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High incidence of Covid-19 in the country contrasts with the government's swiftness in implementing measures

Peru has been an example in the Covid-19 crisis for its speed in applying containment measures and for approve one of the largest economic stimulus packages in the world, close to 17% of GDP. However, the high incidence of the pandemic, which has made Peru the second Latin American country in terms of cases of the coronavirus and the third in terms of deaths, has made it necessary to prolong the restrictions on activity longer than expected. This and lower external demand, weaker than initially predicted, have "more than eclipsed" the government's significant economic support, according to the IMF, which forecasts a 13.9% drop in GDP for Peru in 2020, the largest of the region's main economies.

lecture of the Peruvian president, Martín Vizcarra (r), in the presence of the head of Economics, María Antonieta Alva (l) [Gov. of Peru].

lecture of the Peruvian President, Martín Vizcarra (r), in the presence of the head of Economics, María Antonieta Alva (l) [Gov. of Peru].

ARTICLEGabriela Pajuelo

International media such as Bloomberg y The Wall Street Journal have shown admiration for Peru's young minister of Economics , María Antonieta Alva. At 35, with a master's degree from Harvard and some experience in Peru's own administration, Alva designed one of the most ambitious economic stimulus plans in all of South America at the beginning of the crisis.

"From a Latin perspective, Peru is a clear leader in terms of macro response; I could have imagined a very different result if Toni wasn't there," he said. Ricardo HausmannAlva's Harvard professor, who is leading a team of experts advising Peru and ten other countries on how to mitigate the effects of the coronavirus. The minister has also become one of the best-known faces of President Martin Vizcarra's government among the working classes.

Peru was one of the first countries in Latin America to apply a state of emergency, limiting the freedom of meeting and transit in Peruvian territory and restricting economic activity. To prevent mass infection with the virus, the government decreed the closure of borders, restrictions on interprovincial movement, a daily curfew and a mandatory period of national isolation, which has been extended several times and has become one of the longest in the world.

This prolongation, agreed in the face of the high incidence of the pandemic, has damaged the economic outlook more than expected. Moreover, the prolongation of the emergency in countries to which Peru's exports are destined has weakened their demand for raw materials and damaged the resurgence of Peru's Economics . This is the IMF's estimate, which between its April forecast and the one updated in June has added nine more points to the fall in Peru's GDP for 2020. The IMF now considers that Peru's Economics will fall by 13.9% this year, the largest among the region's major countries. Although the ambitious stimulus package will not have prevented this decline, it will boost the recovery, with GDP rising by 6.5% in 2021, the strongest rebound among the largest Latin American economies. With regard to the latter forecast, the IMF specifies that, nevertheless, "there are significant risks to leave , linked to national and global challenges to control the epidemic".

A socio-economic context that does not financial aid to containment

Despite restrictive social distancing measures, the pandemic has had a high incidence in Peru, with 268,602 diagnosed cases (second only to Brazil in Latin America) and 8,761 deaths (behind Brazil and Mexico) as of 25 June. These high figures are partly due to the fact that the country's socio-economic conditions have meant that compliance with containment has not been very strict in certain situations. The social context has made it difficult to respect the mandatory quarantine due to structural problems such as the fragility of health services and infrastructure, the difficulty of efficient public procurement, prison overcrowding and the digital divide.

The high level of labour informalityThe fact that in 2019 it was 72% explains why many people have to continue working to ensure their subsistence, without following certain protocols or having access to certain material; at the same time, this informality prevents greater tax collection that would help to improve budgetary items such as health. Peru is the second Latin American country with the lowest health investment.

On the other hand, inequalitywhich in 2018 was 42.8 in the Gini index, is aggravated by the territorial distribution of expense, linked to the centralisation of employment of the rural population in Lima. During the pandemic, workers from the country's highlands who have migrated to the capital have wanted to return to their places of origin, as many are not on the payroll and have no labour rights, in contravention of the restrictions of mobility.

This social context makes it possible to question some of the economic measures approved, according to some Peruvian academics. The president of high school Peruano de Economics (IPE), Roberto Abusada, warned that Peru's macroeconomic strengths will not help forever. He considered that certain regulations are unenforceableThe "setting parameters such as body mass index (BMI) or an age limit, creates obstacles for this group of people, who could be highly qualified, and could not return to their centre of work".

