Today, the Peruvian economy is recognised as strong. This has been possible because in recent years we have implemented coherent, sustained and inclusive policies. In nearly two decades, Peru has managed to triple its real GDP, maintain low inflationary levels – at around 2% per year – reduce public debt, reach net international reserves equivalent to 30% of GDP and maintain a level of “country risk” below the regional average. This has been possible thanks to the efforts of the entire country, by strengthening a responsible and stable macroeconomic policy that, among other things, has allowed us to promote investment, both domestic and foreign, reach new markets, generate predictability in government decisions and build a policy of social inclusion. For the government, it is crucial to consolidate the inclusion of millions of Peruvians into the national economy.
However, following a policy of inclusive growth is not easy. We need to: achieve an educational revolution that will enable us to train and professionalise our youth; increase investment in infrastructure to integrate our markets; and achieve the long-awaited economic diversification we have worked for.
Today, the global economy poses new challenges to all of us, such as how to ensure high and sustainable economic growth, how to consolidate the emerging middle class of our countries, and how to reduce poverty and inequality without affecting the macroeconomic stability that cost us so much to attain.
The world, and emerging countries especially, is confronting a series of external shocks that are testing our ability to respond. First, we are facing the slowdown of economic growth in China, which has gone from an annual growth rate of around 11% at the beginning of the decade to less than 7% in 2015, a situation that has been reflected in a drop in the prices of oil and metals of between 40% and 50%.
Secondly, with better growth prospects, the US economy announced an upcoming rise in interest rates by the Federal Reserve, an event which has produced a considerable degree of uncertainty and could lead to reduced capital flows and higher financing costs for countries like Peru.
The current external shock is not similar to the one in 2008-09. It is less abrupt, but more persistent. It doesn’t only affect the economic cycle in the short-term, but also medium-term growth expectations, in a context of less solid macroeconomic balances and less fiscal and monetary room in which to implement the necessary counter-cyclical policies.
However, we must see this external shock in the form of a slowdown as an opportunity. We believe that in the medium term, Latin America will not have growth rates above 6% as we saw until 2011. We must be prepared to further reduce poverty and inequality with current growth rates.
This time the situation is much more challenging, so the response of our economies must be different to the one implemented in 2009.
We must consider the prospects for economic growth in Latin America and, in this context, underline that Peru is implementing pragmatic measures within the scope of a national market economy, allowing for the creation and consolidation of domestic markets in the medium and long term.
Likewise, we are introducing measures such as tax cuts, expanding public investment and maintaining momentum in social investment, both in social projects and in those conducive to productive diversification. Moreover, we have maintained a very active monetary policy to sustain the stability of the Peruvian currency. In regional terms, the volatility of the Peruvian sol is among the lowest.
Reserve requirements in sols have been reduced, and various instruments have been introduced to prevent the effects of a sharp depreciation of the exchange rate in an economy that has a declining ratio of dollarisation, but still hovers around 30%.
Unfortunately, the current external shock is also affecting Peru’s growth prospects in the medium term. In light of this, our response has been structured along three primary lines of action.
First, we must address the strengthening of human capital. In this regard, I can mention the efforts of my government for the education sector, which today has a budget unprecedented in our history. This has allowed us to initiate education reform and, in turn, create programmes to provide opportunities – previously unthinkable – for our youth, as well as tax incentives to businesses to encourage job training.
In terms of education expenditure, we are now at 3.6% of GDP, from the historical average of 2.9%, and we plan to reach 4% of GDP by 2016. This effort is allowing us to bring back the full school day; to establish a national scholarship programme, which, starting from nothing, has more than 72,000 beneficiaries today; to reform the public teaching career, including increasing wages; to establish high-performance schools which offer an international baccalaureate; to create a national bilingual public education plan that prioritises English teaching; and to build schools at an unprecedented rate.
The second line of action is centred on large infrastructure projects in sectors such as transport, education, sanitation and health, through the promotion of public-private partnerships. Among these projects, the most important are Line 2 of Lima’s metro, the Longitudinal de la Sierra road infrastructure, the Southern Peruvian Gas Pipeline, the international airport at Chinchero (Cusco), an electricity transmission line at Moyobamba (Iquitos) and the associated substations, as well as the modernisation of ports, airports and refineries, among other projects.
During this administration, we have awarded over 29 projects worth more than $20bn. In this way, we seek to diversify the drivers of growth for public and private investment, supplementing mining investment with investments in infrastructure, setting the stage for growth in the coming years.
Thirdly, under the national diversification plan, a number of measures are being implemented. These include the establishment of technological innovation centres, the strengthening of the National Council of Science and Technology; the creation of the National Quality Institute; the co-production and technology transfer of training aircraft and training services through the Air Force’s maintenance centre; helicopters with their own maintenance and repair centre, through the army’s aviation division; the construction of ships and multipurpose vessels, patrol boats, bridges and rope bridges, among others, as well as the design and operation of a satellite image system that Peru has acquired.
This diversification policy is an ambitious one, and goes hand in hand with the policy of trade integration which Peru is promoting through spaces such as the Pacific Alliance, the Asia-Pacific Economic Cooperation forum and the Trans-Pacific Partnership, of which Peru is a member. The latter will allow us to automatically enter countries with which we had no prior trade agreements, including Brunei, Australia, Malaysia, Vietnam and New Zealand.
During my government we also created the Ministry of Development and Social Inclusion, whose social programmes cover the entire life cycle of individuals.
Finally, it should be added that a key component in the development of the Peruvian economy, our social policy – its strength and our good economic performance – has allowed us to continue reducing poverty, extreme poverty and chronic child malnutrition, even during these difficult and challenging economic times. This has allowed us to articulate social programmes under a sound state policy known as our “Include to Grow” plan, which allows us to transform young people who have no qualifications into competitive and entrepreneurial young individuals.
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