Moody's points out that Peru disappoints internationally by populist measures

After it became known that the Economic Commission approved the bill to provide for the withdrawal of 4 ITU from AFP, risk classifier Moody's warned that the populist measures of this government disappoint at the international level because of the way in which they are moving the economy.

“Peru disappoints internationally. When it was thought that the country maintained its finances and economy in an orderly manner, all branches of government are succumbing to populist and short-term measures that are extremely irresponsible for development. This will have a negative impact on rating and credibility, affecting government debt rates and many hard-to-recognize costs,” said Jaime Reusche, vice president of Moody's Investors Service.

In the same context, Reusche considered that this initiative for contributors to withdraw their savings from AFP is an improvised measure that puts the Private Pension System (SPP) at extreme risk and moves away from the reality of solving the underlying problem.

“We don't have enough savings for old age when many of these workers retire, this is very important and cannot be replaced,” he said.

He added that this initiative is indiscriminate “because not everyone needs these retreats. While many people will deposit these funds into their bank accounts, others will move it abroad, leading to a demand for dollars that would impact the exchange rate and further trigger inflation.”

It is worth mentioning that nearly 2.3 million Peruvians have been left with nothing in their pension funds, which is why the rating agency Fitch Ratings, Kelli Bissett-Tom, detailed how the country's risk assessment would impact the economy in relation to these bills.

“These would be populist measures that would harm Peru's economic stability and its rating would be directly reflected in the rising cost of loans and government treasury bonds,” he said.

“PEDRO CASTILLO IS UNLIKELY TO END HIS TERM”

Some time ago, the Moody's qualifier also ruled on the political crisis that Peru was facing after Pedro Castillo's management and decision-making. Given this, the entity assured that it is unlikely that the head of state will be able to finish his 5-year term.

“We believe that Castillo is unlikely to end his term, which runs until 2026, and that he will be removed from office or resigned. We also hope that Peru's orthodox macroeconomic policy framework will continue to underpin the country's solvency. The hallmarks of its framework include a commitment to low fiscal deficits and public debt, prudent monetary and financial supervision, support for free trade, capital flows and internal trade,” Moody's said.

On the other hand, he highlighted the participation and management of the directors of the Reserve Bank of Peru and stressed that their presence in this role of keeping the country's economy afloat is important.

“Despite political paralysis and the inability to push productivity reforms, public policymakers at the Central Bank and the Ministry of Economy have maintained credibility with investors throughout Castillo's administration and navigated political turbulence with minimal consequences for the economy”, the rating agency stressed in its report.

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