Archive for gdp

How to lie twice to a President and succeed (13-VI-09)

Posted in 06 - Junio, Año 2009 with tags , , , , , , , , , , , , , , , , , , on June 13, 2009 by Farid Matuk

Near three months ago, it was analyzed how the Ministry of Economy and the Central Bank collude in order to show awesome GDP growth rates for Peruvian economy, in order to fulfill presidential fantasies of success, and now it is possible to witness how such collusion persists in order to show Peru as the country with the highest economic growth in Latin America, and one of the highest around the world.

Less than 2 weeks ago, in May 30th, the Ministry of Economy published the MMF (Multi-annual Macroeconomic Framework) for 2010-2012, which includes an economic forecast for 2009. Yesterday, the Central Bank published its quarterly report which includes also an economic forecast for 2009. As before, there is little difference on the GDP growth rate, 3.5% for one and 3.3% for the other, but this lucky coincidence is only good for providing presidential comfort, but behind those numbers two different worlds emerge.

The table below shows how the Ministry of Economy (ME) and the Central Bank (CB) evolve in its economic forecast, and also shows the gross differences on key indicators as elasticity between imports and GDP or export growth, which has impact on the ratio trade gap – GDP, as well on foreign currency reserve, and domestic currency convertibility.



Date of Issue GDP growth rate Import growth rate Export growth rate
ME May 28th ‘08 6.5% 12.6% 8.0%
CB Oct 24th ‘08 6.5% 9.0% 6.2%
CB Dec 17th ‘08 6.0% 7.3% 4.6%
ME Feb 2nd ‘09 5.0% 11.0% 5.4%
CB Feb 5th ‘09 5.0% 5.5% 3.4%
ME Feb 23rd ‘09 5.0% 13.5% 5.0%
CB Mar 21st ‘09 5.0% 2.1% 1.9%
ME May 30th 09 3.5% 1.3% -2.6%
CB Jun 12th 09 3.3% -4.7% -1.3%


Institution Date of Issue Elasticity Import – GDP Ratio Trade Gap – GDP
ME May 28th ‘08 1.9 4.8%
CB Oct 24th ‘08 1.4 4.4%
CB Dec 17th ‘08 1.2 4.3%
ME Feb 2nd ‘09 2.2 5.0%
CB Feb 5th ‘09 1.1 4.2%
ME Feb 23rd ‘09 2.7 5.7%
CB Mar 21st ‘09 0.4 3.7%
ME May 30th 09 0.4 2.4%
CB Jun 12th 09 -1.4 0.9%


As before, the elasticity between imports and GDP is a clear signal of two macroeconomic forecast structures forced to converge in a GDP growth of 3.3%-3.5%. While the Ministry of Economy finds a positive elasticity, the Central Bank finds a negative elasticity which is extremely uncommon in Peruvian economic history of the last 20 years; in particular to have a negative growth rate of imports.

Last circumstance Peru had a real reduction of imports was in 1999 due to a negative GDP growth in 1998. Previous similar experience was in 1988 and 1989, when Peru has the most disastrous economic experience becoming a member of the select group of countries with hyperinflation a la Cagan (more than 10,000% annual) with a GDP contraction of more than 20%.

While Ministry of Economy forecast could be seen as straightforward optimistic and unreal, at least it is possible to foresee a conventional macroeconomic model behind with coefficients making sense with experience. On the other side, the Central Bank model looks more as a two stage model, on the first stage realistic assumptions are made (as negative imports growth due to a recession) and in the second stage comfort outcome are imposed (positive GDP growth).

 In any case, Peruvian economic authorities had shown a clear behavior of common deception to the Presidency. Both of them show a positive GDP growth which goes against common sense but on synchrony with President Garcia flamboyancy. This deceptive behavior has been analyzed previously in “How to lie to a President and succeed”.


20080711 – Peru’s Economic Model and Poverty Reduction: Is It Working?

