In the first half of last year, the Peruvian economy suffered two major supply shocks that affected economic activity and especially exports. Those two shocks were, on the one hand, the El Niño Phenomenon, which hit fishing, agriculture and, to a lesser extent, mining; and that it significantly damaged the country's infrastructure, particularly in the North Coast area and in the department of Ica. On the other hand, the Asian crisis indirectly caused a deterioration in the terms of trade and, in a context of greater turbulence in the international capital markets, an increase in the perception of risk in emerging countries, which was reflected in an increase in the external financing.
In the second half of 1998, the Peruvian economy suffered a severe blow again, this time taking the form of a violent demand shock. After the Russian crisis, a general outflow of capital was observed in emerging countries, which saw their risk indicators deteriorate. This massive outflow of capital, which mainly took refuge in US treasury bonds, generated a 'contagion' effect within which it was difficult to distinguish the risks of individual countries. Furthermore, the very logic of minimizing the losses incurred by international investors forced them to liquidate their positions in other emerging economies, whose economic situation had not yet been affected by the crisis.
Although the Asian and Russian crises had a strong impact on most countries in the region, they showed different degrees of macroeconomic strength. Although the international crisis affected more the countries that had weak fiscal positions and fixed or inflexible exchange rate regimes, the Peruvian economy, which was different in these aspects, also suffered strongly from the adverse effects of these crises. This situation is basically explained by the relative oversight regarding the risk that was taken in allowing rapid short-term debt in the financial system.
The excessive confidence in the fundamentals of the Peruvian economy, among them its high level of international reserves, gave –initially– the former economic team great tranquility, which cast doubt on whether the economic authorities were really aware of the magnitude of the adjustment that could eventually be required to be made. Finally, this attitude was transformed into extreme prudence and ended with a ministerial change.
As mentioned, the weakest flank of the macroeconomic stability picture turned out to be the dependence on short-term capital to complete the financing of the external deficit (current account deficit of the balance of payments) and to finance the creation of the money supply.
To carry out its transactions, the Peruvian economy currently uses two currencies: the nuevo sol and the dollar. Currently, there are no exact calculations on the proportion of transactions made in each currency; however, there are indirect indicators, such as demand deposits in both currencies (50%) and the participation of the foreign currency in the total credit granted by the banking system (80%). In any case, the evolution of the money supply to meet the demands of both currencies can generate significant deviations in the path of aggregate demand.
In the Peruvian case, the creation of soles passes through the purchase of dollars, while the evolution of the money supply in dollars depends entirely on net capital flows. The Central Bank (BCR) has decided to manage the monetary creation in dollars through the reserve requirement for deposits in foreign currency, releasing the resources that enter directly from abroad. In both cases, the monetary impulse (shock) comes from abroad, while the Central Bank only chooses the proportion of this shock that will take the form of expansion of the money supply in soles, to adjust to its estimates of demand for money in national currency.. Therefore, the Russian crisis took the form of a huge demand shock, which affected the evolution of the total money supply.
Finally, in the first days of this year, the Peruvian economy suffered another shock, this time as a consequence of the Brazilian crisis. On this occasion, a strong increase in the real exchange rate was observed, which in the medium term would take the form of a positive demand shock (imports are replaced and external demand increases) if it was possible to maintain and / or increase the new levels reached by said variable. However, in the short term, the initial effect negatively affects the economic activity of the non-tradable sectors and, given the mismatch of currencies of most creditors in the financial system, causes an increase in heavy portfolios in financial institutions.
According to the President of the Republic, the new cabinet has entered to fulfill three great objectives: to reduce poverty, to reduce unemployment and underemployment, and to achieve sustained growth. In principle, few can disagree with these goals. However, as is known, the achievement of these objectives requires a period of several years. No one ends poverty or achieves 'sustained' growth in just one year. Precisely for this reason, the planning horizon of the political and economic authorities should be longer term, beyond a year or even beyond a period of government. Definitely, for them to work and be useful, public policies must be designed and carried out with the well-being of the country in mind and not in function of other inferior objectives.
At the macroeconomic level, the objective is to provoke a change in the state of internal and external expectations regarding the strengths and opportunities of the Peruvian economy. Likewise, the main candidates for the presidency must support the bulk of economic results and the maintenance of macroeconomic stability. Only in this way could a new investment cycle be generated and the process of privatization and concessions continue. On the other hand, there is an urgent need to break the depressive cycle with more agile fiscal and monetary policies, although without jeopardizing the fiscal 'sustainability' and the current account of the balance of payments.
Inflation is no longer a major problem; it will surely increase in the coming months, but it would close the year at approximately 5.5% rates. Furthermore, the external deficit has been shrinking rapidly since last year, as shown by the quarterly figures, and would reach around 4.2% in 1999. For both reasons, there would be some margin to smooth the adjustment.
However, there are also risks and weaknesses. The institutional fragility and concentration of power do not allow an adequate and efficient management of the country. Likewise, some presidential statements show, among other things, a certain lack of conviction in the economic program, which also ends up affecting the expectations of economic agents and the country's perception in international financial markets. Perhaps this is why the new economic team has been working on a new Expanded Facility Agreement for the period 1999-2001.
Below is a review of the behavior observed in the real, price, fiscal, monetary, financial and external sectors. Subsequently, some topics for reflection on current macroeconomic policy are raised.
REAL SECTOR
During the first half of 1998, economic activity showed the ravages of the El Niño Phenomenon and, to a lesser extent, the effects of the Asian crisis. These negative impacts began to disappear in the third and fourth quarters of last year. In this last quarter, the agricultural sector expanded by 15.4%, fishing by 53.2%, while mining expanded by around 9.7%.
Regarding the type of spending, a greater importance of exports and the public sector was appreciated in the growth of the economy in 1998. Domestic demand registered a 0.1% drop, mainly associated with the setbacks shown by consumption and investment private (0.3% and 0.4%, in each case), an evolution that was attenuated by the public sector, which saw its consumption level expand (1.2%) and investment (0.1%). The aforementioned evolution of demand affected economic activity in all the sectors that depend on this variable, as shown in tables 1 and 2 and in figure 1.
INSERT TABLES 1 AND 2 INSERT GRAPH 1
The evolution of the total amount of money (measured in foreign currency) began to be negative as of September 1998, with which the interest rates underwent a noticeable increase. Likewise, after the Russian crisis, several lines of credit were closed and many banks had to pay their short-term claims abroad, thus causing a contraction in the rate of growth of credit, which could not be completely mitigated by the reduction of the average reserve requirement in foreign currency. These new conditions in the money and credit market were also reflected in the short-term evolution of domestic aggregate demand.
