20060328 – Peru’s economic trickle down proves elusive

By Robin Emmott

AYACUCHO, Peru (Reuters) – Business has rarely been slower at Marlene Quispe’s underwear shop in the central Andes as the only thing that the rows of socks and bras seem to attract nowadays is dust from the street outside.

As Peru’s economy is set to record its fifth consecutive year of strong growth in 2006 — a feat almost unheard of in the country’s cyclical boom and bust history — ordinary Peruvians say they are seeing little or no benefit, making the economy a central issue in the upcoming April 9 presidential elections.

“There’s no prosperity here and we want change,” Quispe said as she sorted through piles of bras. “A lot of people are tired of waiting for this trickle down,” Quispe said.

That view is echoed around Peru despite encouraging signs such as new shopping centers and restaurants in Lima as well as robust commerce in towns near the country’s gold and copper mines. Yet job growth has proven elusive in an economy that expanded 6.7 percent last year.

Much to the chagrin of business leaders, presidential front-runner Ollanta Humala says the only way to bring the benefits of this growth to ordinary Peruvians is to increase state control over the economy.

He has received strong support from the poor as a protest vote for the country’s traditional economic policies.

“The idea that there is a trickle-down effect to the poor from economic growth is just an invention by Mister President (Alejandro Toledo),” said Omar Quezada, president of the Ayacucho region in central Peru, where 35 percent of the population is illiterate.

“We haven’t seen a large public works project in this region in the past five years,” he added.

Toledo, who took office in 2001 promising jobs and a better life for the poor, has argued that it is only a matter of time before the benefits of economic growth are widespread.

But economists say that despite average gross domestic product (GDP) growth of 4.5 percent over the past 15 years, the work force is growing at 3 percent a year, meaning new graduates are barely being absorbed into the job market.

“Peru’s poverty levels have barely fallen, the new jobs on offer are low-skilled and all we’ve really achieved is stability,” said Elmer Cuba, chief economist at Lima-based consultant Macroconsult. “People are exasperated.”

OVERDEPENDENCE ON MINING?

Many Peruvians say their frustration is heightened by the fact that since 1990, successive governments have done just what foreign economists told them to — privatize, liberalize and open the economy up to foreign investment.

Peru’s problem is that its mining and export-based sectors are the drivers of growth and people outside of those industries are not benefiting from high international prices for commodities and precious metals.

“The economy is simply not broad-based enough,” said Javier Zuniga, head of Lima University postgraduate business school.

Although Peru’s powerful mining sector generates more than half the country’s exports and accounts for 6 percent of GDP, it employs less than 1 percent of the working population.

According to Farid Matuk, head of the government’s National Statistics Institute, around 14 times more investment is required to create one job in the mining sector than in manufacturing, where Peru has traditionally been weak.

Partly as a result, the jobless rate in Lima, home to almost a third of the population, was 9 percent in February, or almost 1 percentage point higher than a low in Toledo’s government of 8 percent in October 2002.

Even that figure fails to take into account that half of Peru’s 13 million working population is underemployed, or not working the hours they want to, forcing them into lower-paid positions below their qualifications.

The solution that candidates pledge is red-hot growth over the next five-year presidential period and big job creation.

PROMISES OF FAST GROWTH

Most ambitiously, center-right lawyer Lourdes Flores, who is in second place in the polls, has promised GDP growth of at least 7 percent a year and 650,000 new jobs annually.

But center-left former President Alan Garcia, who is third in the polls, says meeting such goals are impossible.

“You would need to grow almost 14 percent a year to create 650,000 jobs annually,” said Enrique Cornejo, an aide to Garcia.

Nevertheless, he also promises annual growth of 7 percent, a figure Peru last reached briefly in 1998.

With Peru’s current economic structure, analysts say such a pace of growth would generate around 350,000 new jobs a year, or just enough to keep up with new entrants into the job market.

Humala, a former military commander who wants to restrict foreign investment in Peru, sees the solution in revising contracts in key mining and gas industries to increase state control, raise taxes and redistribute income to the poor.

Businesses and investors say that would scare off investment. A similar strategy employed by a Peruvian military government in the 1970s sent the economy spiraling into a 30-year slide.

Economists instead recommend measures such as cutting the bureaucracy that stifles entrepreneurship, helping unregistered businesses leave the informal sector, diversifying away from mining and cutting the bloated state payroll.

Around 90 percent of Peru’s budget goes to public sector salaries and debt servicing, leaving little room for government investment, which can help fuel economic growth.

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La dolce vita: Is Peru’s feelgood factor spreading?

