It is clear
that the world economy and trade will decline this year, in a crisis worse than
the global financial crisis of 2008 and 2009. Analysts and international
organizations such as the OECD and the IMF already forecast so [1]. The
Peruvian economy steadily grew since the second half of the 2000s, at a pace of
three times the annual average of Latin American countries, partly driven by a
favorable external sector: due to higher exports of goods, huge foreign direct
investment, increasing tourism, and remittances from Peruvians abroad. For
example, in 2019 almost 65 billion dollars entered the country from those sources,
an amount equivalent to around 30% of Peruvian economy output that year. Around
47.7 billion dollars came from exports of goods, 8.9 billion dollars from
foreign direct investment, 4.8 billion dollars from tourism, and 3.3 billion
dollars from remittances of Peruvians abroad. Peru's GDP that year was $ 228
billion. This year only part of that amount of $ 65 million would enter Peru.
Then, this
year 2020, external factors cannot be expected to contribute to Peru's economic
growth, and as stated before only a fraction of the 65 billion dollars received
in 2019 would enter Peruvian economy. So the country has to strengthen its domestic
demand, as strong as possible. But with a month of inactivity of much of the
national productive apparatus due to quarantine (national lockdown) imposed from
march 16 that will last until April 12 (and assuming that the situation normalizes
after that period, a quite optimistic assumption), overall production will decrease
and people´s income (and consumption) will also decrease. If policies are not
taken quickly many companies would go bankrupt, unemployment would increase
and with it social unrest.
The
government needs to act directly supporting the income of the population and
preventing companies from going bankrupt as many of them do not receive any income
or produce and have payments to do. Faced with similar problems, what are other
countries doing? In countries as different as USA, Canada, Spain, Japan [2],
Malaysia or Bolivia, governments are implementing enormous economic stimulus
packages for amounts equal to or greater than 10% of the size of their GDP (in
policies known as “helicopter money”[1]).
In Peru, not only the amount of the economic stimulus is insufficient, adding
up everything so far announced would amount to only 2% of GDP; but the most
important thing is that it does not put the money in the hands of all the
people who are losing income.
Not only
the poorest families in Peru are losing income, and to this segment the
government is giving an exceptional bonus of 760 soles (around 220 dollars). In
total it is estimated that 3.5 million households would receive that amount
(Peru total population is around 32 million). But not only those people are losing
income, everybody is losing it. And companies too. Let's take the example of a barber
shop where 2 to 6 or more people working there will not have an income for at
least a month. These people are not likely to get that government bonus. And
small companies like this barber shop will not have money to pay the rent of
the premises, nor the utilities. What has the government done to help this
business? The only thing it has done is to give them business a break by exempting
them to pay taxes in march and April and other minor measures with little
impact.
The
government, besides giving a bonus to the poorest families, will allow an
amount of up to 2,400 soles to be withdrawn from each worker’s Service Time
Compensation (CTS by its acronym in Spanish). But this will only reach a small
part of the population that have CTS and works in companies in the formal sector
(according to some calculations less than 50% of Peruvians have employment in
the formal sector), and this will cause those people savings to decrease, as
CTS is like a saving fund that would allow them to supplement the meager
pension that many will receive when they retire. Another measure is the
one-month suspension of worker’s contribution into the private pension fund
(AFP by its Spanish acronym), but also this will have a limited effect since
most Peruvians do not contribute to the AFPs, and will also affect their
pension fund. The last measure that the government is proposing is to allow
workers who have been unemployed in the last 6 months to withdraw up to 2,000
soles from its account in the AFP fund.
Lastly the
government will grant a subsidy amounting to 35% of the salaries of employees
who earn up to 1,500 soles per month, measure aimed at preserving employment
and help companies. But that measure will be for companies in the formal sector
of the economy, and subject to a series of conditions. Many companies are
unlikely to meet these conditions, especially in the case of the vast majority
of small and micro-businesses that are informal.
What are
governments like the US or other countries mentioned doing? In countries that
have unemployment insurance such as the US or Canada, for example, the
government will temporarily increase the amount they receive from this
insurance [3], [4], and in other countries there will be direct transfers to
workers (and families) who receive a salary not so high, or to retired persons,
as in Malaysia [5], or they will give money to all people of working age, as in
Japan (which did something similar in 1999 and 2009) and will do it again. Besides
this, governments will give loans to business at low interest rates.
In summary,
what the government must do is give to every person of working age an amount of
let say 700 soles (a cash transfer), so that they can spend it on what they want (except perhaps
for people who earn more than a given amount of perhaps 7,000 soles a month).
That money would enter the economy in the form of consumption, thus
reactivating the productive apparatus. The advantage of this system is that it
is fast and does not require bureaucratic expenses such as administering the
food baskets that the government is going to give to poor families through the
country's municipalities authorities (and thus also avoiding the corruption
that its management of that measure may entail).
If the
Peruvian government does not act more proactively, the Peruvian economy will suffer
a deep recession, especially given the negative international environment. And
in Peru, the government, unlike many other countries, has the possibility to do
more and spend more. Peru has a low inflation rate, a low fiscal deficit, large
international reserves, and a low public debt. There is a Fiscal Stabilization
Fund for emergency cases like this. And even if it did not have it, we are in a
moment of emergency, the world economy is in emergency, and governments all
over the world are taking very dramatic economic measures.
If the
Peruvian government does not take more radical measures, its economy will decrease
more than what a negative external environment predicts, and will create social
discontent, giving arguments to radical political sectors, just when next year there
will be a presidential election. Social unrest will give radical leftist
parties a shot in the arm.
[3] See for example: https://rpp.pe/economia/internacional/coronavirus-22-billones-de-dolares-senado-de-eeuu-aprueba-el-mayor-rescate-economico-de-su-historia-noticia-1254292
[5] See: https://asia.nikkei.com/Spotlight/Coronavirus/Malaysia-adds-53bn-of-coronavirus-stimulus-as-fiscal-pressure-mounts?fbclid=IwAR2Ev80NlCnSALbb6L5KNPd3RUIpKr14sRARrlvmsc6Jwy1evjDtQQUzcYc
No hay comentarios:
Publicar un comentario