Likewise, fiscal policy reacted openly procyclically, reducing current and capital expenses, especially in the last quarter of 1998, in order to fulfill the commitments agreed upon with the International Monetary Fund. Despite this, the initial goal of the primary surplus of the non-financial public sector, which amounted to 1.8% of GDP, was achieved, achieving only 1.2%, which was reflected in a fiscal deficit of 0.6% of GDP, a figure that contrasts with the fiscal balance achieved in 1997.
This fiscal policy together with monetary policy (broadly understood, soles and dollars) were complicit in the Russian crisis in causing a violent decrease in domestic demand, a situation that has not been reversed in the first quarter of 1999.
PRICES
The annualized inflation rate, which had reached 6.5% in December 1997, accelerated to 8.4% in April 1998, reflecting the increase in the prices of the main foods, accusing the inflationary impact of the El Niño Phenomenon, which was lower in Lima in relation to other cities in the country.
Subsequently, the monthly inflation rate began to slow down, even showing negative rates in September-October and a rate of 0% in November, reflecting the lower absolute food prices once the El Niño phenomenon ended. Thus, inflation fell to 6% at the end of 1998, paradoxically showing (in the year of El Niño) lower annual inflation than in 1997.
In the first two months of 1999, food has continued to show negative rates in its monthly evolution. Comparing the summer months of 1998 -with high inflation- with this quarter, relatively low annualized inflation rates are obtained, not observed since 1972. In this way, annualized rates such as the 3.4% in April would not hold for long time, given that food prices would reverse their fall and because the rest of prices have been showing an upward trend, partially reflecting the greater devaluation observed (see Chart 2).
INSERT GRAPH 2
On the other hand, in the last 9 months, the evolution of the wholesale price index (WPI) is greater than that of the consumer price index (CPI), reflecting the inability to transfer the increase in wholesale prices to Final prices, in a context of weak domestic demand (see Chart 3). Likewise, it is worth highlighting the difficulty for companies to transfer the depreciation of the nuevo sol, which has been notably experienced since mid-1998, to consumer prices (see Chart 4).
INSERT GRAPHICS 3 AND 4
Finally, it should be noted that the Central Bank's inflation target, in a country subject to strong shocks and under a flexible exchange rate regime, turns out to be an indicator with low credibility as a nominal anchor. In any case, an alternative price indicator that could function as an anchor would be core inflation, which in the presence of external shocks would reflect the long-term price trend.
MONETARY SECTOR
In 1998 two distinct stages could be distinguished. After a period of relative abundance of resources during the first semester, in the second half of the year an acute shortage situation was observed, which is not fully appreciated in the annual figures. On the other hand, the late response of the economic authorities avoided the application of mechanisms that contributed to lessen the severity of the liquidity crisis, with which its effects were directly transferred to economic activity.
The primary issue in 1998 increased by 5.5% (equivalent to S /. 262 million), an increase that according to the Central Bank was consistent with its inflation target and with the evolution of the demand for money in national currency. The most important component of the issue was that of internal origin (S /. 1,242 million), which is basically the result of the purchase of certificates of deposits from the Central Bank and the lower deposits of Banco de la Nación. In turn, sources of external origin had a contracting impact (S /. 980 million), mainly due to the greater importance of the purchase of foreign currency by the public sector (to comply with external debt commitments) compared to purchases Net of the Central Bank. It is worth mentioning that the Central Bank lost net international reserves (RIN) for US $ 985 million in 1998,unlike what happened in recent years, when, for example, RIN earnings of US $ 1,899 million and US $ 1,629 million were experienced in 1996 and 1997, respectively. As of April 27 of this year, the Central Bank has been losing US $ 275 million, basically due to a decrease in public sector deposits. Likewise, the exchange position of the BCRP decreased from US $ 2,346 million in April 1998 to US $ 2,085 million in April 1999.346 million in April 1998 to US $ 2,085 million in April 1999.346 million in April 1998 to US $ 2,085 million in April 1999.
The annualized evolution of the primary issue showed a marked reduction, going from rates of 20.3% in April 1998 to rates of 5% in December 1998, which highlights the difficulties of the Central Bank to maintain the growth rate of the emission at programmed levels. Thus, in December 1998, there was less money in national currency (-6.3%) than in December 1997. Total liquidity in national currency also showed a contraction of 1.6%, a variable that had grown by 21.9% and 25.6% as of December 1996 and December 1997, respectively. Additionally, the ability of the banking system to expand liquidity from the primary issue (which is measured through the bank multiplier) decreased by 6.6%, which is the result of a slight increase in the preference for currency (from 29.5% to 31%) and a higher implicit cash reserve ratio of banks (from 10.2% to 12.2%). This situation is mainly explained by the cautious behavior adopted by the banking institutions, motivated by the deterioration of the condition of the credit subjects.
Total end-of-period liquidity (expressed in dollars) showed a contraction of 4.2% (as can be seen in graph 5), a result that is mainly explained by the strong weakness exhibited by its component in national currency compared to the slight increase observed by liquidity in foreign currency. Regarding the dollarization of the quasi-money, no major changes were observed in relation to 1997. Thus, the participation of the quasi-money in national currency was 21.3% at the end of 1998 (24.1% at the end of 1997), while that corresponding to Its counterpart in foreign currency reached 78.7%, compared to a rate of 75.9% registered at the end of 1997.
INSERT GRAPH 5
Regarding the total credit of the banking system to the private sector (expressed in dollars), the balance at the end of the period increased by 5.1% compared to the end of the previous year. Similar to the case of liquidity, the domestic currency component registered the largest drop (8%), while the foreign currency component reached an increase of 8.9%. The dollarization of credit remained at 80.1%, with which a high sensitivity of economic agents' ability to pay to exchange rate fluctuations was maintained.
The international liabilities of the rest of the banking system (without BCR) decreased from US $ 3,832 million in August 1998 to US $ 2,803 as of March 31, 1999. Given the lower inflow of capital and the abrupt reduction of credit lines abroad The Central Bank reacted with a reduction of the marginal and average reserve requirements in foreign currency and with rediscount lines in national and foreign currency. However, the effects on the money supply and total credit were not offset (see Chart 6).
INSERT GRAPH 6
This abrupt reduction in the money supply generated an excess demand in the money market, causing a significant increase in interest rates in foreign currency and national currency, which in turn reflected the greater devaluation expected as a result of the shortage of foreign currency. Figures 7 and 8 show the evolution of interbank interest rates.