By Jude Webber

PACHACUTEC, Peru, Nov 29 (Reuters) – President Alejandro Toledo boasts that more Peruvians are going to the movies — a sure sign, he says, that improving gross domestic product statistics mean la dolce vita (the sweet life) is spreading. Economists call it the trickle down effect — and trickle is the word, say residents in Pachacutec, a sprawling shanty town of straw and wood huts on the sandy hills sloping up from the Pacific Ocean at the northern fringe of Peru’s capital. “Things are gradually getting better. Two months ago I didn’t have a job. Now I have some work … It’s not great but I can pay for my daughter’s school,” said construction worker Emerson Reategui, 42, on his way with a sheaf of documents to apply for official property rights to his shanty town home.

“We’ve got to give Toledo more time to work. He’s made a lot of promises. In Pachacutec we feel he’s keeping them slowly — but he is keeping them in things like property rights, which he’s starting to give, and job projects,” said Carlos Ricaldi, 28, in his small but well-stocked store. “I see progress.” Toledo, who took office in July 2001 promising more jobs and prosperity, hails Latin America’s No. 7 economy as the region’s darling this year, saying international markets made their feelings plain by clamoring for a $500 million bond that Peru sold this week to raise cash to plug its budget deficit. Although the issue meant Peru beefing up its borrowing just as Argentina’s multiple debt defaults and Brazil’s ability to manage its $260 billion public debt have worried markets, economists were cheered by the relatively cheap interest rates it won. Peru expects its 2003 debt servicing costs to rise to $2.2 billion from around $2 billion now, but trumpets its nearly $10 billion in international reserves as a sign of solidity.

Indeed, the government is so delighted with the health of the economy — illustrated by ever rosier performance reports, including an official September growth figure of 7.3 percent — that it has jacked up its 2002 GDP growth target to 4.2 percent from a previous 3.7 percent. The acceleration comes after four years of economic woes and political strife. GDP grew just 0.2 percent last year. And the head of the government’s National Statistics Institute said this week even those glowing figures were still too low. Farid Matuk said methodology problems meant Peru had been “systematically underestimating” its data for years. Peru is hoping to parlay the good news into closer trade ties when U.S. Commerce Secretary Don Evans visits next week.

MOVIES, CELLPHONES, SHOPPING

Toledo never tires of telling voters — many of whom are underwhelmed by his progress in creating jobs in a nation where more than half the people live on $1.25 a day — that he has sacrificed his popularity for the sake of economic prudence. The U.S.-trained business school professor, whose approval rating has climbed nearly 10 points recently but is still only around the mid-20s in polls, told reporters this week that rises in the numbers of moviegoers, cellphone users and supermarket sales showed an increasing feelgood factor. “You may ask what (the economy) has got to do with the cinema? Well, if you’ve got a job, you can go to the movies more,” he said. “The economy is becoming more dynamic, people are buying more. It’s slow but things are improving.”

At Peru’s top business forum this week, a partner at a headhunting firm said trade was picking up, and executives said the labor intensive construction sector was in full recovery. But Peru is a country of big contrasts — only one in five people in Lima do their shopping in supermarkets, as opposed to local markets, and the gap between rich and poor still yawns. “The levels of inequality have increased. There is more, but notmore for everyone,” Matuk said. Elmer Cuba, economist at private consultancy Macroconsult, said things were picking up slowly “but we still need stronger and more sustained growth for real salaries to grow, and that process is going to take years.”

Back in Pachacutec, one measure of quality of life is whether residents still have plastic drums outside their homes and have to wait for the water truck to trundle past or whether they can hook up to new standpipes on their dirt streets. Residents said European aid agencies or American evangelists, not the government, had brought the water. But they credit the government — which says it has created 160,000 jobs in state temporary work schemes — with giving them jobs as street cleaners and park builders.

“I feel a bit better. Not that much, but I’m less afraid of where I’m going to get food from than I was before,” said Angelica Azteca, a 28-year-old housewife and mother-of-three, who spends 15 soles ($4.30) a day on food for her family. But others were gloomier. “I feel just the same — it seems my pockets are full of holes. Money goes in and out like water,” said Luz Malaga, 54. “I think Toledo has good intentions, and that he’s trying to do something. But don’t they say the road to hell is paved with good intentions?”

