President Alan García rolls out $3.2 billion emergency package to cushion Peru from global financial crisis

Peru President Alan García announced Monday an emergency $3.2 billion anti-crisis package, which includes measures such as increased spending on infrastructure, just weeks after he said Peru was quasi immune to the global financial downturn he referred to as a simple “growth crisis” that could be resolved within the next 18 months.

In a press conference held at the Government Palace on Monday afternoon, García said that the emergency plan aims to sustain growth, increase employment and defend the poor.

“The plan is to increase government spending by 10 billion soles ($3.2 billion), to obtain $3 billion in credit from international institutions (such as the World Bank and the Inter-American Development Bank), and to take on another $7 billion in loans,” said García.

“We don’t govern the world; it’s governed by the United States and China. And if things are going to be bad for them, we need to start taking measures,” Garcia added.

While Peru is weathering the global crisis better than most other Latin American countries, it is feeling the effects nevertheless.

In October, plummeting prices for copper caused Peru’s exports to fall for the first time since 2002, down 11.4 percent compared to the same month last year.  All mining companies have put expansion and development plans on hold.

In September, Peru announced a trade deficit for the first time in more than five years, and a $506 million shortfall in October. And, the government has already lowered its forecast for next year’s economic growth from 9 to 6.5 percent.

García’s package, which seeks to avoid a drop in liquidity, is designed to sustain and promote internal demand and employment, and to assist small and medium-sized businesses as well as the export industry. It also seeks to boost public expenditure on infrastructure — including housing, irrigation and public works, highways and hospitals — and to stimulate private investment.

“These public works, as well as international credit, will allow Peru to maintain its current level of public expenditure,” said García. “Peru has strengths that other countries do not have and with calmness, wisdom and confidence we will overcome this serious crisis that is affecting many countries across the world.”

And, if necessary, an additional $7 billion will be pumped into Peru’s economy to keep the country above water during hard times, Garcia added.

García also announced the creation of an emergency anti-crisis team, set to monitor the country’s economic situation every 15 days, and a new public-private partnership and investment law.

In November, during the 16th APEC Summit held in Peru’s capital, Lima, the assembled world leaders’ final communiqué echoed the conclusions reached by G20 leaders who met in Washington November 15. The final document included a pledge not to erect new protectionist barriers for the next year, as well as an optimistic 18-month time frame — formulated by García — for ending the crisis he largely described as a temporary “growth” crisis that would blow over without affecting the production sector.

At the time, many leaders, including Australian Prime Minister Kevin Rudd, distanced themselves from the recovery schedule, calling it “premature” and “an estimate.”

And today, Peruvian economists and business executives — who have been calling for a contingency plan for months — still think García is taking matters too lightly.

García’s plan is like a good raincoat: “if the external crisis is like a rain shower, we’re prepared,” said economist Alberto Adrianzén in a televised interview for Canal N. “But if it’s like a tsunami, the only thing left to do is pray.”

“It’s ridiculous to believe that with more spending we’re going to breeze through the international crisis,” added Adrianzén.

“Though García’s plan may be well-intentioned, it’s a little way off from reality,” he added. “I believe that (García) is wrong because he thinks that the financial crisis is a cyclical problem. But it’s something much more serious and the Peruvian economy is not very competitive. We want to overcome the crisis with a low currency and with little machines. This is a mistake… because public expenditure won’t change the fact that for the past few years, the most important factor in Peru’s economic dynamism has been the flow of (foreign) capital and exports.”

With the U.S. and Europe likely to hold back on large foreign investments, Peru will probably continue to see a decline in the value for copper and other mineral exports, on which it is largely dependent.

If both of these elements begin to fade away, concluded Adrianzén, “things are going to be bad for us.”

And, though García called on Peruvians to trust in his new anti-crisis plan, miners are particularly worried.

According to Luis Castillo, President of Peru’s National Federation of Mine Workers, or FNTMMSP, more than 1,500 workers have been sacked in the past 45 days. And, according to Castillo’s estimates, tumbling prices for copper and other minerals could cost 15,000 more people their jobs.

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