INSERT GRAPHICS 7 AND 8
FINANCIAL SECTOR
After the Russian crisis, a rapid movement of capital towards North American treasury bonds (flight to quality) was observed, altering the yield curve observed by these fixed-income securities (see Chart 9).
INSERT GRAPH 9
The Russian crisis also caused a rapid increase in perceived levels of risk in emerging economies. Although capital markets distinguish different levels of risk in each country, the enormous correlation between them is also noticeable ('contagion' effect). The crisis in Brazil (at the beginning of the year) again increased the risk premiums for Latin American countries, which led to further increases in their exchange rates and delayed the return of private capital (see Chart 10).
INSERT GRAPH 10
Charts 11 and 12 show the behavior of average lending interest rates in both currencies, which reflect the impact that occurred in the money market, which would later affect the real sector.
INSERT GRAPHICS 11 AND 12
On the other hand, the recession and the real devaluation led to an increase in the heavy portfolio, thus requiring a higher level of provisions, the same that increased steadily during 1998 (see Chart 13).
INSERT GRAPH 13
In the pre-crisis stage, the State adopted some isolated measures aimed at granting greater strength to the financial system. Among them, the establishment of liquidity requirements, a measure that was intended to prevent the appearance of mismatches in the terms of the active and passive operations of banks and, in this way, reduce the possibility that liquidity problems would later translate in solvency difficulties. Likewise, the Provisions Regulation was modified, giving it a more conservative nuance. Likewise, the Superintendency of Banking and Insurance (SBS) intervened some banking institutions, at the same time as the government arranged for the issuance of Treasury bonds to refinance the overdue debt, an initiative that had few results due to limitations in its design.
As a consequence of the deterioration of economic activity and the external shocks that have been occurring, the indicators of the banking system have ended up reflecting these behaviors. Thus, by making a comparison between the situation of the banking system as of March 1998 and that observed as of March of this year, the deterioration in the quality of the heavy portfolio is seen (measured as the heavy portfolio in relation to gross loans), increasing the bank delinquency from 6.0% to 9.3%. Likewise, the level of provisioning (provisions for loans in relation to the past due portfolio) decreased from 83.4% to 75.8%. On the other hand, the profitability (measured as the ratio of net profits to total income) of 5.3% obtained in the first quarter of 1998, decreased to a rate of 3.8% in the first quarter of 1999.However, the levels of leverage (ratio between risk-weighted contingent assets and credits and inflation-adjusted effective equity) and solvency (deposits, bonds and debts relative to equity) have remained relatively stable, as a result of increases in equity made by banking companies (see table 3).
INSERT TABLE 3
FISCAL SECTOR
Tax revenues, which had stagnated on average between January and September 1998, fell sharply from October and there is still no significant change in this behavior. However, revenue is expected to start showing some improvement in the second half of the year. Likewise, as can be seen in figure 14, central government expenditures also showed a clear negative trend throughout the year, which was exacerbated in the last quarter of last year. In this way, fiscal policy was firmly procyclical, trying to meet the primary surplus target agreed with the IMF, which - despite the adjustment - could not be reached (1.2% of GDP against 1.8% as the proposed goal).
INSERT GRAPH 14
The current revenues of the central government were equivalent to 13.8% of GDP, a figure that is 0.3% lower than that obtained the previous year. The greater preponderance of the collection from the general sales tax over total income stands out (42%), despite the weaknesses exhibited by the commercial sector and the low dynamism of imports.
Regarding the central government's current expenses, there was an increase in the share of spending on wages and the purchase of goods and services (from 6.0% to 6.2% of GDP). On the other hand, the decrease in capital spending (from 4.5% to 4.2% of GDP) reflected the contractionary stance of the public sector during the year, the same that was accentuated, as already mentioned, towards the end of 1998.
In the first quarter of 1999, tax revenues have fallen by around 10% in real terms, which led to a change in the primary result target of the non-financial public system from 1.9% of GDP to 0.9%. Finally, in February a strong increase in government spending was observed, which would be reflecting the authorizations of pending payments to suppliers and some methodological modifications.
EXTERNAL SECTOR
The negative impacts of the terms of trade can be seen in graph 15, which, in addition to affecting the external sector, also operated by reducing national income. In this regard, the lower demand for raw materials, as a result of the Asian crisis, motivated the average prices of exports to decrease in a greater proportion (17.3%) than the prices of imports (4.6%). These effects caused the terms of trade to deteriorate by 13.4%.
INSERT GRAPH 15
Exports during 1998 suffered a sharp contraction, basically reflecting the effects of the El Niño Phenomenon, despite the fact that the drop in mineral prices was partially offset by higher mining extraction. On the other hand, exports began to rebound in the last quarter of last year, which together with the fall in imports during that same period, was reflected in a trade deficit equivalent to just a third of those observed in the first two quarters..
So far in 1999, imports have accentuated their decline, while traditional exports have been strengthened after the normalization of weather conditions and the entry into operation of new mining deposits. In this way, the trade deficit has closed in recent quarters, reaching close to US $ 100 million in the first quarter of 1999.
If the trend towards the recovery of traditional exports continues and the estimated behavior for imports is verified (positive rates are expected from the middle of the third quarter), a trade deficit of around US $ 1,100 million (less than the half of what was observed last year).
On the other hand, as a reflection of the shock in terms of trade and the lower capital inflow, the real exchange rate showed upward trends, which were significantly accentuated in the first months of this year, after the Brazilian crisis. Likewise, the expectations of lower foreign investment during 1999 promoted an accelerated depreciation of the nuevo sol. However, after the so-called exchange rate hiccup in February, which reflected mismanagement of expectations, the nominal exchange rate began to drop, which ended up reducing the real exchange rate observed from March. Graph 16 shows the evolution of this variable. In this regard, it should be mentioned that it would be desirable to try, through public policies, to maintain the new real exchange rate, as far as possible.
INSERT GRAPH 16
In the last 18 months (before March, as shown in figure 17), a positive monthly devaluation rate has been persistently observed, which was accentuated when the respective shocks mentioned above occurred. However, in the last three months, the depreciation rate has stopped and recently reversed, reflecting that a good part of the adjustment in the real exchange rate would have already taken place, so there would be no further upward pressure.
INSERT GRAPH 17
On the other hand, the lower inflow of dollars and fiscal difficulties caused a loss in the level of net international reserves, which was caused in part by the reduction of the reserve requirement on foreign currency deposits, financing problems of the public sector and losses in the exchange position at the Central Bank (see Chart 18).
