Peru looks set to raise projections for economic growth on the back of a strong rebound in public investment that has fuelled one of the fastest paces in the region, the country’s finance minister told Emerging Markets yesterday.
GDP rose by 5.4% in January, the 29th consecutive monthly expansion, according to the National Statistics and Information Institute, making it one of the fastest growing economies in the region.
While below the 6.9% achieved in 2011, it is roughly on target for the 5.5% that private sector banks and international agencies are forecasting for the year. Only Haiti and Panama are forecast to expand faster in 2012.
Finance Minister Luis Miguel Castilla told Emerging Markets the government’s counter-cyclical plan had resulted in a strong rebound in public investment, primarily in infrastructure and maintenance project.
“We have seen in the past three months a 30% increase in public investment at the local and regional levels, which has changed completely the trend from last year. This explains around 45% of our growth projection,” he said.
Most other economic data are also promising. The positive numbers have led the Finance Ministry (MEF) and BCR to start talking about raising slightly their projections for 2012 to 5.75%.
Inflation is expected to be within the 2.5-3% target for the year. Exports in January were $3.99 billion, an increase of 34.7% compared to the same month last year.
International reserves are approximately $53 billion, equivalent to 15 months of exports. An international bond placement in January, the only one planned for 2012, generated $1.1 billion after being oversubscribed more than seven times.
Investment by regional, or state, governments was $1.8 billion in the 12 months to February, with 82% invested in areas priority areas such as education, health and infrastructure.
“We expect public investment above 30% this year. Last year it was 21% and we grew 6.9%. It will be an important factor,” said central bank president Julio Velarde.
The MEF forecasts private investment will grow 8% in 2012. Castilla said it should beat this target if the administration’s plans for increasing public-private partnerships and concessions hit their targets.
“There are still a lot of bureaucratic obstacles and red tape for investment flows. We are working with different ministries to eliminate these,” said Castilla.
Private organizations, such as the Association of Private Pension Funds, estimate it takes an average of 70 months between proposal of a project and work to get underway. The association operates its own infrastructure fund and is one of the major participants in an infrastructure fund organized by the government.
The administration is confident at least $2 billion will be generated in 2012 from public-private partnerships. The investment promotion agency, ProInversion, has been streamlined and is focused on infrastructure.
The government sees infrastructure as a central pillar to economic growth. The infrastructure deficit is close to $35 billion, according to AFIN, an organization of private companies operating public services.
Peru hopes private investment will diversify from extractive industries to industrial projects. The most advanced would be the construction of petrochemical plants that would use natural gas to make explosive, fertilizers and plastics.
Construction of the first plant, a $750-million investment from a Chilean-Peruvian consortium, should get underway in the second quarter of the year.