The Minister of Finance of Peru told investors: “This is a government of change”

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Peru Update

In recent weeks, Pedro Frank has been called many things: moderates in radical left-wing governments, Marxists who will undermine Peru’s outstanding free market economy, and acceptance of Pedro Castillo after the initial rejection. A traitor to the post of Minister of Finance in the Presidential Administration.

Frank prefers the terms “modern left” or “moderate left”.

“I am a leftist and believe that reducing inequality is absolutely fundamental and is fully compatible with reasonable macroeconomic management,” he told the Financial Times. “These two things can go hand in hand.”

since Castillo won Presidential election in June The 60-year-old Frank has always been the focus of Peru. The former World Bank economist is widely expected to obtain the post of Minister of Finance. He has now obtained the job, but he is facing daunting challenges from all sides.

Although Peru’s economy has always been one of Latin America’s success stories in the 21st century, it has been overshadowed by recent political instability.Country is also Hard hit by the coronavirus: It is the country with the highest per capita death rate in the world, and its GDP fell by 11.1% last year.

Castillo was elected by the far left, shaking the financial markets and causing capital flight, pushing the Peruvian currency Sol A record low against the U.S. dollar. the day after tomorrow Hard leftThe appointment of Guido Bellido as prime minister was the biggest one-day drop in seven years. Since then it has stabilized but has not rebounded.

The Castillo government has set up a “special committee” to reverse this trend, and Frank said he expects the sol to recover. “I think we will see the market calmer,” he said. “If I have to make recommendations to investors, I will tell them that they should not sell sol to buy dollars. In my opinion, they [dollars] A bit expensive. “

Frank has been trying to persuade Julio Velarde, the respected central bank governor, to stay in office. On Tuesday, the media reported that Velarde had accepted the move, and if the move was confirmed, it would reassure the private sector.

The minister reiterated his commitment to the autonomy of the central bank, saying that he did not believe that the relationship between the bank and the government had changed significantly. “If it’s not broken, don’t fix it,” Frank said. “We have enough problems in Peru to start fixing things that are working well.”

Another short-term goal of the minister is to develop a macroeconomic plan to be announced on August 20. Frank expects the economy to rebound by 10% this year and 4.8% in 2022.

He confirmed that Peru will soon resume its fiscal rules — suspended last year due to the pandemic — which call on the government to reduce its fiscal deficit to 1% of GDP over time. Before the coronavirus outbreak, this proportion was 1.6%, but last year it jumped to 8.9%. The minister declined to disclose the new implementation timetable.

Julio Velarde was asked to continue as Governor of the Peruvian Central Bank © Miguel Yovera/Bloomberg

Before his appointment, Frank was active on social media, and some of his comments were used against him as evidence of what he called activism. In a YouTube video, he said that Peruvians should have more rights in Peru than foreign investors.

“How can a Chilean, a Chinese or an American come to Peru with the same rights as a Peruvian in terms of economic issues?” he asked. “This doesn’t exist anywhere in the world.”

In other videos, he advocated a new constitution, criticized mining companies, and stated that the state should have the right to modify contracts with private companies.

When asked about these comments, Frank said that these comments reflected his personal views, but “I now play another role.”

“I will answer as the Minister of Economy and Finance in August 2021,” he said. He also admitted that the new government “can only operate within the political space we have”-this is a tacit consent, it may be blocked by Congress, and Castillo’s party has only 37 out of 130 seats.

The core of the Castillo plan is a promise to replace Peru’s 1993 constitution, which makes it relatively easy for Congress to impeach the president and dissolve the Congress. His supporters blamed the political instability in Peru, which resulted in the emergence of five presidents in the country in five years.

Frank said that from a strict economic point of view, the new constitution is unnecessary and not a priority for the ministry. “If you look at the economic measures announced by President Castillo in his inauguration speech, none of them need to amend the constitution,” he said.

However, he said that the new charter will improve governance capabilities, which will only benefit the economy.

“The very negative thing is that only a week after the new government took office, people were talking about impeaching the president or closing the Congress,” he said. “These are all constitutional issues.”

When asked what his message to foreign investors was, Frank said: “This is a government of change. I understand that this will lead to a certain degree of lack of confidence, turbulence and misunderstanding.”

“But we absolutely respect private property, and we absolutely oppose any proposal for exchange rate control and price control. We have a clear fiscal responsibility policy.”

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