INSERT GRAPH 18
SOME FINAL COMMENTS
Domestic aggregate demand has been falling by 7.8% in the last quarter of last year. This openly contractive trend could not be counterbalanced in the first half of this year, so it is foreseeable that the situation of low dynamism in domestic demand will continue.
During May 1999, isolating the effect of the statistical rebound after the El Niño Phenomenon, the economy went through the recessive phase of the economic cycle, with negative quarterly results in the evolution of aggregate demand (since the third quarter of 1998). In this way, the economy would already have been in a recession for four quarters.
However, in the absence of new negative shocks, the tranquility would have returned to the international capital markets and a slow reduction in the perception of country risk would be taking place. This may be an indicator that the economy would have started a slow exit from this phase of the economic cycle, despite the absence of active macroeconomic policy measures.
This behavior would be observed timidly from the third quarter of the year and more strongly in the last quarter, also coinciding with an expected expansion of public spending in the midst of an electoral climate, as well as a greater expansion of credit, conditional on business restructuring.
For the next few months, marked trends in interest rates are expected to decline in both currencies. Likewise, a drastic reduction in the external deficit is estimated in relation to that observed last year. Finally, greater stability of the exchange rate is also projected in the rest of the year.
Unfortunately, the average growth result in the years 1998-1999 would be 1.3%, so the responses of the economy to the problems of poverty and underemployment would have stopped advancing, thus completing a decade that, when it started, promised better results.. In summary, in the period 1998-1999, the main factors that would have contributed significantly to this situation would be: the international financial situation and the slowness - and almost non-existence - of responses from the economic authorities.
THE AGREEMENTS WITH THE INTERNATIONAL MONETARY FUND IN THE PRESENT DECADE
Over the past decade, macroeconomic policy priorities have been changing.
In the first years, the main concern was the fight against inflation, which went from 139% in 1991 to 10.2% in 1995. In that year, due to the great dynamism observed in private investment, the fall in public savings during the electoral campaign and the entry of capital of various kinds, the current account deficit in the balance of payments increased above 7% of GDP. The high of this figure, with fresh memories of the Mexican crisis after the 'tequila' effect, caused great concern in the economic authorities and in the International Monetary Fund (IMF).
As a result, the main objective of macroeconomic policy in the mid-decade was to combat the external deficit, achieving its reduction from 7.3% of GDP in 1995 to 5.2% in 1997. This deficit increased temporarily during 1998, mainly due to a drop in 16% in the value of FOB exports (US $ 1,091 million) as a reflection of the El Niño phenomenon.
As is clear, the priorities changed: from the reduction of inflation to the reduction of the current account deficit (since the average inflation remained around 11.3% between 1995 and 1996, and fell slightly to around 7.9% between 1997 and 1998).
However, in 1999, both inflation and the external deficit showed a decreasing trend. Thus, the annualized growth rate of the general price level of the Peruvian economy (as of April) is 3.4%, while the main component of the external gap (the trade deficit) has shown a trend towards equilibrium or slight surplus in the last three months.
Currently, the problem of the economic recession is clearly highlighted, which should become the main concern of the economic authorities. However, the maintenance of the fiscal balance in a context of falling tax revenues and the signing of the agreement with the IMF, which in another international context were sufficient for a healthy development of economic activities, are now clearly insufficient to solve the problem of productive stagnation.
Unfortunately, the economic authorities are clinging to the same recipes that served to reduce inflation and the external deficit, when reality indicates that the priority macroeconomic problem has now changed.
At Macroconsult we observe with great concern the evolution of the economy since the last quarter of last year, whose current situation could be maintained in the first three quarters of this year, if the handling of the main tools of macroeconomic policy is not altered. As it is known, according to various studies on the matter, the solution of the problems of poverty and underemployment / unemployment requires a sustained growth of the Peruvian economy (between 5% and 6% annually) in the next 10 years. For this reason, given that the average growth of the last two years would be just 1.3%, the solution to the above problems would be suffering a strong setback. Likewise, the situation at the business and financial system level has been under strong stress.
The Peruvian economy, which had been showing a relatively favorable performance, suffered strong shocks of an exogenous nature such as the El Niño Phenomenon, the Asian crisis, the Russian crisis and finally the Brazilian crisis, which ended up exposing its main weaknesses.
These weak points are the enormous dependence on short-term flows, which have financed both the external deficit and the expansion of the total money supply (soles and dollars), which has been consistent with the levels observed in economic activity. Likewise, the Russian crisis has revealed the weakness of monetary policy in national currency, in a context of total financial openness and high dollarization of the financial system. This weakness in the management of domestic demand appears, for example, when the inflation rate falls below the Central Bank's inflation target. If this occurs, the issuing entity should react with an increase in the money supply (inversely to what it would do in the case of an inflation rate higher than its inflation target). Thus,it would appear that the national economy would have lost the nominal anchor that its authorities claimed to have under control. Faced with this situation, however, a greater monitoring of those inflation indicators whose volatility is less exposed to exogenous factors, such as underlying inflation, could be considered.
This weakness in monetary policy, or the reluctance to use all the mechanisms at its disposal to alter the evolution of the total money supply, puts the weight of macroeconomic management on the evolution of fiscal policy.
The latter has been the main tool, through primary surplus targets, to combat the high external deficit. Therefore, given that the external deficit is being reduced sharply, fiscal policy would have to be used as an anti-cyclical mechanism, something that unfortunately will not occur if the goals agreed with the IMF are met.
The following is a brief analysis of the Expanded Facility Agreements that Peru signed with the International Monetary Fund.
BRIEF ANALYSIS OF THE EXPANDED EASE AGREEMENTS WITH THE IMF IN THE NINETY
To the extent that the Letter of Intent constitutes a presentation by the government on its economic policy, it is the means by which an evaluation of its achievements and outstanding commitments can be made. In May 1998, when signing the second Expanded Facility Agreement (AFA), the government indicated that it would not sign a new one, so that this would be the last Letter of Intent to be signed in this decade. However, in January 1999, given the crisis of confidence towards emerging markets and also to affirm the credibility of the new Economy Minister (who had previously been holding the Presidency of Congress), the government decided to sign a third Expanded Facility Agreement for the period 1999-2001.
The article begins with a review of the background of the
Accumulation of Rights (PAD) that Peru had to use in 1991 to qualify for an AFA, after having been ineligible for the use of IMF resources for a period.
