
years and, hopefully, beyond.