Jaime ReuscheExecutive President of Moody’s He argued that a new withdrawal of funds from AFP will generate indirect costs for all Peruvians, translate into higher domestic interest rates.
What is your perception about the news of a new withdrawal of pension funds?
It seems surprising because there was already an agreement with the pension reform that there were no more withdrawals. The Government has reversed its pension reform. On the other hand, We see it as something negative because this retirement is totally unnecessary, since there is no emergencythe large number of lower income workers has already released almost all the resources they had in their accounts. It is not understood what is the point of this withdrawal and who wants to benefit, because, most likely, those who still have funds available are very high income workers.
How is the image of the MEF with its marches and countermarks?
The Ministry of Economy has a more technical vision of the issue and was trying to ensure the responsibility of the pension system and savings for old age. That is why I had that position against, but there is dissonance with the upper part of the Executive, which is the president. This is a clearly populist measure that has no technical foundation. It shows that there is a dissonance between the MEF and the upper part of the Executive.
Can this affect the credibility of the Ministry of Economy, considering that he is responsible for fiscal policy?
As is, but at least the MEF has made it clear that the Minister of Economy is against this measure. Unfortunately, the high government’s command is the one who must make the decision to observe or not this withdrawal. There, clearly the president does not have the will to listen to technical entities and economic authorities. So, it is basically another line to the tiger of this government.
The fact that a new withdrawal is allowed and at the same time that it does not restrict access to a minimum pension implies a greater fiscal expense in the future, could this affect the qualification?
It is the government that loses credibility in economic management, although it had already been losing it. As you say, the minimum pension, in the long term, will generate a very rigid structural expense, with strong political pressure so that the State subsidizes pensions. The cost that politicians do not mention is that, most likely, it is that it ends up reflecting in a rise in the IGV in the long term to cover and face those expenses. We are talking about, possibly, in about 5 to 10 years, the IGV could rise to European levels, around 20% or 21%, to absorb those costs. Otherwise, there would be a huge fiscal imbalance. In that sense, the Government is basically kicking the can and moving the problem to future governments with the idea of trying to underpin its popularity, but this measure will not underpin any kind of popularity, neither for the Executive nor for Congress.
Could this affect future qualification?
Could affect it if no measures are taken against the increase in expensesbut we trust that a more sensible government in the future will have to adopt structural income measures. As we mentioned, most likely the IGV should be raised to higher levels, which will affect all Peruvians and will make the cost of living. This is due to the need to replace much of the savings for old age that are currently being consumed. Therefore, this measure is anti -technic in every way.
What will happen if that sensible government does not expect, do we lose the qualification?
As is, because if this derives in a major public deficit, will eventually lead to a greater accumulation of debt that could have a negative impact And, most likely, affect the credit rating if compensatory measures are not taken.
I think it is a transitory issue of this government. I think that administrations that generate greater confidence in their technical teams should be able to apply the necessary measures to reverse this situation. But time is short, and that is why it is not finished understanding what the motivation of this eighth retirement was. At first glance it sounds good, but in reality it benefits only a very small group of people. And it does not even favor them, because if they consume those resources instead of investing them, they are in the background spending their savings for old age.
The one who has distorted the pension system, how does it leave Peru?
There will be indirect costs for all Peruvians. One of them is the slightest deepening of the capital market, which is sustained in savings, not only for old age but also in the savings of the entire population. This could translate into higher domestic interest rates. This directly affects entrepreneurs seeking to borrow to boost a business, as well as any Peruvian who needs a mortgage or consumption loan. When there are fewer savings in the country to finance these credits and capital markets, interest rates inevitably rise.
In addition, the State also ends up financing at higher rates, which implies a higher interest expense. That money ceases to be used for priority areas such as education, health, security or infrastructure, which are fundamental to the development of the country.
Can this new withdrawal affect investment?
Yes, the investment is reduced a bit because there is lower credibility in macroeconomic management. One of the reasons why the sun is the most stable currency in Latin America is precisely the credibility in macroeconomic management. Anti -technic measures such as this subdibility to the country, a credibility that has cost a lot to build thanks to technical institutions such as the Central Bank, the Ministry of Economy, the Superintendence of Banking and other entities that have contributed to the fact that this responsible management be rewarded with greater investments.
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