Living in Peru : your everyday companion

By Mariella Balbi
For El Comercio

Peru's new finance minister, Mercedes Aráoz Fernández (pictured here) said that fiscal discipline will not change, but that she will promote a culture of service that is lacking today.

You have assured and reassured that there will be not be electoral extravagance, but apparently people don’t believe you. What will you do?
I have a proven expertise in two ministries during three and half years, during which time I have been firm in my positions. I hope that they believe in a good economist who has demonstrated to be focused and to not succumb to any pressure.

I do not know if it's machismo, but people are still not convinced.
It seems, ah (she laughs). That a woman smiles and has a positive attitude does not mean that she is careless.

It's thought that you will be the president’s puppet.
That is nonsense. The president has always respected my position and I have had rather harsh discussions with him. I would tell him what I didn’t think was correct and why, and then we would talk. He is a good listener. And if the arguments are well supported, he accepts them. I've seen economists say that I am a serious person. Political leaders play politics and trust nothing.

Did you expect a better reception to your appointment?
I would have expected recognition as an economist. I have a doctorate and I graduated with honors. I have always been well known within my work. Obviously my area of expertise has always been the international economic field, both in macro and the micro.

Your appointment has been fast.
We have often talked about economic issues with President Garcia. He told me that Luis Carranza had resigned and that he was looking for a new person. He had a pair of candidates, Ismael Benavides and me. I thought it seemed attractive professionally; I have always been raising economic issues and proposals to reduce certain costs and pave way for investment. I was a member of Pro Inversion. Many said Luis Carranza and I were the inflexible wing on economic issues because our macroeconomic vision was more orthodox.

What is the president’s proposal?
Growth with macroeconomic sustainability; the national treasury is not to be touched. For obvious reasons, the President does not want to have problems with inflation. If there is anything he dislikes, it is the issue of inflation.

Fast growth can generate inflation.
That is why we have to be careful with what we accelerate, how and, of course, we have to keep in mind that there could be a sign of international inflation. We have to find a balance. For the president the issue is: financial control, minimum deficit, no spending spree and sustainable projects in the long run. Inflation must be between zero and three percent in 2010 and growth should be between five and six percent. It's pretty decent. Peru is internationally recognized for having managed to overcome the crisis. The Moody's thing has been an excellent achievement.

Were you surprised that the president did not publicly congratulate Carranza? He said nothing.
He commented on that in the Cabinet. Several ministers, including me, celebrated it. I did not realize if he said it publicly, I was committed to my sector. Maybe it slipped his mind.

What caused Carranza's exit is the decree exempting industries above 2,500 m of tax.
That is speculation. (Carranza) knew about the law because he was in the Cabinet when it was adopted unanimously. No one was against it. It was sent to Congress, took three and a half years and returned to the Executive.

And the Ministry of Economics and Finances said no.
I'm not sure about that. I have to review the documents and I want to see the technical opinion requested from the ministries.

Was it requested from the Ministry of Production?
I'm not sure. I have to look at it. It is a standard that benefits farmers who make handicrafts and aquaculture.

As an economic principle, exemptions are neither good nor healthy.
That is generic, open exonerations, without establishing productive activities. But this is a subsidy to development in places where there are no roads, no nothing. It is not for the state's capital.

How many people would benefit?
I do not have the numbers. I have to study it. Subsidies are being given to farmers, not to big businesses. They are being helped so that they can stop being primary producers. Aren’t we benefiting small businesses with a tax discount when they pay 1.5% monthly net income? They are having their taxes cut as long as they become part of the formal economy. It is beneficial for the country.

The law has gaps, tax on dividends is kept, the public-private partnerships. It is badly done.
Maybe, but the regulation will have the necessary locks. The exemption is only for local production. They will probably pay tax on dividends; they are not exempt from IGV. It is an option of formalization.

What will change in your management with respect to Carranza’s?
Fiscal discipline will not change. What I do promise is to facilitate investment.

Didn’t that happen with Carranza?
No. There were problems. It is about institutional culture of the MEF. We have to change the typical corner solutions, which say that this or that should be done and if not, then nothing should. Maybe as I'm a bit of a negotiator, I have developed the ability to promote and negotiate. The MEF's institutional culture is rigid, we must release it and replace it with another of service and facilitation.

That is, relax the SNIP (National Public Investment System).
No. The SNIP is excellent as a methodological framework. But why interfere and stop the execution of things? Not everything is the fault of the executor. As a minister I have wondered why we failed in execution. And it is because we had to go over 50 thousand steps, and despite the SNIP we had to carry out study one, two, three, four, to move forward.

Then we have to change the rules of the game.
And that the transfers of resources are made when appropriate; sometimes they fall behind.

Name three actions to speed things up.
Projects should have an assessment, but implementation must have more uniform and secure rules. And that the Ministry of Economy does not become the Ministry of Production. There are MEF officials who question the policy of a minister. Once past the SNIP they can tell me if I am or not complying with the parameters, but not that my policy is wrong. That is a political decision of the minister; the MEF has to facilitate compliance with the methodology. True that public investment has grown more than 40% but it needs further improvement.

What is the main obstacle in the execution of a project?
That often, officials of third or fourth level question political decisions, just like regional governments. Even though you pass the SNIP, the project is not executed because they begin questioning. The MEF was becoming an octopus and decision making was difficult. That will be our work strategy, make sure that implementation is done and provide it.

How will facilitation be provided for the regions?
Give them a proper scheduling of projects. Have the agility to move when you have to move. It has happened that the loan arrived too late and the implementation framework was left very poor.

Will the budget change? Regions and municipalities complain about the budget reduction.
It will not change. I'm very amused by the criticism because if tax revenues fall, where will I get money to pay more? The budget allocation is adequate; they have billions in the bank, stuck there, and they do not use them.

What can be done to get the regions to spend?
There are some who do sped, but most do not. I'll talk to them, we must study their proposals as long as there is efficiency in the spending and that they do not ask for more money because the budget is a law, they have to respect it. If not, there would be an imbalance that we could not manage and inflationary pressure problems would occur.

Why was an emergency decree to facilitate some projects approved so hastily?
The provision time given for the anti-crisis plan was ending. In 2010, they would no longer have the flexibility to implement the model called “SNIP recharged”. These projects were already in the portfolio of the MEF.

Are they the same projects or are there changes?
Some that were not viable have been taken out. Now there are 16. The port of Salaverry has been taken out because it had a lot of social conflict. I do not remember the entire list, the locks have been put, the ministers are responsible and will promote projects. It was a request of the Confiep. Chavimochic is done; the granting of regional airports is ready to go. The Chira Plant has been included. They have the viability processes, the “SNIP recharged” only simplifies things.


Translated from Spanish by Diana Schwalb

tags : finance minister economists politics regions investment

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