Subsequently, the fulfillment of the objectives and the measures that the government promised to execute in the previous signed Letters of Intent are analyzed. Finally, an evaluation of the fulfillment of the AFAs is carried out not only in quantitative terms but also of the qualitative goals linked to structural reforms, such as the privatization process and the reform of the State.
BACKGROUND
In 1982, the external debt crisis began in Latin America, after
Mexico will announce its inability to meet its obligations abroad. In Peru this situation worsened in 1985, when the Alan García government announced the unilateral moratorium on the service of external debt. In practice, this meant self-marginalizing from the IMF, since the country was declared ineligible for new loans from this institution. In August 1990, the government of President Fujimori began actions to achieve the following objectives: macroeconomic stabilization and the reintegration of Peru into the international financial community, especially with multilateral financial institutions.
In this way, conversations with the IMF began for the normalization of relations with this institution, which led to an Accumulation of Rights Program (PAD), which was signed in September 1991. The PAD is a mechanism designed expressly to achieve normalization of relations with the IMF and basically consists of meeting quarterly goals within a previously agreed economic program. Thus, the country accumulates special drawing rights (SDR) up to the amount of its arrears, which are subsequently regularized in a new agreement with the IMF. Thus, Peru subscribed the PAD for up to SDR 623.7 million, equivalent to US $ 842 million.
After this first stage and having fulfilled all its commitments, Peru was able to access an AFA, the ordinary mechanism of the IMF, whose disbursement effectively allows the refinancing of unpaid balances. Under this program, debts with the Paris Club creditors were regularized in 1991 and the elimination of arrears with international financial institutions was completed in March 1993. Subsequently, the country signed a new AFA for the period 1996 -1998, which in 1996 allowed the debt to be rescheduled for the period 1996-2010.
MAIN OBJECTIVES OF THE AFA 1993-1995 AND 1996-1998
A basic objective of IMF-supported programs is to carry out an orderly adjustment of macroeconomic imbalances, to achieve a sustainable external position in the medium term. Likewise, it seeks to promote structural reforms so that market mechanisms can lead the process of economic growth.
In this way, the programs seek to achieve the main macroeconomic objectives of the country. The goal of maintaining a viable balance of payments in the medium term is closely linked to the specification of internal macroeconomic objectives: the difference between the target income and the internal income should not exceed the amount of the additional external debt, in order not to excessively increase the relative burden of debt service.
The relationship between external and internal equilibrium serves as the basis for determining the macroeconomic adjustments to be made, which will be achieved through a set of measures that may or may not promote long-term economic growth. In other words, balance is a necessary but not sufficient condition for sustained growth. Furthermore, when resources are used poorly and economic growth rates are insufficient, it is necessary to undertake reforms of various kinds aimed at increasing efficiency and developing markets.
In IMF programs, measures aimed at reducing domestic aggregate demand have generally been combined with measures to promote exports. Decreasing spending is achieved through a wide range of measures that correct price distortions, such as exchange and other distortions (the liberalization of price controls and quantitative trade restrictions).
Thus, achieving internal equilibrium and external viability requires monitoring the behavior of inflation and current account deficit results, which are presented below. According to the analysis framework of macroeconomic programs, for the IMF, economic growth would be the result of a set of policies and not a goal that requires specific instruments.
Inflation
This is the front where the most progress has been made: inflation has been reduced almost steadily between 1990 and 1998, with the exception of 1996. This good result can be attributed in part to monetary policy, but also in part important to the strong capital inflow, which explained the low level and relative stagnation of the real exchange rate shown until 1997.
This is more clearly seen if the objectives of the previous Letters of Intent are compared with the results achieved. In 1991 and 1992, it was still difficult to know the degree of effectiveness of monetary policy in controlling inflation. Precisely, recognizing this difficulty, the quantitative inflation targets do not appear in the AFAs or in the Letters of Intent in a specific way, but within a band, except in 1993 (see graph 19). It should be noted, in addition, that the intermediate primary emission target only appeared in 1994 and 1995, only to stop being explicitly published later (see Chart 20). This may be the product of a tacit recognition that the existence of a high degree of dollarization of prices makes effective inflation control difficult. So,A floating exchange rate regime means that inflation targets have relatively wide ranges. For this reason, the existence of “inflation targets” generates a certain distrust of the chosen nominal anchor and suggests the superiority of the underlying inflation targets.
INSERT GRAPHICS 19 AND 20
Current account deficit
The current account deficit can be reduced by reducing spending, understood as the total consumption and investment of residents in the country in relation to income, or by increasing income in relation to spending. In general, it is easier to reduce spending than to increase production. For this reason, measures that affect spending are usually applied - firstly, when it is urgent to achieve an accelerated decrease in the current account deficit. The most direct way to reduce this demand is by combining a reduction in public sector spending and an increase in the exchange rate or interest rates; on the other hand, an increase in the level of taxes can also achieve this decrease in private consumption and investment.
After a structural reform program, it is natural for there to be a significant increase in investment immediately (see figure 21), while savings growth takes time to take place, occurring after some years of high growth (see figure 22).. This may mean a temporary deterioration of the current account balance of the balance of payments. In this regard, it was this magnitude of the external deficit that worried the economic authorities and the IMF in recent years. For this reason, the Letters of Intent establish explicit goals for the permissible deficit, which have been consistently met, except in 1995, when public spending incurred by the government brought this deficit to 7.3% of GDP (see Chart 23).It is important to note that this goal was not met in 1998 due to the incidence of exogenous factors, such as the El Niño phenomenon and the Asian crisis, which were ultimately reflected in a current account deficit of 6.0% of GDP.
INSERT GRAPHICS 21, 22 AND 23
In summary, it can be seen that in terms of macroeconomic stabilization, most of the urgent problems that the country was facing at the beginning of the 1990s have been resolved. However, important issues remain to be resolved, such as managing aggregate demand and high dollarization.
Increase
At the same time that it influences domestic prices, the high dollarization of the economy and the unrestricted financial opening make the government lose control and the effectiveness of monetary policy; therefore, the management of aggregate demand. For this reason, fiscal policy has been used as the most important instrument of macroeconomic regulation. However, this is not a desirable situation, since fiscal policy should focus on the efficiency of spending and collection.
