As the annual World Bank and IMF’s annual meetings this year wound down last night attention turned to Peru, the host of the 2015 event.
The focus on next year’s meetings will be intense throughout next year for both the institutions and the Peruvian government as policies are adopted to get growth going.
The IMF’s forecast for next year has Peru growing at 5.1%, the fastest in South America. The World Bank’s VP for Latin America, Jorge Familiar, said that Peru has “a very strong foundation” that should lead to a rebound in growth.
The country has followed many of the recipes to get growth going that Tharman Shanmugaratnam, chairman of the IMF’s International Monetary and Financial Committee, set out yesterday in the final press conference of the meetings.
This included civil service reform and increased investment in the education budget for 2015 by 24% over the current level.
Peru’s Economy and Finance Minister Alonso Segura is confident that growth will not only reach the Fund’s target, but should be close to potential growth of 6%.
“Growth fundamentals for Peru are untouched. The consensus is that Peru will return to be the leading growth economy in medium to large economies next year and we are working to ensure this in the medium term,” Segura told Emerging Markets.
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Regaining fast growth, however, will not be easy. Peru’s GDP will expand around 3% this year. The turnaround is pegged to a better performance in mineral production, particularly copper, and a big injection of capital from public works projects slated to start in the final quarter of this year and the beginning of 2015.
While contracts have been awarded, getting projects off the ground takes time. A $4bn gas pipeline, which should begin construction by the end of the year, requires more than 4,000 permits from the start to finish of construction, according to the private sector National Association to Foment National Infrastructure.
Segura said he would not need a “big bang” to get growth going, but rather dealing with “regulations that have become cumbersome not because of legislation, but the inability of different levels of government to deliver on time. “This is a red tape issue,” he said.
Lisa Schineller, managing director of Latin American sovereign ratings department at Standard & Poor’s, said that growth in Peru should increase in 2015, but that caution was needed.
“There are one-off reasons to explain the decline, but there is a combination of cyclical and structural issues that require attention,” she said.