(Additional reporting by Tania Mellado, Eduardo Orozco)
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New throughout

By Jude Webber
LIMA, Peru, Nov 12 (Reuters) – Peru’s National Statistics Institute published sector-by-sector production figures for September on Tuesday that analysts said proved Latin  America’s No. 7 economy was growing faster than expected — for now. The government agency, INEI, said in a report production in the manufacturing sector — vital for much-needed jobs growth – rose 7.43 percent in September compared with the same 2001 month, while output in the nation’s traditional mainstays of fisheries and mining grew 18.31 and 2.8 percent respectively. Agriculture output rose 3.69 percent, it said. The agency gave no comparisons for the data. INEI said last month that the gross domestic product data it had been releasing monthly for the past 15 years were faulty, and said the new-look sector-by-sector figures would be the only indication of monthly economic performance until it had corrected its methodology and rebased its index next year. One of the main problems with the old data was how the services sector was calculated, and INEI had planned to strip that out and issue an aggregate figure for the primary and secondary sectors — chiefly mining, fishing and industry – that make up around half the economy.
But in a U-turn on Tuesday, INEI said it had changed its mind on issuing monthly GDP data because it had been impossible to work out an accurate new aggregate methodology in time, and would still issue an old-style September GDP figure next week. One economist at a large bank in Lima, who declined to be named, said the sector-by-sector numbers signaled another month of strong growth for Peru, which the government boasts is a beacon amid the battered economies of Latin America. “This (sector-by-sector data) would have given a September GDP growth number of around 6 percent,” the economist said. Asked if he agreed, INEI’s new chief Farid Matuk told Reuters the 6 percent growth estimate was “totally sensible –(perhaps) half a point up, half a point down.” The Economy Ministry last week forecast September GDP growth of 6.7 percent and 5.3 percent in October. The economist said his own forecast for September was for 5 percent growth.

CAN PERU KEEP IT UP?
Guillermo Arbe, chief analyst at the private Apoyo consultancy, said the figures were upbeat. “We have indicators that show the economy, above all that linked to internal demand, non-primary sectors, is growing …more than we expected … It’s encouraging,” he said. Peru is targeting 2002 growth of 3.7 percent after 0.2 percent last year. But the government admits the economy needs to grow faster yet to translate growth into jobs — Peruvians’ No. 1 concern and one of the reasons why President Alejandro Toledo’s popularity is down to around 20 percent in polls. But asked whether the big growth rates would continue at this clip, the bank economist said: “I think it’s over. We’ll still show growth but it won’t be as high in the last quarter. “A lot of the growth up until now has been because of a statistical bounce. September 2001 was one of the worst months there was,” he said. In September last year, the economy grew 2.7 percent. The economist said the positive effects of tax measures during the year, and of the giant Antamina copper and gold mine which began operations last year and gave the economy a push, were winding up. “I think we should end the year with growth of 3.5 to 4 percent. But next year’s a bit more complicated,” the analyst said. “There will have to be a lot of fiscal belt tightening.”

NEW-LOOK FIGURES NEXT YEAR
Matuk told Reuters the September GDP data would consist of a single figure without a sector-by-sector breakdown, and would be based on the same faulty methodology used for the past 15 years because there was no time to work out a new method. From 2003, INEI will issue a new-style aggregate figure –not the old GDP based on the faulty sums — while it works on improving the math and rebasing the index in order to provide more accurate, quarterly GDP numbers from mid-2003. Another senior INEI official said the agency would release the sector-wide data weekly from now on. INEI gave the following data:

Sectors Sept 2002 Jan-Sept 2002
Agriculture and farming 3.69 5.26
Fisheries 18.31 -2.04
Mining 2.80 14.97
Manufacturing industry 7.43 3.09
– primary industry -1.90 -2.50
– non-primary industry 9.75 4.65
Electricity and water 5.06 5.45
Financial services 9.65 15.57

(Additional reporting by Missy Ryan)
((Lima newsroom, tel +511 221 2130, fax +511 221 2133, e-mail: lima.newsroom@reuters.com))

Peru To Scrap `Fictional’ Monthly GDP Numbers

29 October 2002 13:15
Dow Jones International News English (Copyright (c) 2002, Dow Jones & Company, Inc.)

By Virginia Rey-Sanchez

LIMA -(Dow Jones)- Peru will scrap its monthly gross domestic product indicator and instead release a monthly indicator of output in various sectors, Farid Matuk, the head of the National Statistics Institute, or INEI, said late Monday. Matuk told journalists that the monthly GDP number had been distorted by unreliable data, especially in the heavily weighted “other services” sector and in the retail sector.

Recently named as head of the INEI, Matuk said Peru had released “fictional information” since 1987 based on the way the GDP number was constructed. “We either continue with the fiction or we make the information realistic,” he said. A new monthly indicator known as “gross value added goods” will be released from next month, when the output for September is reported, he said. “What we will be giving out can’t be called GDP,” he added.

