Peru’s government is pushing ahead with a fresh package of reforms that will make the economy more predictable, but will certainly mean a major fight with the country’s unions.
President Ollanta Humala’s administration has embarked on a programme of measures including reform of labour markets and procurement law, a third round of capital market reform to facilitate entry of SMEs, and a revamping of fiscal rules.
It has simultaneously published legislation to eliminate bureaucracy, freeing up an estimated $40 billion in investment projects that had been approved but were hampered by red tape.
Most of the reforms planned for the coming eight months should move ahead easily. The administration is likely to face major protests when it moves to change labour laws.
Organized labour has protested against changes to the civil service law, and Congress has passed legislation postponing pieces of the pension reform.
The package comes hard on the heels of a series of reforms of capital markets, the civil services and pensions that were completed last year. The government is currently in the middle of healthcare reform. It has also passed police/military, education, mining and tax reform.
Economy and Finance Minister Luis Miguel Castilla told Emerging Markets the changes were necessary to make Peru’s growth sustainable and to boost productivity.
“One of the main challenges for emerging markets is to boost productivity so we can keep on growing in this less favorable environment,” said Castilla. The minister knows that the biggest fight will be for labour reform. “Labour reform is going to be hard to achieve. It means identifying areas where labour markets are still rigid. The cost of firing is still high, payroll deductions are high. We are looking for ways for more flexibility, but preserve a balance with labour rights,” he said.
A new General Labor Law was first proposed a decade ago. It has moved through Congress to the brink of passage, but has been pulled back each time. President Humala’s ruling Gana Peru party made a move on the legislation last year, but decided to withdraw the bill.
Juan Jose Gorriti, a long-time leader of the General Confederation of Workers of Peru (CGTP), said organized labour would not accept new legislation. “Labour laws were gutted in the 1990s. This government pledged to restore labour rights and now they talk about flexibility. We have already lost too much,” he said.
The CGTP, which strongly backed Humala when he ran for president in 2006 and again in 2011, has switched gears, calling major protests around the nation in recent months.
The economy has slowed this year, the victim of external forces, and the government now forecasts GDP to expand by 5.5%, a cut from 6.3%.
The government and most analysts predict GDP growth to increase in 2014 and move back over the 6% mark. The growth will be supported by a massive increase in copper production, with Peru increasing output to 2.8 million tons annually by 2015-2016. It will be the world’s second largest copper producer after neighbouring Chile.