Economic package

In late April, Minister Alva presented a $26 billion economic stimulus package, representing 12 per cent of GDP. Additional measures a month later raised that percentage to 14.4 per cent of GDP, and even then it would have been closer to 17 per cent. Comparatively speaking, this is one of the largest stimulus packages adopted in the world (in Latin America, the second largest is Brazil, with a stimulus of 11.5 per cent of GDP).

From agreement with the monitoring that the IMF Peru has adopted measures in three different areas: fiscal, monetary and macro-financial, and in terms of the exchange rate and the balance of payments.

First, in terms of fiscal measures, the government approved 1.1 billion soles (0.14% of GDP) to address the health emergency. In addition, various measures have been implemented, among which two stand out: the "Stay at home" voucher and the creation of the Business Support Fund for Micro and Small Enterprises (FAE-MYPE).

The first measure, for which the government approved approximately 3.4 billion soles (0.4% of GDP) in direct transfers, is a 380 soles (US$110) voucher targeted at poor households and vulnerable populations, of which there have been two disbursements. The second measure concerns the creation of a fund of 300 million soles (0.04% of GDP) to support MSEs, in an attempt to guarantee credit for capital for work and to restructure or refinance their debts.

Among other fiscal measures, the government approved a three-month extension of the income tax declaration for SMEs, some flexibility for businesses and households in paying tax obligations and a deferral of household electricity and water payments. The whole package of fiscal support amounts to more than 7% of GDP.

On the other hand, in terms of monetary and macro-financial measures, the Central Bank reservation (BCR) reduced the reserve requirement rate by 200 basis points, bringing it to 4%, and is monitoring the evolution of inflation and its determinants to increase monetary stimulus if necessary. It has also reduced reserves requirements , provided liquidity to the system with a package backed by government guarantees of 60 billion soles (more than 8% of GDP) to support lending and the chain of payments.

In addition, exchange rate and balance of payments measures have been implemented through the BCR's intervention in the foreign exchange market. By 28 May, the BCR had sold approximately USD 2 billion (0.9% of GDP) in foreign exchange swaps. International reserves remain significant, at more than 30% of GDP.

On the other hand, in the field of trade relations, Peru agreed not to impose restrictions on foreign trade operations, while at the same time liberalising the loading of goods, speeding up the issuance of certificates of origin, temporarily eliminating some tariffs and waiving various infractions and penalties contained in the General Customs Law. This was particularly the case for transactions with strategic partners, as the European UnionAccording to Alberto Almendres, the president of Eurochambres (the association of European Chambers in Peru). 50% of foreign investment in Peru comes from Europe.

In terms of Peruvian exports, although the emergence of the coronavirus in China at the beginning of the year slowed down transactions with that country, mining and agricultural exports remained positive. in the first two months of the yearas indicated in the high school research and of the Lima Chamber of Commerce. development (Idexcam). Subsequently, exports of raw materials and tourism have been more affected, especially in the case of exports of raw materials and tourism.

Comparison with Chile and Colombia 

The status in Peru can be analysed in comparison with its neighbours Chile and Colombia, which will have a somewhat smaller fall in GDP in 2020, although their recovery will also be somewhat smaller.

issue As for the issue of confirmed Covid-19 cases as of 25 June, Chile (259,064 cases) is similar in size to Peru (268,602), although the number of deaths is almost half that of Peru (4,903 Chileans and 8,761 Peruvians), which corresponds to the proportion of its total population.

In response to the pandemic, Chilean authorities implemented a series of measures, including the declaration of a state of catastrophe, travel restrictions, school closures, curfews and bans on public gatherings, and a teleworking law. This crisis came just months after the social unrest experienced in the country in the last quarter of 2019.

On the economic front, Chile approved a stimulus of 6.7% of GDP. On 19 March, the authorities presented a fiscal package of up to $11.75 billion focused on supporting employment and corporate liquidity (4.7% of OPIB), and on 8 April an additional $2 billion of financial aid to vulnerable households was announced, as well as a $3 billion (2%) guarantee plan from credit . In its June forecast update , the IMF expects Chile's GDP to fall by 7.5% in 2020 and increase by 5% in 2021.

In Colombia, the level of contagion has been lower (77,313 cases and 2,611 deaths), and its economic package to cope with the crisis has also been smaller: 2.8 per cent of GDP. The government created a National Emergency Mitigation Fund, which will be partially financed by regional and stabilisation funds (around 1.5 per cent of GDP), complemented by the issuance of national bonds and other budgetary resources (1.3 per cent). In its recent update, the IMF forecasts that Colombia's GDP will fall by 7.8% in 2020 and rise by 4% in 2021.

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