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InterviewsAugust 1 2018

Peru’s finance minister shrugs off stability concerns

Following his predecessor’s resignation, Peru’s new finance minister Carlos Oliva talks to Silvia Pavoni about achieving political stability and the potential of public-private partnerships.
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Carlos Oliva

Carlos Oliva

To say Peru is going through political turmoil would be an understatement. Its finance minister stepped down in June, hard on the heels of president Pedro Pablo Kuczynski. The first was the result of public outcry over fuel tax hikes, and the second of links to construction conglomerate Odebrecht, currently at the centre of Latin America’s largest corruption scandal. 

Nevertheless, new finance minister Carlos Oliva can see the positive side. “We did have a political crisis, but it got resolved within the letter of the constitution,” he says. “President Kuczynski left, the vice-president [Martin Vizcarra] took over. This is something that wouldn’t have happened 30 years ago. Thirty years ago we had coups d’état, military [intervention]; we had different problems.” 

Onwards and upwards

The fact that the recent troubles did not affect economic prospects is testament to Peru’s democratic maturity. After the economic growth deceleration of recent years due to the dive in commodity prices, indicators are moving upwards again. Mr Oliva says that private consumption and private investment are growing, along with public investment. “In the past few months, we have been experiencing a growth acceleration and this makes us confident that this year [gross domestic product] will grow at about 4%,” he says. “This represents an improvement from last year’s 2.5%. All elements are reactivating. We’d like to get to 5% by 2021.”

Political dramas should not affect investors’ attitude towards Peru, according to Mr Oliva. “I think that foreign investors are very aware of political problems in Latin America, not just in Peru,” he says. “They know there might be problems, but they still invest in the country.”

The government hopes that beside the traditional investment magnet – mining – other sectors will attract foreign capital, from the aspirational area of gastronomic tourism to essential infrastructure works. With that in mind, the government is making changes to offer investors a clear framework within which to work with the public sector.

Over the past decade, there have been five reiterations of public-private partnership (PPP) rules in Peru, the fifth signed on the day The Banker spoke to Mr Oliva, July 18. “The fifth [PPP law] rules all others. Before you weren’t sure whether to refer to law number 1 or number 2 [and so on]. Now all is in one law,” he says. The minister also mentions a crucial change in the legislation allowing the government to contract private sector experts to design projects and negotiate with contractors on its behalf.

Mr Oliva uses the $5.8bn Lima Metro Line Two project – the country’s largest – as an example. “The concessionaires are Spanish and Italian companies; they have very good engineers, good lawyers. But the national counterparty isn’t as strong,” he says. “[On one hand] we have top players, on the other we have a weak counterparty. Now [the government] can bring in a top player to negotiate the project too. It also means that [with professional advice] the project will be better designed and in turn it will get interest from other top players in the world [as bidders].”

Improving health

A total of $31.6bn-worth of PPP contracts have been awarded so far in Peru. More are expected in transport, real estate, water and sanitation, but also in education and healthcare, sectors that are not traditional PPP destinations in Peru. At the moment, the handful of healthcare projects carried out in partnership with the private sector only relate to hospital services such as the provision of X-rays or the management of cafeterias.

“In reality, not all projects can be done through PPP,” says Mr Oliva. “We have to look at PPP as an extra tool for the government and in some cases it can be useful to use it, in some others it can’t. Very large works will likely be done through PPP, first of all because Peru doesn’t have the resources to deal with large [infrastructure].”

Other public projects are under way to improve the level of productivity and employment of the country by irrigating the dry land along the coast. “We’d like all of our coast, which is very dry but has good soil, to be producing goods,” says Mr Oliva. “They may seem simple [projects] but have great added value and would create employment, both unskilled and skilled.”

With a more stable political climate, more projects – whether in partnership with the private sector or not – will have the chance to emerge. Foreign investors are welcome, says Mr Oliva, but he adds: “The biggest work is internal.”

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Read more about:  Americas , Analysis & opinion , Interviews , Americas , Peru
Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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