Pedro Castillo, a year in power aimlessly: the main mistakes of his Government that must be improved

With his remembered phrase “No more poor in a rich country”, peter castle He became president of Peru and on July 28, 2022 he served one year in the Government Palace. But how efficient has been the management of it? In this note, experts provide an economic balance of “the good” and bad of the president.

For Enzo Defilippi, former Deputy Minister of Economy, “the good thing” is that, at least, the general orientation of the economy has not changed.

“In his speech, the president named as an achievement the attraction to investment and the signing of free trade agreements, which goes against what he does on the political side, that is why he cannot convince investors, due to the low capacity of the Government to generate trust, despite this it has maintained the general orientation of economic management”, he referred.

He recalled that when Castillo began his administration he had Pedro Francke as Minister of Economy and Finance, who has a rather ideological vision of the economy and who knew how to control the moments when the president was planning to raise taxes in an anti-technical way.

“That was scary, since it would change the direction of the economy, but it was not. Now the minister (Oscar Graham) is doing a job of putting out fires that, at least, maintains the situation and prevents it from getting worse“, said.

The super cycle of copper prices was not taken advantage of

When copper prices were above US$4.00, the Pedro Castillo government was unable to take advantage of attracting more investment, Defilippi pointed out.

“We would have grown more with the prices of minerals, that is if the policy would have been consistent, but he surrounded himself with very incapable people and the government was framed on suspicion of corruption. With the wrecks that we have had, we should have grown between 7% and 8% of the GDP, but nothing”, he pointed.

Similarly, Diego Macera, general manager of the Peruvian Institute of Economy (IPE), pointed out that a drop in mining investment is estimated for next year and we do not have any more large projects in the pipeline.

“For 2023, a drop in mining investment of approximately 15% is projected, precisely because there is no project that can replace Quellaveco’s this year, when large projects that were in the pipeline could be taken out, but we were stuck.”, he detailed.

Work sector with more damage

The general manager of Peruvian Institute of Economy He stated that the sector that made the most progress was the work sector, but with a wrong north and damage was generated.

“The only sector where there was a north is Labor, but its course was wrong and more damage was done. Progress was made on Agenda 19 (by former minister Iber Maraví), as well as the Draft Labor Code (promoted by former minister Betssy Chávez), outsourcing, unionization and strike, but incorrectly”, he indicated.

In addition, the expert considered that in the Energy and Mines sector the institutional framework has been weakened by the constant changes in the ministry.

He added that another point of concern was the Constituent Assembly, but that matter was left there and he hopes that I will not take on new brilliance in the future.

Private investment without movement

For this year, the Central Reserve Bank (BCR) estimated that the private investment will have a growth of 0%, just like 2021.

Before the COVID-19 pandemic, the growth rate was 7.4% on average for the last five years, according to the Multiannual Macroeconomic Framework published by the Ministry of Economy and Finance (MEF).

“It was a year to take advantage of mineral prices and have a higher investment than previous years, but it could not be, in part due to the poor management of social issues, because it seemed that it was more on the side of the conflict than of the solution.Macera explained.

No answers to mitigate the impact of inflation

Although some economic indicators, such as inflation, were affected above all by the international situation, Macera maintained that the Castillo government could not do much, but it failed to respond in a timely manner to the price increase.

It should be noted that Metropolitan Lima reached an accumulated inflation of 8.81% year-on-year, between July 2021 and June 2022, being the highest level not seen since August 1997, according to data from the National Institute of Statistics and Informatics (INEI).

“From the first moment, families in vulnerable conditions should have been attended to, perhaps with direct transfers, but their first reaction was to reduce the VAT tax on some foods and the ISC on fuel, which were expensive and did not meet the objective. Food bonds have recently been raised and that is on the right track“, accurate.

Meanwhile, the former Minister of Economy and Finance Luis Miguel Castilla stated that the Government is not responsible for high inflation, since it was due to an external shock and the Central Reserve Bank (BCR) did what it could.

“Of course, the Government arrived late with the demand subsidies”, he stressed.

economy cooled down

Despite the fact that in the macroeconomic aspect, Castilla highlighted that the Government of Pedro Castillo had continuity in monetary and fiscal management, but if he blames them for cooling the economy.

“Yes, I attribute the entire responsibility to cooling the economy, that is the central problem of employment, that I blame them for turning off the engines of growth, both of private and public investment”, he mentioned.

Public investment had six consecutive months of decline (October 2021 to March 2022). Only in April of this year did it rise and in June it had an expansion of 13%, due to the progress of the execution of local and regional governments.

Slowdown in economic growth

As for the Peruvian economy, there has been a slowdown in recent months: March (3.8%), April (3.7%) and May (2.3%). By the end of this year, the Ministry of Economy and Finance (MEF) projects that the GDP will be 3.6%.

“The figures are optimistic, it is possible to reach a GDP level like this this year, but by 2023 it is more complicated”, stated Enzo Defilippi.

What path should the government take?

Defilippi recommended that the only way that the government of Pedro Castillo, if it lasts, is for it to take a change of direction and surround itself with a team that is capable of administering the country, not only in the MEF, but in all the ministries.

More radical was the position of Luis Miguel Castilla, who asks for an early election to give Peru a new advance.

“Until recently, he thought he could take a pragmatic turn, as was done with Ollanta Humala, but with the inaction of the government, which is concerned about resolving its legal problems, that is difficult. So the only thing left is for the Public Ministry to move forward with the investigations and the Congress to do its job, so I can give an advance to the elections.”, he narrowed down.

RECOMMENDED VIDEO