Lima Peru

The banking industry in Peru is nascent but stands to benefit from planned government measures, explains Alex Contreras, minister of economy and finance. Barbara Pianese reports.

Last week, Peruvian minister of economy and finance, Alex Contreras, presented the economic and investment outlook for Peru to a conference in London.

The banking industry in Peru is still small compared to neighbouring countries such as Chile, Colombia or Mexico and government actions that aim to formalise the economy should bring much improvement, he told The Banker.

One of the main bottlenecks affecting small firms in the country is access to credit. “In Peru, there are many people who take consumer loans to finance their firms,” Mr Contreras told the Peru Economic Outlook and Investment Opportunities conference, organised by think tank Canning House. 

“There is a very interesting environment for microfinance; the sector has huge potential to grow. The programme “Impulso Perú” will help offer loans at competitive interest rates. An important part of our recovery programme is the promotion of credit,” he added.

Growth forecast despite unrest

Mr Contreras’ presentation aimed to reassure investors in Peru as anti-government protests demanding new elections spread across the country. The protests, following the impeachment of former president Pedro Castillo in December, have seen more than 50 deaths.

The political crisis in Peru will increase the potential for downside risks to the country’s banking system, according to Fitch Ratings. “The deeply polarised political environment and policy uncertainty will add to pressures on economic growth, business confidence and investment activity, which could result in weaker asset quality and lower profitability for the banking system beyond current expectations,” explained the credit agency in a report. 

Mr Contreras explained how the government’s plan, “Con Punche Perú” – integrating its predecessor “Impulso Perú” – aims to reactivate the economy. 

The plan has three main pillars: to reactivate the economy and help families that have been severely affected by inflation; to help the recovery of certain regions experiencing social inequality; and to support the recovery of specific sectors such as agriculture, which has been impacted by a regional drought, and tourism.

“Peru does not suffer from [a] lack of resources. We have issues in the way we manage them, especially at the regional and the local level. We are trying to improve,” said Mr Contreras.

Hurdles remain

Despite the current political crisis, one of Peru’s main strengths is its macroeconomic stability, maintains Mr Contreras. Debt to gross domestic product (GDP) reached 34.7% in 2020, according to the World Bank.

long-term investors still see some underlying economic strength that allows them to stick around with relative comfort

Luis Oganes, JPMorgan

“The question for [the] next decade is how to overcome the middle income trap. That is why we need to create a broad agenda and use our macroeconomic stability to generate important social changes,” he added.

Over the past decade, Peru has been one of the region’s fastest-growing economies, with an average growth rate of 5.9% against a backdrop of low inflation, according to the World Bank. Poverty has been reduced but regional disparities remain. 

Also speaking on the panel, Marie Diron, managing director for sovereign risk at Moody's Investors Service, said: “We are watching whether the ongoing political turmoil may have a further impact on the economy. Currently, our predictions for GDP is around 2% to 3% [growth] in the next few years.”

The current government, headed by president Dina Boluarte, its former vice-president, has agreed to bring forward elections to April next year in an attempt to appease protesters. Ms Boluarte is the sixth president in just four years, with the majority of her predecessors’ terms ending in scandal and impeachment.

“Since the December 7, when the former president attempted a self-coup, we have seen the Peruvian sol depreciate only 1% and local bond yields widening maybe 30 basis points. I think that long-term investors still see some underlying economic strength that allows them to stick around with relative comfort,” said Luis Oganes, head of global macro research at JPMorgan.

“Si pequeña es la Patria, uno grande la sueña (When the homeland is small, one dreams bigger),” Mr Contreras concluded, quoting Nicaraguan poet Rubén Darío. 



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