Source:
IFIs Latin American Monitor
Fri Oct 20 2006
Peruvian president Alan García was sworn in for his second term on July 29, 2006, replacing outgoing Alejandro Toledo. The Peruvian economy has been undergoing – for the last five years – a period of economic growth. However, 48 per cent of the population is still living in poverty. The last agreement with the IMF became due in July and although Peru is not required to have an agreement of this kind, it will request it anyhow to use it as an "umbrella before investors".
Peruvian president Alan García was sworn in for his second term on July 29, 2006. His first term as president, between 1985 and 1990, came to an end with a severe economic and political crisis. At that time, the reforms under the Washington Consensus were gaining ground.
In 2006, following Alejandro Toledo’s administration, the Peruvian economy has been undergoing – for the last five years – a period of economic growth (6.5 per cent in 2005 and an estimated 6.6 per cent for 2006). The growth of the Peruvian economy is mainly considered to be the result of the high prices enjoyed by its mineral exports in the international market and the expansion of domestic demand-oriented sectors. In spite of this, 48 per cent of Peruvians are still living in poverty, according to official figures.
In this context, García stated, upon his arrival in the United States, that Peru would sign a new "Stand By" agreement with the International Monetary Fund before the end of the year. According to the Peruvian president, this agreement will be useful for the country to increase the confidence of investors in the continuation of economic balance.
The last "Stand By" programme became due in July and although Peru is not required to have an agreement of this kind, it will request it anyhow to use it as an "umbrella before investors", highlighted García.
This new agreement will secure a line of credit that, in the event of a reduction in the prices of mineral resources or in case something happens that would paralyze exports, would prevent Peru from suffering a balance-of-payments crisis.
The president pointed out that Rato had agreed with the terms of the government transition and the strengthening of fiscal responsibility and transparency, which allows to spot any risks in terms of deficit or lack of economic balance.
Although the last "Stand By" agreement also provided for an open line of credit to finance unbalances in the balance of payments, the government made no use of this resource. In both cases the signing of the agreement is justified in the name of economic prudence. Notwithstanding this, the availability of this extreme resource can result in high costs to the country in terms of reforms and goals to be fulfilled.
At a time in which the role of the IMF is seriously delegitimized, it is essential to evaluate the political need for a new link with the institution.
Other meetings
President Alan García also met in Washington with Luis Alberto Moreno, IDB president, and Paul Wolfowitz, head of the World Bank. He requested Moreno IDB support for the second stage of the Camisea gas pipeline, by means of a 400 million dollar credit. This project has been seriously questioned by civil society organizations because of its social and environmental consequences.
Sources: Argenpress, El Comercio, Reuters
Related information:
Is the neoliberal economic model working in Peru?, by Eurodad
Leaky gas pipeline finds foes in Washington, by IPS
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