On the other hand, despite fiscal intervention, GDP and aggregate demand have fluctuated more than expected in agreements with the IMF. As can be seen in graph 24, the growth (assumed) with the IMF should have been between 3% and 7%, in all the years between 1993 and 1998. Additionally, the active use of fiscal policy should have served as a stabilizer of the economy. However, the observed volatility has been greater than expected, to which the procyclical nature adopted by fiscal policy has contributed, which has accentuated business cycles instead of reducing them. For example, growth in 1994 was 13.1%, while as a result of the “cooling” caused by the severe fiscal adjustment of 1996, that year growth was only 2.5%. Usually,growth has been greater than that “agreed” with the IMF when the assumption implied higher growth; and it has been less, when the assumption implied less growth. This conservatism generates credibility problems in the growth assumptions (by the private sector).
INSERT GRAPH 24
GUIDELINES, GOALS AND POLICIES OF THE ECONOMIC PROGRAM IN THE FRAMEWORK OF THE AFA
Sectors
Fiscal sector
In the two AFAs signed by Peru, fiscal policy sought to eliminate the public sector deficit, while generating a primary surplus that could ensure compliance with the payment schedule of external debt. Thus, as can be seen in figure 25, the primary surplus targets (understood as the result of the operations of the non-financial public sector, without considering income from privatization or interest expense on the debt) were successfully met in 1993 and 1994 This did not happen in 1995, since when it was expected to reach a primary surplus of 0.8% of GDP, the effective result was only 0.3%, due to the increase in government spending carried out for electoral purposes. According to the AFA for 1996-1998, surpluses would be increasing (originally 1.0%, 1.5% and 2.0%, for each successive year;subsequently renegotiated to 1.0%, 1.3% and 1.7% of GDP, respectively), in order to generate greater debt-paying capacity and to help reduce dependence on external savings, thus reversing the deterioration of the exchange rate. The renegotiated goals were met in 1996 and 1997; however, the primary surplus target for 1998 was not reached, obtaining a result of 1.2% of GDP. The reason was the contraction of tax revenues, registered both in the second and in the fourth quarter of last year, and the increase in spending for rehabilitation and reconstruction works due to the El Niño phenomenon.and thus reverse the deterioration of the exchange rate. The renegotiated goals were met in 1996 and 1997; however, the primary surplus target for 1998 was not reached, obtaining a result of 1.2% of GDP. The reason was the contraction of tax revenues, registered both in the second and in the fourth quarter of last year, and the increase in spending for rehabilitation and reconstruction works due to the El Niño phenomenon.and thus reverse the deterioration of the exchange rate. The renegotiated goals were met in 1996 and 1997; however, the primary surplus target for 1998 was not reached, obtaining a result of 1.2% of GDP. The reason was the contraction of tax revenues, registered both in the second and in the fourth quarter of last year, and the increase in spending for rehabilitation and reconstruction works due to the El Niño phenomenon.and the increase in spending for the rehabilitation and reconstruction works due to the El Niño phenomenon.and the increase in spending for the rehabilitation and reconstruction works due to the El Niño phenomenon.
INSERT GRAPH 25
Likewise, within the quantitative evaluation criteria, ceilings are established for the amount of internal financing of the public sector. The setting of ceilings on the amount of external indebtedness and bank financing to the public sector are important, because they constitute a means of controlling the magnitude of the deficit of the consolidated public sector. Thus, the increase in public spending depends on the increase in tax pressure, gradually seeking greater efficiency in collection by the National Superintendency of Tax Administration (SUNAT) -see graph 26 -. At the same time, with the restructuring of public spending, the investments were destined to public infrastructure works in education, health and road networks, which become essential to raise the standard of living of the population and facilitate private investment.
INSERT GRAPH 26
In the agreements, the government commits to strict control of spending and to supervising disbursements for projects that require external financing. Similarly, a salary policy in line with the Treasury fund has also been applied. In addition, the coordination between the central administration, the Committee of the Public Treasury Fund, the National Housing Fund (Fonavi), the Peruvian Institute of Social Security (IPSS) -today ESSALUD- and the Office of Social Security Normalization (ONP). However, control of spending was not effective in the electoral period of 1995 and it is expected that it would not be effective towards the end of this year, due to the proximity of the presidential elections of 2000 (see Chart 27).
INSERT GRAPH 27
Monetary sector
Before 1990, the State intervened in the economy by controlling interest rates and credit ratios. The banking system reform released interest rates (to be determined in the market) and included the reorganization of the Superintendency of Banking and Insurance, the development of an insurance system for deposits, and the incentive to competition to reduce margins. bank and credit costs.
In 1992, the new organic law of the BCR was enacted, which eliminated the mechanism by which it could grant credit to the nonfinancial public sector to finance the fiscal deficit. Likewise, the monetary policy was reinforced through the development of open market operations instruments and the improvement of the intervention system in the exchange market (through the purchase or sale of dollars), which would allow to reduce the excess supply of dollars generated by the greater inflow of private capital. In this sense, through control of the monetary base, the BCR gained the ability to maneuver to achieve the main objective of reducing inflation. In this way, the Central Bank has been applying a monetary policy in accordance with the achievement of said objective. For it,The government promised to set growth targets for the monetary base, limits on net domestic credit from the BCR and credit to the public sector, and also minimum levels of reserve accumulation, which have been met relatively satisfactorily. Thus, the reduction of inflation would serve as an instrument to gradually increase the monetization of the economy.
External sector
In 1990, Peru was at one of its lowest levels of international trade, which included the application of a series of para-tariff and tariff restrictions, as well as an overvalued exchange rate, which favored urban consumers and harmed exports. and to agricultural production.
Starting in 1991, the application of a set of measures began to eliminate restrictions on international trade and promote exports and foreign investment. Thus, the country undertook not to impose new tariff or para-tariff restrictions on imports and to establish a uniform uniform tariff, no later than 1995. In addition, it was established that the application of new CERTEX would not be authorized, and those in that moment pending cancellation would not be renewed. Similarly, the import surcharge on food (which has not been met so far) would be eliminated, as well as monopolies, and a mechanism consistent with GATT agreements would be developed to resolve complaints of dumping practices. Likewise,the government promised to promote the entry of private capital, basically those destined for foreign direct investment.
Regarding exchange rate policy, the exchange rate was made more flexible, so that it is determined by supply and demand. The BCR promised to keep the exchange rate floating, intervening to reach the agreed reserve goals, but always meeting the monetary goals and the rest of the program objectives. Likewise, it was agreed not to hinder payments for current transactions and payments of public sector debt. In this sense, the AFA 1993-1995 mentions that the BCR would develop open market operations to facilitate a more active intervention in the exchange market and avoid sudden movements in the exchange rate, which is maintained in the AFA 1996-1998.