Posted in 3 Cables with tags , , , , , , , , , , , , , , , , , on June 4, 2009 by Farid Matuk

The relationship between Bolivia and Peru has deteriorated rapidly over the last year, in part because of disagreements on foreign trade issuess. Recently, Peruvian President Alan Garcia and his Bolivian counterpart, Evo Morales, engaged in personal attacks which served to increase tensions between the two Andean nations. On July 2nd, Garcia attacked Morales by saying the latter was jealous of Peruvian economic growth. Maybe Garcia has a point in observing that Peru’s economic growth is more robust than Bolivia’s, but economic growth is not necessarily the ultimate objective for a country; more important may be the satisfaction of its citizens, which in Peru is trending downward because of growing inequality.

In its chronic struggle against poverty, Latin America has experimented with various economic models. These have included the neoliberal policies of the 1980s and 1990s, which have led to increased inequality. Some see neoliberal failures as responsible for the leftist wave that has spread across the region. Peru, however, is one of the two countries in Latin America that have not been tempted recently by solutions calling for the abandonment of the neoliberal development model.

The Peruvian model has produced an exceptional economic growth over the last five years. In 2007, Peru’s GDP growth rate was more than eight percent. The following year, the U.S. ratings agency Fitch gave Peru an investment-grade rating, meaning that after thorough analysis of recent economic trends, the agency now considers Peru a safe and hospitable investment venture.

Profitable policies, but largely for the elite
Unfortunately, as the country’s economy grew, so did its inequality. This trend is especially evident in contrasting Peru’s coastal region with the Andes, with most of the increase in personal income being concentrated in Lima and other coastal urban areas. This can readily be seen in the luxurious beach clubs to the south of Lima, which epitomize the often fabulous wealth of the Peruvian elites. In contrast, Peru’s National Statistics and Information Institute (INEI) recently reported that rural highlands were the least succesful areas in reducing poverty during 2007. Many communities here still practice subsistence agriculture and suffer from extreme poverty, even though the region is rich in mineral resources – Peru’s main export.

During the Alejandro M. Toledo presidency (2000–2005), Peru’s Gini coefficient increased from 49.8 in 2000 to 52 in 2003, demonstrating a considerable rise in inequality. The significance of this injustice is not just statistical or ideological, because increasing economic inequality inevitably leads to public dissatisfaction, which in turn contributes to the country’s instability. Public dissatisfaction with uneven growth was manifested in Toledo’s approval ratings, which were the lowest in South America in 2004. This apparently has been recognized by the new president, Alan Garcia, who announced in May a budget increase of S./ 203 million (around $70 million) for the social program ‘Juntos’ which originally was launched by Toledo in 2005.

The ‘Juntos’ program: squandered genius?
The ‘Juntos’ program provides subsidies to poor families on the condition that they regularly send their children to schools and health centers. ‘Juntos’ is an attempt to recreate programs taken from Mexican and Brazilian models, which were designed to increase literacy rates and decrease economic inequality. Unfortunately, objective conditions in Peru make this program unlikely to succeed, because the nation’s primary education and healthcare systems are among the most inadequate in the world. Additionally, the program has targeted urban areas and neglected rural regions, which are most in need of government assistance.

It would not be surprising if ‘Juntos’ does not fulfill its purpose because Lima has proven extremely innefficient at implementing social programs in the past. The ‘Vaso de Leche’ effort in the 1990s failed to achieve its goal of reducing malnutrition in five-year-old children, even though it was the most widespread program of its kind in the country. Such examples reaffirm the challenge that would be involved in successfully expanding the ‘Juntos’ program. Ultimately, ‘Juntos’ expansion cannot contribute to sustainable development if the country’s education and healthcare structures are not first reformed.

Still, some statistics suggest that ‘Juntos’ may be helping to decrease overall poverty. The INEI recently announced a sizeable 5.2 reduction in poverty in 2007. However, many have questioned the validity of these numbers, including Farid Matuk, an ex-president of INEI, who guesses that such numbers might be forged. They suggest a poverty reduction rate of 0.6 percent per each point of GDP growth, which is three times higher than the average of previous years. At this rate, Peru would eliminate poverty completely in about 10 years, which strains credulity. Despite the surprising results, several institutions, including the World Bank and two Peruvian universities, supervised the study’s methods and verified the validity of the statistics. If they are valid, then ‘Juntos’ may yet be the reason behind the reduction in poverty, considering it was being implemented when the purported drop began to accelerate.

