The region is being severely affected by the unfavorable external environment of low prices for the raw materials they export (and on which still heavily depend) and the mismanagement of some economies, especially in Venezuela, Brazil, and Argentine. According to CEPAL, the region will grow only 1% in 2015[1].
In Peru case, that shares some of the characteristics of the average Latin America economy, even if this year economic growth could be 3% or less, it would be able to stand as one of the economies that will grow most in the region. Let see more in detail the case of Peru.
The Peru´s economy grew only 1.68% in January 2015. The perspectives for this year 2015 are not good. Some economists said that perhaps it could grow only 3%, or even less this figure. Table 1 shows that expectations for GDP growth become lower with time. From the initial government estimation of 4.8% growth for 2015 (See Graph 1), this figure has come down to 4% on January 30 this year, to 3.9% on March 2 and to 3.6% on March 31(See Table 1, Economic analysts expectations).
Peru was the star of Latin American growth. The last decade it grew on an average of 6% per year. But lower prices for the raw materials that mainly exports, the less production of some minerals and the problem of a government that cannot spend public money has complicated the panorama. Besides that, the government looks weak, with frequent change of Ministers, and growing social conflicts that have paralyzed some key investment in the mining sector.
As can be see below, exports decreased from the peak it reached in 2011, and this year also the situation will continue.
According to official figures, exports reached an amount of 42.26 billion dollars in 2011 and reached 37.99 billion dollars last year 2014. Perspectives for this year are not good, or even next, with prices perhaps going down for the main goods that Peru exports, like copper (that represent 20% of total Peru exports). Hope is that major production will offset lower prices, but there are some problems in some mines, and some project for mining investments are at standstill for problems with the local populations.
For example, the project Tia Maria, of the Mexican company Southern Copper Corporation, that will involve an investment of around 1.4 billion dollars, is being opposed by the population in Arequipa, a city in the south of Peru. This project, when finished, could produce and allow Peru to export around 600 million dollars of copper. This project has already its EIA (environment impact study) but even so people opposes in the grounds that the mine will contaminate the water they use for agriculture. There are several others projects that have been cancelled or are in standby, like the Rio Blanco, a copper mining project by the Chinese company Zijin Ming (this project could involve an investment of 1.4 billion dollars).
For its part, the government is not able to spend more money, even if it has it. The central, regional, and local governments has been unable to implement spending programs due to a lack of capacity, or for problems of corruption (and because last year there were elections for regional and local governments, authorities has changed, and will take time for the new ones learn how to spend the money).
For example in the year 2013, when the economy grew 5.8%, the gross domestic investment grew by 12.1%. Private investment grew 6.5% and public investment by 12.1%. But last year 2014 the economy only grew only 2.4% because the gross domestic investment decreased -2% and within it private investment decreased -1.6% and public investment by -3.6%. During the first two months of this year 2015 public investment has decreased by -25%.
Besides this, there is uncertainty and lack of confidence in the government. It is weak. A new Prime Minister, named on April 2th (the seventh in less than four years of government) is in place now following the vote of no confidence in the Congress to the former Prime Minister. The government party began his mandate at the end of July of 2011 with 47 members in the Congress of 120 members, but it has lost 14 members who went to form an opposition group. Scandals of corruption and mismanagement besiege the government. Many see the President as lacking firmness, and as manipulated by his wife (the new Prime Minister is very close to her).