The new indicator will include a primary sector, taking into account agriculture, fishing and mining, and a secondary sector, including manufacturing, construction, electricity and water. Those sectors can also have sub-sectors, he said. But the new indicator won’t measure services contained in the “other” sector, nor growth in the retail sector.
Separate Data On Tax Intake; Move Welcomed

The INEI will also simultaneously but separately release information on movements in tax collections. Matuk said that a newly revised quarterly GDP number will be released after the agency updates the base year used for GDP calculations using data from 2001.

“Investors are going to have much more confidence in this statistic than in fictional information,” Matuk said. He added that the Finance Ministry and the Central Reserve Bank of Peru may give their own estimates for GDP.

INEI recently reported that GDP rose 3.8% in August from the year- earlier month, with the economy expanding 4.1% in the first eight months. President Alejandro Toledo recently predicted that Peru’s GDP will expand 4.0% this year, despite negative growth in Latin America overall. Private sector economists aren’t predicting yet how the statistical overhaul will affect INEI’s bottom-line numbers going forward, but some do think the move by the agency was overdue.

“The main problem with the old GDP numbers is that there wasn’t any exact way to calculate the `other services’ and retail, which meant they had to be estimated indirectly by taking percentages from other sectors,” said Elmer Cuba, an economist with Macroconsult, a local consultancy. Macroconsult said the new indicator will be a better barometer of the economy, as it won’t include calculations using tax collections, which are influenced by factors not tied to the economic cycle. “Until they (the INEI) give out the new GDP, the private sector will have to calculate one each month on the basis of leading indicators,” he added. The Finance Ministry has recently started to release a growth estimate based on a basket of leading indicators.

-By Virginia Rey-Sanchez, Dow Jones Newswires; 511-221-7050;
peru@dowjones.com

Peru says got GDP math wrong for 15 years

By Jude Webber

LIMA, Peru, Oct 29 (Reuters) – Peru has admitted it has been reporting its key economic indicator, gross domestic product growth, wrongly for the past 15 years and will publish only partial data from now on until it can correct its sums.  Farid Matuk, who took over as head of the government’s  National Statistics Institute (INEI) in August, told reporters late on Monday it had been a mistake to publish GDP data on a monthly basis since 1987, when every other country in the world except Canada and Finland published quarterly, because monthly figures contained a wide margin of error. Furthermore, he said the way the monthly figures were calculated had also factored in a “false illusion” of the performance of the service sector, meaning that the official data “was not solid” and could not be trusted.
 

INEI will therefore strip the service and trade segments out of its GDP numbers for the next few months, leaving a snapshot of the performance of only around half of Latin America’s No. 7 economy, which is worth around $54 billion on current reckoning and leans heavily on mining and fishing. “I can’t produce erroneous information. I’d rather partial data that is clear than full data that is murky,” Matuk said. While it rebases its index and sorts out its methodology, INEI will publish only what Matuk called “hard figures” on the detailed monthly output of goods in the primary and secondary sectors — agriculture, fishing, mining, manufacturing, utilities and construction — plus tax data. Data for trade and “other services,” which covers mainly transport, financial and public sector services will go.The first set of new-look figures, called “gross value added production,” is due out next week, for September. The government of unpopular President Alejandro Toledo says Peru’s economic performance is stellar in a crisis-wracked region, and is forecasting growth of at least 3.7 percent this year, compared with 0.2 percent in 2001. According to current calculations, GDP grew 3.8 percent in August and 4.1 percent in the first eight months compared with the same 2001 periods.

 

NEW 2001 BASE

Once INEI has sorted out its sums, it will switch to reporting complete GDP numbers, but on a quarterly basis. Matuk said INEI would revise its 2001 GDP data in the next few weeks, according to the current 1994 base year and method of reckoning. But it will not publish full 2002 GDP data – that will be up to the economy ministry and central bank.  He hoped that by July 2003, INEI would be ready to publish the total value of Peru’s economy, in dollar terms, according to a new 2001 base, followed by quarterly GDP data. That was likely to have a delay of six months to begin with. “There was a lot of resistance within INEI (to the new method of calculation),” Matuk said. “But either we perpetuate the fiction or we sort out the information, and I think sorting out the information is the right thing to do.”

Current GDP data uses information provided voluntarily by some 30,000 companies, but Matuk said INEI also had extensive data from household and employment surveys from nearly 40,000 homes nationwide that would help complete the picture. France’s national statistics agency is providing the software for the new calculations, and is sending a team of experts to Peru next month to help INEI get to work. Matuk said Peru was also working with other countries on a World Bank project to harmonize calculation of purchasing power parity by 2005 based on a basket of 4,000 universal goods.

 

 

((Lima newsroom, tel: +511 221 2130, fax +511 221 2133, e-mail: lima.newsroom@reuters.com)) REUTERS