Development must be sustainable
Every effort must be made to continue to promote poverty reduction. In the past, social programs repeatedly have failed to create sustainable development within the Peruvian neoliberal model. The economic expansion experienced by Peru between 1991 and 1997 in factreduced poverty by several points. However, the subsequent 1998 to 2001 recession was a huge step backwards, suggesting that the social programs in the 1990s failed to create sustainable development at the time. Will the new expansion be different, or will a future recession negate all of the advances which have been made?

Peru’s Economic Minister, Luis Carranza, optimistically has predicted that Peru will experience 10 to 15 years of economic growth starting in 2008. This would represent the longest expansion cycle in Peruvian history and would lead to a significant reduction in poverty. ‘Juntos’ could potentially play a part in Peru’s economic success, but for Carranza’s dream to become reality, the government must first take aggressive steps in favor of sustainable development and adequately address the problems of inequality, healthcare and education. Without such reforms in these areas, programs like ‘Juntos’ cannot create sufficient opportunities for the poor, no matter how carefully they are nurtured.

This analysis was prepared by COHA Research Associate Guillermo Cornejo

20090522 – Doubts grow about accuracy of Peru GDP numbers

Posted in 3 Cables with tags , , , , , , , , , , , on June 1, 2009 by Farid Matuk

By Terry Wade

LIMA, May 22 (Reuters) – Official statistics on economic growth in Peru may be too optimistic and painting a picture showing economic expansion when in fact the Andean country is in a recession, two Peruvian academics said.

Peru’s statistics agency, the INEI, started working with a new methodology for calculating gross domestic product in 2007, and its results sharply diverge from the previous model.

Bruno Seminario, an economics professor at the Universidad del Pacifico in Lima who has taken current data and run them threw the old model, says Peru’s economy is in fact shrinking at a time when President Alan Garcia says his country is largely sidestepping fallout from the global downturn.

“This change (to a new methodology) has generated so many distortions that nobody knows what’s going on,” Seminario told Reuters in an interview on Friday.

INEI director Renan Quispe, who declined to comment for this article but in the past has insisted he has “improved” the method for calculating GDP, has measured growth at 3.14 percent in January, 0.19 percent in February, and 3.05 percent in March using his new methodology.

But Seminario said that when the INEI’s previous model is used, the numbers look much worse and show economic contraction of 0.51 percent, 1.38 percent, and 1.71 percent in each of the first three months of this year.

He said Peru is suffering a recession similar to the one it fell into after the 1997-8 Asian financial crisis, and that Peru’s economy has ground to a halt after surging nearly 10 percent each of the last two years on a boom in commodities prices.

Seminario said the results produced by the new methodology the INEI is using are counterintuitive at a time when other indicators and countries that rely on commodities exports are suffering sharper declines.

The current slowdown has caused critics to take a closer look at official GDP numbers.

Economists also complain that the new methodology is a bit of a black box, wasn’t subjected to a public comment period by independent statisticians before being introduced, and that the official results suggest a series of flimsy assumptions were put into the new model.

“Nobody’s seen the survey or the deflators,” Seminario said. “The only sensible thing to do is for the INEI to publish both series of numbers.”

He isn’t the only critic.

Farid Matuk, the former head of the INEI who was fired from his job after Garcia took office, has also written that he thinks the numbers are inflated.

He has even gone so far to say that the government has filed several lawsuits against him in retaliation for criticizing the GDP numbers.

Garcia’s chief of staff, Yehude Simon, denied that the lawsuits were politically motivated, local radio reported on Friday.

Critics say the INEI is being imprudent by deriving some key numbers from estimates, instead of actual surveys.

Still other critics have compared Garcia’s administration to the Kirchner governments in Argentina, which private economists have criticized for manipulating official statistics for political ends.

“The strategy to alter part of the measurement of GDP is misguided because the sectors ‘other services,’ commerce, construction, among others, are measured between the four walls of the INEI,” Matuk has said.

20090324 – Hunger intensifies despite economic growth in Peru

Posted in 3 Cables with tags , , , , , , , , , , , , , , , , on March 28, 2009 by Farid Matuk

32 percent of Peruvians get inadequate food

Slower economic growth likely to push up hunger rates

By Dana Ford

LIMA, March 24 (Reuters) – More Peruvians went hungry last year despite blazing economic growth, a sign that President Alan Garcia is stumbling in efforts to direct benefits of an impressive expansion to the poor.

