Economy

Peru's interim president eyes new debt amid economic, political crises

The country recorded a 9.4% GDP drop during 2020's third quarter, opposing the 29.8% drop in the second quarter of the year

Peru's interim President Francisco Sagasti speaks to Reuters in Lima, Peru November 19, 2020. Photo: Castaneda/Reuters
  • Peru is planning to raise new public debt in the short term to finance deep fiscal deficit;
  • “Our country has the capacity to raise debt at interest rates that are relatively reasonable,” interim President Francisco Sagasti told Reuters;
  • Showing signs of recovery, the country recorded a 9.4% GDP drop, opposing the 29.8% drop in the second quarter of the year, and in turn, the -3.5% seen in the first quarter.

Peru is planning to raise new public debt in the short term in order to finance the Andean country’s deep fiscal deficit and repay interest on old debt in 2021, interim President Francisco Sagasti told Reuters.

“Our country has the capacity to raise debt at interest rates that are relatively reasonable,” Sagasti, 76, said late on Thursday evening in his first interview since taking office earlier this week amid a biting political crisis in the country.

“When one has space to raise debt and you are going through a crisis, that is what you have to do.”

Sagasti, a centrist lawmaker, has taken the reins in the copper-producing nation amid some of Peru’s most heated demonstrations against the political classes in decades, which saw huge protests in which two people killed and dozens injured.

Peru had been an economic success story for almost three decades, but the coronavirus pandemic has hit the country’s mining-driven economy hard, pushing up poverty levels and driving it towards its biggest annual contraction in a century.

READ ALSO: Transactions in Brazil’s instant payment system have a rejection of 6.5%; similar to that of bank transfers

The government of Vizcarra had launched one of the region’s biggest economic package to weather the coronavirus crisis, including cash transfers for the most vulnerable, even as mining production was hit by a lockdown.

The stimulus package will cost around 20% of Peru’s pre-pandemic gross domestic product, though the economy is set to contract 12.5% this year and tax revenue has dipped 30%.

Showing signs of recovery, the country recorded a 9.4% GDP drop during 2020’s third quarter, according to the country’s National Institute of Statistics and Informatics (INEI). The 9.4% contraction opposes the 29.8% drop in the second quarter of the year, and in turn, the -3.5% seen in the first quarter.

READ ALSO: Nearing zero: Argentine FX reserves drain puts central bank in a corner

Sagasti says his interim administration is weighing the possibility of spending more on new cash transfers.

He added said that while mining was key, there were other areas of industry such as agriculture, fishing, and forestry that had enormous potential for growth.

“Let’s not just get obsessed with one sector of the economy in a country that is so rich and that has so much diversity in terms of natural resources,” he said.

Sagasti said he would look to promote measures that balanced foreign investment with the needs of local communities and the environment.

“What the government will do is create the conditions and act as a guarantor of the rights of communities and investors, we have to be a mediator,” he said.

Compared to the same quarter in 2019, Peru’s GDP recorded a 14.5% shrink in Q3.