Peru Grows Uneasy As Boom Slows

Via the New York Times, a look at Peru’s slowing economy:

From his office window, Henrik Kristensen, the chief executive of the company that runs Peru’s main port, can still look out at rows of newly arrived, shiny Kia automobiles from South Korea and shipping containers stacked four high, full of imported items like television sets and brand-name clothing bound for the growing number of malls that serve this country’s burgeoning middle class.

“This is Peru,” he said. “When you go to the shopping malls they’re full of people, they’re full. That’s a good indicator that people are really spending money.”

Peru’s economy grew an average of 6.4 percent a year from 2002-12 after adjusting for inflation, according to government figures, a remarkable period of sustained expansion that has made it one of the world’s star economies.

But suddenly growth has slowed here, and just beyond the view from Mr. Kristensen’s window, under Lima’s perpetually gray winter sky, the reason becomes clear.

At Dock 5B, ships are loaded with Peru’s mining riches, including copper ore, lead and zinc — the raw materials that fueled the Peruvian boom with their rising prices in recent years. But in the first six months of this year, mineral shipments through the port were down 12 percent by weight, according to APM Terminals, Mr. Kristensen’s company, which operates the facility for the Peruvian government.

The decrease resulted from a drop in demand in a struggling world economy and a slowdown in China, one of Peru’s top trading partners. Those factors have also caused mineral prices to plummet, sucking the wind from the sails of Peru’s economy.

This bust amid the boom has given vent to a national angst, with hand-wringing over the economy a mainstay of newspaper front pages and television news programs. Headlines bemoan soaring trade imbalances as the value of mining and other exports, including apparel and agricultural products, plunges at the same time imports are surging.

Miguel Castilla, the economy and finance minister, said he expected the economy to grow between 5.5 percent and 6 percent this year. While that was down from earlier predictions, it would maintain Peru’s place as one of the fastest-growing economies in Latin America. Even some of the most skeptical economists predict Peru’s economy will grow by nearly 5 percent this year, a rate that would be celebrated as a ripping success in many countries.

But in Peru, such predictions are being treated as something close to disaster.

“Growing for a decade at 6 percent, you get used to it,” said Gustavo Yamada, the dean of economics at the University of the Pacific in Lima. Mr. Yamada said he expected growth in Peru to settle into a range of about 4 percent to 5 percent in coming years.

“That creates a scenario,” he said, “of, ‘Hey, wait a minute, we were going to be the next Inca tiger, what a disappointment.’ ”

Polls show that consumer confidence has slipped this year, and a Peru Central Bank survey in June showed that investor confidence was at its lowest point in almost two years.

“We have become used to a sustained period of growth, and we have forgotten about cycles,” said Mr. Castilla, the economic minister.

Just as outside factors, like rising metals prices, fueled Peru’s boom, similar factors, like the slow recovery in the United States, Europe’s economic woes and China’s slowdown, are now causing it to cool down, he said.

“We’re at a crossroads,” Mr. Castilla said. “We have everything we need to cope with this less favorable world condition, but there’s an urgent need to implement the reforms that have been approved recently and to tackle other issues.”

Those changes include steps to clear away economic obstacles — like making government more efficient, making capital markets work better and improving infrastructure.

Mr. Castilla’s ministry has also chosen a list of 31 projects worth $22 billion, including mining and infrastructure, that it wants to fast-track by removing bureaucratic obstacles.

Peru’s economy is a mash-up of strengths and weaknesses. The country has robust international reserves, a large rainy day fund that can be used for economic stimulus in a crisis, and low public debt.

Poverty in Peru has been cut by more than half in recent years, falling from 59 percent of the population in 2004 to 26 percent last year, according to government figures. Millions have moved into the middle class, which the Inter-American Development Bank estimates has doubled in size from 2007-12 and now includes about half of all Peruvian families.

But the new prosperity is unevenly distributed, concentrated in the cities and along the coast. More than half of those in rural areas still live in poverty, especially in the Andes and the Amazon basin. Lima also remains home to vast slums.

The education system is poor, millions still lack access to adequate water and sewer connections, and there are myriad infrastructure bottlenecks.

The port, in an area known as Callao, illustrates some of these challenges. It is undergoing a $750 million modernization paid for by APM Terminals, which took over the running of the facility from the government two years ago.

But the road into the port is choked with trucks waiting to pass through the facility’s single gateway. Farther inland, the highways needed to get goods to and from the port are often treacherous.

Peru’s economy is heavily dependent on mining. The nation is the world’s third-largest producer of copper and silver and the sixth-largest producer of gold, according to the United States Geological Survey. And despite talks of diversification, President Ollanta Humala is pinning his hopes for sustained growth on mining.

Several new copper mines are scheduled to begin producing over the next few years, which could double the country’s output. But gold mining, which accounts for a large share of the value of mine exports, has declined as mines have become tapped out, and protests have stalled a major new gold-mining project, known as Conga, in the Cajamarca region.

The total volume of Peru’s mineral exports in the first half of this year was about equal to that of the same period in 2012, but because of lower prices, their value fell by more than 15 percent, according to the Exporters Association, a trade group in Peru.

All this is coming at an awkward time for Mr. Humala, whose approval rating slid from more than 50 percent early this year to 33 percent in a recent poll. Halfway through his four-year term, Mr. Humala is seen by many as a bland president who struggles to inspire, seemingly lurching from crisis to crisis.

He was criticized for his unsmiling performance on July 28 when he read his annual Independence Day speech, the equivalent of Peru’s state of the nation address. Several commentators said he had wasted an opportunity to rally the country and sound an optimistic note on the economy.

This week, Mr. Humala told the country that “the world is going through a tremendous economic crisis,” according to local media reports. “The crisis has come to Peru.”

Mr. Humala, a former military officer, started his political career as a leftist and at one stage modeled himself on Hugo Chávez, the fiery former president of Venezuela. But to win election in 2011, he moved to the center and pledged to keep the country on its economic course.

He also promised to bring the benefits of Peru’s economic growth to the millions who have been left out. While he has created or bolstered some social programs, many of his onetime backers on the left feel betrayed. A new Civil Service law that includes evaluations of public employees brought angry protests from unions last month.

And while many in the business community are relieved that he has not made major changes in economic policy, their trust appears thin. When Mr. Humala’s government said in April that it was considering buying a stake in the Peruvian operations of the Spanish oil company Repsol, it was met with a storm of protest and quickly backtracked.

Carlos González, an economist with the Exporters Association, said Peru’s economic deceleration was being overdramatized, but he added that Peru would have to work harder to maintain growth and to attract investors as outside conditions changed.

“We were the prettiest girl in the neighborhood who could get the best boyfriend,” he said. “It seems we’ve passed that moment.”

This entry was posted on Tuesday, August 20th, 2013 at 1:42 am and is filed under Peru.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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