The percentage of people in Peru with inadequate nutrition rose by more than 11 percent in 2008, faster than the economy’s 9.8 percent surge, according to the national statistics agency.

Now, 32 percent of Peruvians do not get enough to eat.

The results suggest the poor did not make gains during Peru’s economic boom last year. They also explain in part why the government is so unpopular in rural areas, where hunger rates are highest and leftist politicians like Ollanta Humala, who plans to run for office in 2011, draw support.

“The benefits of the economic boom have not been distributed equally,” said Federico Arnillas, president of a network of civic groups that works on poverty issues with the health and finance ministries.

Garcia, who embraced mainstream economic policies after his first term in the 1980s ended in runaway inflation that made adequate food too costly for millions of people, has said he wants to reduce poverty to 30 percent by the time he leaves office.

When he was re-elected in 2006, Garcia fervently pushed investment and free trade and his recipe to lift incomes seemed to work. Prices for Peru’s metal exports surged and domestic demand rose, contributing to rapid economic growth.

The national poverty rate fell 5 percent in 2007 to 39 percent, a year when inflation was low and public spending on food programs was relatively high.

But in 2008, hunger crept up, as inflation spiked on a global run up in food prices and aid spending fell. Peru’s poverty rate for last year is not yet available, but experts say the government may have lost ground. That could hurt Garcia’s approval rating, now at 34 percent.

“The numbers tell us there is a percentage of the population that is, quite literally, dying of hunger,” said Farid Matuk, a former director of the national statistics agency and a government critic.

In rural areas, where Garcia’s support is weak, the number of people not eating enough rose to 42.5 percent in 2008.

Arnillas said the increase stems from political decisions and pointed to cuts in social spending.

“It’s not a simple resource problem. It’s a political one,” he said of hunger in Peru.


Advocates say slower economic growth this year will likely push hunger rates higher and are urging the government to adopt policies that prioritize food security.

Peru’s government is rolling out a $3 billion stimulus package meant to maintain investment and employment levels and increase public work projects. The plan, which aims for economic growth of at least 5 percent, also includes agricultural incentives to boost local food production.

Matuk, the former statistics agency head, said the government is too focused on high macroeconomic growth figures and should have paid more attention to the poor before the global economy entered a crisis.

Arnillas said Peru needs a bigger safety net as private economists forecast growth of less than 1 percent this year.

“We are worried the poor will wind up paying the cost of the crisis,” he said. “This is what happened in the past and we are working to make sure it does not happen again.” (Editing by Terry Wade and Vicki Allen)

Growth, Inflation & Poverty (24-III-09)

Posted in 03 - Marzo, Año 2009 with tags , , , , , , , , , , , , , , , , , , , , , , , on March 24, 2009 by Farid Matuk

The most common approach to lowering poverty rates is to have high economic growth, but recent evidence from Peru disputes this result, pointing out that high growth rates could be canceled out by high inflation rates, with as a consequence high growth rates and higher poverty rates.

Measuring poverty has many tools from the most elemental to the most sophisticated; data available speaks of the degree of statistical development of each county, as well the willingness of each government to finance surveys that expose the painful reality of the poor.

The simplest method consists of a poverty line in US dollars, being US$ 2 per day a popular threshold. The conventional problem with this value is different purchasing power of US$ 2 in different countries, the World Bank has tried to solve this problem with a successful world-wide effort to measure PPP (purchasing power parity) for each country and therefore now it is possible to have US$ 2 PPP for each country. But a large limitation of this approach is that rural areas – where the poor live- have been excluded because the PPP was build with domestic CPI (consumer price index), which by definition excludes rural areas.

A second approach, also pioneered by the World Bank, is a poverty survey, well known as Living Standard Measurement Survey (LSMS). A medium size survey (around 5,000 households) is applied in urban and rural areas of any country, with a strong emphasis in food and beverage consumption (as source of calories), plus expenses in other major items of any consumption basket. The main result of this approach is to obtain a poverty line in domestic currency for any given country.

