Interview: José Antonio Blanco
What factors helped cause direct investment (FDI) to drop around 18% in 2013?
JOSÉ ANTONIO BLANCO: The decline in FDI must be put in the context of an adverse global economic climate. Despite this drop, investment over the past ten years has remained consistently higher than 20% of GDP. However, the country needs to further promote itself and reach out to potential investors. This is the major focus of InPeru, which is working to increasing the country’s presence on investors’ radars. The government needs to play its role by easing the arrival process for any potential investor. It understands that to encourage economic growth and social inclusion it needs to attract more investments. The Ministry of Finance has been issuing new regulations to foster private foreign investment, and the latest measures have helped speed up the process of acquiring environmental and social licences.
The price of the infrastructure gap is said to be $80bn. To what extent does Peru possess the financial capacity required to raise this amount?
BLANCO: The real question lies in how you can close the infrastructure gap if financing is not an issue. The country has the ability to attract foreign investment and this has only been increased by its higher rating from Moody’s. Peru needs to find the right financial instruments that will close the gap the fastest. Public-private partnerships have an important role to play in this regard, but they are not the sole method. Private initiatives and the Works for Taxes programme have great potential, especially for road and energy infrastructure. The government needs to be more open and facilitate these kinds of initiatives, and it also needs to change regulations to facilitate infrastructure financing by local banks and private pension funds.
How can Peru avoid delays in awarding state tenders, as this can damage the country’s reputation?
BLANCO: It is true that many projects have been delayed due to inefficiency. Large-scale projects such as the Lima metro or the Sur Peruano pipeline are highly complex, as they involve a number of different private and public parties. At the same time, many ministries and municipalities lack the capacity to deal with major projects. Many public entities are understaffed and staff are unqualified, which makes an already complex project even more so. The government needs to work on increasing the calibre of public servants and increasing the connectivity between public institutions, which will improve efficiency and lessen the bureaucracy.
How would you assess the progress so far of the Integrated Latin American Market (Mercado Integrado Latinoamericano, MILA)?
BLANCO: We have to remember that MILA was born three years ago during a global economic crisis and this had an effect on our initial expectations. So far it is acting as a good marketing tool for the region but still has many inefficiencies. For example, Peru imposes a capital gains tax and operational costs, making it less competitive than Chile or Colombia. The next step should be to standardise regulations across MILA, as well as to expand it to include Mexico. These steps will boost MILA into fulfilling its potential after a fairly slow start.
According to many private pension fund managers, foreign investment limits have restricted their ability to maximise profits. Should they be raised?
BLANCO: The superintendence is currently working on fresh regulations to increase these limits, not only to operate abroad but also on a local level. Peru needs to adopt the real estate investment trust system prevalent in the US to maximise pension fund benefits. Furthermore, regulations need to become more flexible and creative, as the pension funds hold billions that could potentially be put to use to close the infrastructure gap, providing a large long-term investment. This would also help promulgate the benefits of the pension funds and thus promote formalisation. This is an important issue and the changes should come in the short term.
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