One of the main objectives of the economic program is to achieve the viability of the balance of payments. To do this, first, it sought to solve the arrears with external creditors and, second, to encourage the growth of exports, both traditional and non-traditional.
In 1996, the second Expanded Facility Agreement was signed for the period 1996-1998, seeking to conclude the operation to reduce both the external debt and its service. Thus, in July 1996, the government obtained an agreement with the creditor countries of the Paris Club and refinanced the maturity of the debt service for the period 1996-1998. In addition, it redistributed the schedule of payments of the balance of the previously consolidated debt, significantly reducing its service in the period 1999-2007. On the other hand, bilateral negotiations were concluded with all the creditors who are members of the Paris Club. In March 1997, Peru ended the debt reduction operation and its service with commercial creditors with a Brady Agreement, which was financed with loans obtained from the IMF, the World Bank,the Inter-American Development Bank (IDB) and the Eximbank of Japan. Currently, the government has already regularized its relations with most of the official non-Paris Club bilateral creditors, including the Russian Federation, and has initiated actions to normalize its relations with the few outstanding creditors so far.
As in 1997 the government had already regularized its relations with most creditors, including those of the Brady Plan and the Paris Club, it was possible to reduce the interest on the external debt and the current account deficit, while granting facilities for complying with the external debt payment schedule.
In April of that same year, to strengthen Peru's integration into the world economy and improve its external competitiveness, the government reduced tariffs from 15% to 12% and from 25% to 20%, and introduced a temporary surcharge of 5% on the value of imports of certain agricultural and agro-industrial products. In addition, the country rejoined the Andean Group and, as of 1998, became a member of the Asia-Pacific Cooperation Forum (APEC). Important additional aspects have been the creation of PROMPEX, in order to promote exports and the start of the process to perfect the Customs Law, which simplifies and consolidates customs regulations.
Structural reforms
The negotiation process with the IMF does not end with stabilization but continues, with the goal of increasing the economy's global efficiency and achieving its long-term sustainability. To do this, Peru initiated a series of reforms that can be grouped into the categories presented below.
Commercial reform
The trade liberalization initiated in August 1990, even before the international reintegration process began, led to the average tariff rate falling from 66% in 1989 to 26%. Subsequent negotiations with the IMF sought that Peru abide by the recommendations of the World Trade Organization (WTO) and that once it established a reduction in tariffs on specific products, it did not increase them again. The objective was to reach a single tariff rate, which initially had to be reached in 1995, a goal that was not met. It should be noted that it has not been explicitly indicated when this objective would be achieved. To date, Peru has reduced the different tariff rates to only three, although it maintains temporary surcharges. Despite everything, in 1997,the average tariff rate was 12% and foreign trade represented only 23.5% of GDP, which would indicate the lack of further development of the external sector and the need to complete important aspects of the trade liberalization process.
State reform
Two of the most important problems that the country was going through at the beginning of the negotiation process with the IMF were: the maintenance of state companies that provide public services and the inefficiency in tax collection due to the existence of a considerable number of taxes and exemptions.. To solve the first, Peru promised to initiate a privatization process and to establish regulatory agencies of a sectoral nature. In this sense, institutions such as the Institute for the Defense of Free Competition and Intellectual Property (Indecopi), the Supervisory Agency for Private Investment in Telecommunications (Osiptel), the National Superintendency of Sanitation Services (Sunass) and the Agency were created. Supervisor of Private Investment in Energy (Osinerg), among others.
In order to solve the second problem, the commitment to strengthen the tax administration was assumed through the creation of SUNAT and the improvement of the Customs system, while reducing the number of taxes on which the tax collection would rest. In relation to the latter, the PAD included the restructuring of the tax system to only four taxes (income, VAT, ISC and tariffs), the application of a tax of
18% VAT and the reduction of exemptions from income tax. Likewise, it was stated that the Tax Code should be ready no later than September 30, 1992. In this regard, all these provisions were complied with.
In tax matters, the progress has been significant. In 1991, with the aforementioned creation of SUNAT to replace the General Directorate of Contributions (DGC), the process of modernization of the State also began. In 1992 a new tax system was implemented, based on the aforementioned taxes. In the AFA for 1993-1995, the tax administration was strengthened through the expansion of the taxpayer database. A comprehensive reform of the customs administration was also carried out and a plan to combat smuggling was launched, although recent anecdotal events cast doubt on public opinion.
During the AFA for 1996-1998, efforts were made to continue increasing current income, mainly by increasing the number of taxpayers and audits; and, as of June 1996, the information crossing program was implemented between the declarations of the main taxpayers, thus strengthening the control and efficiency of collection. On the other hand, the severity of legal actions against violators increased; In this regard, the increase in the maximum custodial sentence from 6 to 12 years and the improvement in the exchange of information between SUNAT and Customs stands out.
Financial system reform
As agreed in 1992, the Private Fund System of
Pensions at the same time that the State assumed the liabilities of the Peruvian Institute of Social Security (IPSS), by issuing recognition bonds for workers who moved to the new pension system.
Likewise, in December 1992, the organic law of the BCR was promulgated, as planned, at the same time as the commitment was made not to reduce the reserve requirements in foreign currency due to its effects on the secondary creation of money and, as a consequence, on the exchange rate. For its part, the government also ordered the reduction of Banco de la Nación's operations as a financial body, which was accomplished.
Privatization and concessions
One of the main commitments that Peru assumed was the transfer of public companies to the private sector and the creation of conditions that encourage the participation of private agents in production.
In this way, the Commission for the Promotion of Private Investment (COPRI) was created, as the body in charge of selling government units to the private sector. To date, this institution has achieved revenues of close to US $ 8,650 million and investment commitments of around US $ 7,040 million, with most of the commitments established in the AFAs and in the Letters of Intent having been met. In this sense, the AFA for the period 1993-1995 contemplated the sale of the companies Petromar, Transoceánica and Serpetro, the Peruvian Telephone Company (CPT), the National Telecommunications Company (Entel) and a third of the assets of Centromin Peru, as well as part of the distribution network or the generating capacity of Electrolima. On the other hand, the start of the Electroperú privatization process was also included.These commitments were fulfilled with the exception of the Electroperú case, in which there were delays in the sale of the companies that made up its generation and distribution network.
