Luis Miguel Castilla: "There is a threat against meritocracy"

The former head of the MEF Luis Miguel Castile He considers that Peru is in a trap, in which the exit is difficult to glimpse and clarifies that the lack of attention to the mining conflict can continue to take its toll on growth and job creation in 2023.

We are facing a political crisis and a bad time for business confidence. Is there a way to create an initiative or rapprochement between political and business actors?

The government, and the MEF, in particular, proposes a policy of economic impulse that depends a lot on cooperation with Congress to approve at least 18 bills that are still under debate and discussion and, at the same time, what makes the Executive itself is to backfire with its actions any type of understanding with Congress. This inconsistency takes a heavy toll, scares away investment. And I have learned today that investments that are betting on Peru are now signing agreements to go to Ecuador because they are given stable conditions. What most threatens this is uncertainty. It is not known what to expect in the future and the exit is not seen in the short term.

Economy Minister Kurt Burneo has said there is evidence that the DS limiting labor outsourcing is not working. Is there a greater pronouncement from the MEF on what is done well and what is not in the Executive or is there a need for a stronger position?

The reaction of the Minister of Economy seems a bit late to me because the labor decrees had already been evaluated in the previous administration at the MEF. Not wanting to make a decision so as not to make enemies with the cabinet, with the president and now throw the ball to Congress, it seems to me that it is not from a minister who is fully fulfilling his role. It has already been known that they were anachronistic regulations that, with a political agenda, the Ministry of Labor was implementing in the framework of Agenda 19. It is now easy to sideline and give responsibility to Congress and not assume the full role it should have that bag So, it is better that he has marked the field, but that shows the lack of consistency because the Minister of Labor has automatically come out to amend the plan and surely the President of the Republic is more on the side of unionism than of economic rationality.

And the Impulso Peru plan, what opinion does it generate?

It is curious that this plan, which was announced in September, has to be reinforced two months after it was launched. In the justification they adduce a deterioration of the external conditions, but this was already happening. So, the lack of effectiveness in the plan has been confirmed by the projections of the IMF, by the World Bank, by risk rating agencies, which show that the country is increasingly stagnant and with lower growth, and they give it little yield. to that stimulus plan. Now, he (Burneo) proposes new rules that will depend on Congress. It is easy to come up with approaches that basically do not depend on the actions of the Executive, and even less is there a work of convincing within the Government of the need to prop up growth and private investment.

Julio Velarde said that part of the reduction in the growth forecast for this year was due to the stoppage of mines. How likely is this to be repeated in 2023?

The mining sector is crucial. There is a very important copper potential, but the investment projects have been expanding over time. The last important project of magnitude is Quellaveco and there are even difficulties in completing the investment due to lack of water permits and other considerations, but let’s hope that happens. There is no essential project that is going to start. If mining continues to contract, because there are mines that are paralyzed due to the lack of effective action by the State, to preserve order and avoid blockades, well, we are going to see much slower growth. Our forecast is for average growth of 2% with a tendency to adjust downward.

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What could happen if for some reason the operations of Quellaveco were impeded?

That scenario would be very detrimental. That could prevent us from growing next year. There are other smaller projects that are going to start production, but it is clear that a project that is already ready, that has basically worked on the social situation, in a relatively calm region like Moquegua, is not getting off the ground. This may have a psychological effect on all the other projects that are also coming in and could lead to even lower 2% growth. It is essential to give a clear signal and risk it for mining (…). There is a very serious threat against meritocracy in the country. And this means? That we have less trained civil servants, that the public administration is politicized and captured.

A pension reform proposal has recently been put forward in Chile. Among other aspects, a 6% contribution to employers is proposed. What do you think about that?

The Chilean reform is clearly not viable in another country, because basically what it is saying is creating a 6% payroll tax and what it does is make formal hiring costs more expensive. So, in a country that has 75% formality, perhaps that can work, but in a country where investment comes out, we have 75% informality, this will make it much more difficult for formal employment coverage to increase (…). The crucial thing is to improve wages and wages will improve if there are improvements in productivity, but in this environment it will be very difficult for that to happen.

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Luis Miguel Castilla is an economist trained at McGill University (Canada) and a Ph.D in Economics from Johns Hopkins University (United States).

He has been head of the Ministry of Economy and Finance and has also worked in entities such as the Inter-American Development Bank (IDB) and the World Bank (WB).