The Boluarte government pledges its word to be a reliable and stable partner

Peru regains momentum and returns to the investors' shop window

AFP/CRIS BOURONCLE - La nueva presidenta de Perú, Dina Boluarte posa junto a Pedro Angulo, flamante presidente de su equipo ministerial en el Palacio de Gobierno de Lima, el 10 de diciembre de 2022
AFP/CRIS BOURONCLE - Peruvian President Dina Boluarte poses with Pedro Angulo, the new head of her ministerial team at the Government Palace in Lima on 10 December 2022

The worst is over and the Peruvian economy is not only recovering from the social and political crisis the country experienced in the first quarter of the year, but is also back in the window of Spanish and international investment as a reliable and stable partner. This is the assurance of the Peruvian government, international bodies and private analysts, who predict that the country will have the fourth highest growth rate in South America by 2023.

Lima considers that the confidence of Spanish companies has been regained, and encourages them to increase their presence in a country in which Acciona has been the main player in the latest investment operation.

Acciona and Repsol

Peru, which the 'Panorama de Inversión Española en Iberoamérica' places as one of the four South American countries where Spanish FDI will grow in 2023, is one of Spain's main trading partners in the area. It is also the fifth destination for Spanish investment in Latin America (18% of FDI, 13 billion).

There are 500 firms operating there, many of them from the Ibex-35, and notably in infrastructure, finance, energy and sanitation, including FCC, ACS, Sacyr, Telefónica, Repsol, BBVA, Santander, Inditex, Redeia, Globalia, Endesa, Enagas, Naturgy, Ferrovial, Acciona, Mapfre, Meliá, NH and OHLA. Despite a complicated environment, they maintain their commitment to Peru.

In May, Acciona was awarded a contract for the financing, construction, operation and maintenance of two electricity transmission lines between Ica and Poroma (south) and Cáclic and Jaén (north). The works will involve an investment of 119.6 million euros and Acciona will operate the power lines for the next 30 years.

Peru, which has major infrastructure projects underway for the coming years, places special emphasis on encouraging Spanish investment. For this reason, the president of the Council of Ministers, Alberto Otárola, who visited Spain a few days ago, defended the fact that Peru's dispute with Repsol over an oil spill in 2022 "should be resolved as soon as possible" and encouraged the company to continue investing in Peru. Otárola explained that the aim of his trip was to regain the confidence of Spanish companies after Boluarte took office. "The crisis is over, Peru is in a process of pacification," he said.

PHOTO/FILE - The President of Peru, Dina Boluarte

Minimal slowdown

The economy slowed down at the end of 2022 and the first three months of 2023 due to social conflicts and cyclone Yaku, which affected tourism, agriculture and construction and generated a context of instability and uncertainty, which has not yet fully dissipated. However, the situation has improved since March and GDP is once again on the rise. And since then experts have been looking at a better outlook, even if they have lowered the forecasts they held months ago.

The Ministry of Economy forecasts growth of 2.5% in 2023 (down from the previous forecast of 3.1%), sustained by a rise in exports, the reactivation of tourism and the resilience of domestic demand, in an environment of disappearing social unrest, and despite the impact of climatic phenomena such as El Niño and Yaku. And thanks to the implementation of measures to reactivate the economy and close the social gap within the 'Plan Con Punche Peru'. Both the Minister of Economy, Alex Contreras, and President Boluarte believe that "the worst is over" and Peru has regained international confidence.

"The social context has changed radically" and half a year after the end of the social protests that followed Castillo's dismissal "we are in a different moment and it is already reflected in the prospects of investors". "And Peru has fiscal space" to deal with the negative effects of El Niño, according to Contreras. Lima expects to close the year with a fiscal deficit of 2.1% of GDP, in line with the implementation of the fiscal strategy to boost the economy.

PHOTO/FILE - Pedro Castillo, former president of Peru

Recovery

The central bank also notes that the economy has been recovering since April after protests and rains, although in March it lowered its estimate for growth in 2023 from 2.9% to 2.6%, with its president, Julio Velarde, warning that the forecast has a "downward bias" due to weather phenomena. Velarde has been the guarantee of economic stability in his 16 years at the head of the entity with various administrations and in a period of presidential dismissals and political scandals, with six presidents in six years. And he has been one of the guarantors of the sol being the most stable currency in the area.

In the first quarter, GDP still contracted by 0.4%, but in March, despite Yaku, it grew by 0.22% due to the reactivation of mining. The OECD forecasts an increase of 1.7% (compared to 2.6% in November) and 2.9% in 2024. The WB forecasts a rate of 2.2%, the fourth highest in South America and higher than that of Colombia, Brazil and Chile, and ECLAC, 2%-2.2%. BBVA Research believes that Peru will grow by 1.9% in 2023, down from 2.5% previously, and judges that the economy is recovering rapidly since the upheaval in January, despite the uncertainty of a possible early election and its outcome. By 2024 it expects a 3% growth rate.

Political uncertainty still affects consumers and businesses. And on the forecasts there are risks such as possible social tensions and El Niño. In Lima, however, it is minimised that political polarisation will lead to another outburst, because Peru has entered a phase of greater consensus and "the population understands that violent protest causes harm". GDP grew 2.7% in 2022 due to consumption and exports, after the 13.31% in 2021 that followed the 11% drop in 2020 by Covid. Between 1993 and 2019 it grew by an average of 4.8%.

Peru has launched another economic package of 1.48 billion euros to support the recovery, 'ConPunche2', following a January plan (1.97 billion) which, according to Lima, succeeded in pacifying the country and reactivating the economy. A few days ago, President Boluarte said that Peru was once again "in the shop window of foreign investors" after the period of instability caused by the political and social conflict.

Six months after assuming the Presidency, Dina Boluarte stressed that her government has guaranteed legal stability and clear rules for investment and that "this is why major road, port and airport infrastructure works are underway and Spanish companies and those from other countries have renewed their confidence in Peru as a reliable partner". Among them, he mentioned the start of the second runway and new control tower at Jorge Chávez airport and the work on the Salaverry and Paita port terminals; the expansion of the southern dock in Callao and the work on line 2 of the Lima Metro.