On the other hand, in the AFA corresponding to the period 1996-1998, the structural reforms scheduled for execution included, as a main aspect, the transfer process of Petroperú, a public company that was exclusively in charge of the production, refining and distribution of oil and byproducts. In this way, the sale of the La Pampilla refinery, the 8 / 8x oil lot, the Talara refinery, the 10/11 oil lot and oil terminals were planned. Supposedly, all the operating units of
Petroperú should have been transferred before the end of 1997, according to the Letter of Intent of 1996. However, to date, of these units only the La Pampilla refinery has been transferred to the private sector (although by 60%), as well as the from Pucallpa. As a result, the Talara refinery still remains in the hands of the State, as do those of Iquitos and Conchán, as well as the North-Peruvian Pipeline. Although it was announced that his transfer would take place before the end of 1998, this did not occur due to the high implicit political cost perceived by the authorities.
Regarding other commitments assumed in the second Facility Agreement
Enlarged, in early 1996, the government privatized the steel company SiderPerú, also scheduling the sale of 60% of the electric company Egenor de Electroperú, shares of Telefónica del Perú, operating units of the mining company Centromin Peru and flour plants of Pescaperú fish. On the other hand, it announced the start of the privatization process of the services of the port company (Enapu) and the national railway company (Enafer). Most of these commitments were satisfactorily fulfilled, with the exception of the privatization processes in the electricity and rail transport sectors, which continue to experience delays compared to the objectives initially set. Thus, despite the progress shown in the field of privatization,there are relevant outstanding commitments.
Likewise, the concessions process, a scheme in which a state asset is transferred to the private sector for its usufruct for a certain time, has suffered a significant delay, although for reasons not attributable to the State. This may be due to factors such as the El Niño Phenomenon, which due to its effects on assets temporarily acts as a factor against the dynamics of the process, for which reason such setbacks are not expected to occur in 1999.
The third Expanded Facility Agreement: 1999 - 2002
Within the proposal of the memorandum of economic and financial policies of the Peruvian government for the period April 1999 – March 2002, to be agreed with the Monetary Fund, the assumption of economic growth proposed (between 3 and 4%) stands out, which is framed within the projections of the IMF. However, such figures are implicitly assuming a faster than expected recovery in economic activity in the demand sectors (non-primary manufacturing industry, construction, trade and services), which could be delayed by the prolongation and delay of exit from the vicious circle (in the financial sphere) in which the Peruvian economy currently finds itself, as a result of the breakdown of the payment circuit and the continuation of international liquidity and credit restrictions. In this sense,rather, the expectations of private economic agents would tend towards a gradual recovery of the rhythm of economic activity in the demand sectors, to the extent that external and internal financing restrictions continue to exist.
The new Expanded Facility Agreement (AFA) proposes the channeling of public resources, through Cofide, for the restructuring of private debt with national banks, seeking to inject liquidity into the banking system. The objective of this measure would be to improve the economic and financial situation of the companies, allowing them to regain the condition of a credit subject, which in turn would make intermediation in the financial system more dynamic. Likewise, given that this process would be accompanied by the gradual strengthening of domestic demand (private consumption and investment), basically from the middle of the third quarter, there could be a reversal in the expectations of non-resident private agents, which would result an increase in the flow of capital to the Peruvian economy.
In relation to the established fiscal goals, the recent AFA intends to achieve a primary surplus of the consolidated public sector (without considering privatizations) of 0.9% of GDP in 1999, affirming that if tax revenues register levels below those programmed, the government would take the measures necessary to achieve the programmed goal. However, given the evolution of income so far in 1999, as well as the prospects for economic activity in the coming months, it is possible to expect a level of current income lower than that estimated by the government. On the other hand, the electoral situation for the period 1999-2000, would allow us to assume that the SPNF's spending and investment would moderately exceed the levels implicit in the Agreement with the IMF. Due,a significantly lower primary surplus would be expected than the government's proposed target in the AFA.
Regarding investment and savings, investment (as a percentage of GDP) has grown in recent years. However, the AFA sets a target of 22.9% for 1999 and 23.8% for 2001, figures that are lower than those registered in 1997, which would mainly show the contraction experienced by private investment during 1998, which would continue in 1999 and would only slightly reverse in the year 2000. On the other hand, domestic savings decreased, as a percentage of GDP, from 19.3% in 1997 to 18.6% in 1998, due to lower income due to less economic activity. For the current year, the government estimates (as reflected in the AFA) that domestic savings would represent 17.8% of GDP, while for 2001 such savings would reach 19.0% of GDP;as in the case of investment, these figures would be lower than those recorded in 1997.
With respect to foreign savings, the government estimates in the Agreement with the IMF a sustained drop in the current account deficit of the balance of payments, which would decrease from 6.0% in 1998 to 5.1% of GDP in 1999, before reaching rates 5.0% and 4.8% for the years 2000 and 2001, respectively (as a percentage of GDP). Fundamentally, the sustained reduction of this deficit is sustained by the projected significant growth of the export sector in the period considered.
En el sector monetario, se plantea una meta de inflación de entre 5% y 6% para el año 1999, cuando en 1997 y 1998 fue de 6.5% y 6.0%, respectivamente. Asimismo, el Acuerdo propone alcanzar tasas de inflación internacional en los años 2000 y 2001 (4% y 3%, respectivamente). Cabe mencionar que en el segundo Acuerdo de Facilidad Ampliada, correspondiente al periodo 1996– 1998, se había propuesto igualmente alcanzar a fines de dicho periodo tasas de inflación similares a las mostradas por los países industrializados. En este sentido, se reafirma que el programa monetario se basa en un objetivo de inflación, para lo cual el BCR seguiría utilizando la base monetaria como meta intermedia para controlar el crecimiento de la oferta monetaria, tanto en moneda nacional como en moneda extranjera (el encaje continuaría siendo el instrumento), así como para proveer de un adecuado nivel de la liquidez al sistema financiero.
Within the structural reforms, the points concerning privatizations and concessions stand out, as well as those related to social spending (education and health). The government plans to obtain revenues of US $ 800 million during 1999, through the concessions and privatization program. However, this figure assumes that the programmed objectives would be fully met, which may not be finally achieved given the progress of the year and the caution that external agents would still show regarding the flows directed to emerging markets, for which reason the income obtained would be less. As a consequence, it would be difficult to achieve the estimated increase of US $ 400 million in net international reserves for 1999 according to official projections,as the expected external capital inflow is lower due to privatizations and concessions.
Opinion bulletin
August 1999 nº 37
CONTENT
Presentation
Evolution of the Peruvian economy in 1998, prospects for 1999 and agreements with the International Monetary Fund in this decade Elmer Cuba - MACROCONSULT
Synthesis of the debate in the Consortium
Juan Nunura
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