The main pitfall of this approach is the lack of transparency of the assumptions taken for producing a poverty line. Almost every country produces data tabulates; most of them data base access; and almost none computer code applied. The computer code written is essential to identify is a systematic bias have been applied for the published poverty line, as well to learn all arbitrary decision taken on the steps described below.

Step 1: How to define an average poor household? Usually the average is in the half poor of the sample, but there is no international standard to identify it. If the mean poor household is closer to the median household, the final poverty line will be high compare to a mean poor household who is far from the median household.

Step 2: How to define a vicinity of the average poor? After a mean poor household was identified, vicinity must be defined. This could be one tenth, one fifth, one fourth or one third of the sample, and again there is no international standard. For a larger vicinity, a lower poverty line is found, and vice versa.

Step 3: How to define a basket of food and beverages for the extreme poverty line? After steps 1 and 2 are done, the researcher must choose which goods will be taken in account for valorizing the extreme poverty line, which is made setting a price for each product chosen. The exclusion criterion is arbitrary and may produce biases in any direction, according the price of the excluded products.

Step 4: How to deflate prices spatially? Since the survey is applied nation-wide, there are areas were food and beverages are non-market items, because the households in rural areas have an economy of subsistence, where they are producers and consumers at the same time. Theoretically there is many options to imputed prices, but since computer code is not public, a source of bias could be easily masked.

Step 5: How to measure an Engel coefficient for the extreme poverty line? After the extreme poverty line is obtained, it is necessary to produce a total poverty line, which must include non-calorie goods and services. While again, there is a large literature on this subject, without the computer code is impossible to analyze if the poverty line has a bias that overestimates or underestimates real poverty.

Besides these limitations, a poverty line is measured with a survey, and a poverty basket is designed to monitor poverty evolution. All problems of a conventional Laspeyres index are valid, but certainly a national poverty line is better than a US$ 2 PPP line because this measurement includes rural areas, where most of the poor used to live.

The UN MDG (United Nations Millennium Development Goals) has several goals, where Goal 1 is “Eradicate extreme poverty and hunger”, Target 1.C is “Halve, between 1990 and 2015, the proportion of people who suffer from hunger”, Indicator 1.8 is “Prevalence of underweight children under five years of age” and Indicator 1.9 is “Proportion of population below minimum level of dietary energy consumption”.

While Target 1.A and Target 1.B for Goal 1 are related to economic conditions of the poor, Target 1.C is related to biological and anthropometric characteristics of the poor. The main advantage of indicators for Target 1.C is that fewer assumptions are required for its measurement, therefore less built-in steps for biases.

For Indicator 1.8, the most common statistical device is the Demographic and Health Survey (DHS) which is funded by United States International Development Agency (USAID) around the world. The traditional design is a large scale sample around 20,000, which allows to measure demographic and heath variables, applied in intervals of 5 years. A new approach, which has Peru as pilot country started in 2004, sampling every year 6,000 households in a five year plan; this new design is able to produce statistical results for key variables with low variance, and for other variables in 5-year average.

For Indicator 1.9, a World Bank’s LSMS could be used in order to measure caloric intake and caloric needs for each household and from both figures the percentage of population below minimum intake could be obtained.

The graphs below are for Peru where Indicator 1.9 is plotted with inflation in the first and with growth in the second.

Poverty & Inflation (2004 - 2008)

Poverty & Inflation (2004 - 2008)

Poverty & Growth (2004 - 2008)

Poverty & Growth (2004 - 2008)

Starting May 2003, Peru was applying a LSMS in monthly basis with an annual target of 20,000 households. This new approach has sampling difficulties that were solve through a technical cooperation program with Statistics Canada, who did the sampling for the first year, and subsequent years were done by Peru’s statistical agency.

For monetary poverty results, an annual sample is cumulated and then a poverty line in domestic currency is obtained as described above. The first result was measured for May 2003 – April 2004, and subsequent results have been published for calendar years.

But the main advantage of this design is to obtain quarterly results for caloric poverty as defined by UN MDG Indicator 1.9. In the graphs above, the bars are annual moving average for caloric poverty, as well economic growth and consumer inflation. The spreadsheet to redo the graphs is available here and was obtained from official sources as described below.

The quarterly results are available in PDF on the web site of Peru’s Statistical Agency, first step is to click in “Boletines” on the left side panel, then to click on “Condiciones de Vida” also on the left side panel, and download the PDF files for each calendar quarter since 2007, and for each moving quarter since 2003.

The other two variables, economic growth and consumer inflation are taken from the web site of Peru’s Central Bank, economic growth is obtained from real quarterly national accounts, with the rate of growth of the moving average of four quarters compared with previous fourth quarters of Gross Domestic Product (GDP). Consumer Inflation have been built from the implicit deflator for private consumption; in order to obtain this index, the private consumption in the nominal quarterly national accounts, is divided by the private consumption in the real quarterly national accounts. The rate of growth follows same procedure for economic growth.

An examination of both graphs offers a clear example that GDP growth by itself will not reduce poverty, and that the inflation level is a more critical tool for fighting poverty. Therefore low growth with low inflation reduces poverty at a steady rate, while high growth with high inflation increases poverty at a steady rate.

  • Econometric Analysis

Besides this graphical analysis, an econometric one is feasible and some results are presented below. In first place, the sampling period for the analysis is the whole period for available quarterly measurement of caloric poverty; this is from 2003 Q3 to 2008 Q4, with a total of 22 observations. Data for economic growth and consumer inflation is available quarterly since 1980.

Caloric poverty (CALP) is the percentage of population who lacks the minimum calorie intake; economic growth (GDP) is the difference of logarithm of real GDP in any quarter to similar in previous year; and consumer inflation has same mathematical transformation with the deflator of private consumption (DPC).

The model to be estimated is quite simple, with a perturbation component that fulfill classical assumption for error term of normal distribution, serial independence, and homocedasticty:

CALP{t} = BETA0 + BETA1*DPC{t} + BETA2*GDP{t-1} + U{t}

The data could be found here, the RATS source code could be found here, and the RATS output file could be found here.

An initial regression was tried with GDP impact in same period, but GDP lagged one period showed a better result. Therefore changes in inflation have a faster impact on poverty than growth rate, which is not surprising that a nominal variable has faster impact than a real variable.

The best result provides BETA1 and BETA2 coefficients with null hypothesis of zero value rejected at 99% confidence, when the first observation of the sample is excluded, having as result a total of 20 observations for the analysis.

Another important result also showed in the output file is that null hypothesis of BETA1 and BETA2 having similar value with opposite sign is always accepted, with several sampling periods. This allows conclude that lowing inflation has the same impact that increasing growth rate.

Finally, the econometric evidence reaffirms what was intuitive on the graphs. Not only economic growth matters for fighting poverty, also matters low inflation in equal degree.

20090317 – Peru economy slows, growing by 3.1 pct in January

Posted in 3 Cables with tags , , , , , , , , , , , , , , , on March 19, 2009 by Farid Matuk

Peru’s boom sputtering? Economic growth slows to 3.1 pct in January
Associated Press Writer

LIMA, Peru (AP) _ Peru posted its lowest economic growth rate in years on Monday, saying it expanded by just 3.1 percent year-to-year in January amid signs that a three-year economic boom fueled by soaring metals prices could be sputtering.

The Andean nation’s economy grew by 9.8 percent last year, faster than China’s, but has slowed as the global financial crisis drives down prices and demand for its main mineral exports.

Peru’s statistics institute reported Monday that the economy grew by 3.1 percent in January over the same period a year earlier, the lowest monthly rate of President Alan Garcia’s term, which began in 2006.

 The report said exports fell 38.6 percent in January over the same period the year before.

The government is projecting 5 percent growth in 2009, which would be one of the highest in the world amid the global downturn. But analysts are already questioning the figure.

The government is implementing a $3 billion anti-crisis package aimed at infrastructure and public works to combat the effects of falling export prices.

The former head of the statistics institute, Farid Matuk, says the formal growth figure only represents reality for Peru’s upper crust. Despite soaring commodity prices that prompted growth rates of 8 percent in 2006, 8.9 percent in 2007 and 9.8 percent in 2008, job growth in Peru as a whole was stagnant, Matuk said.

Monday’s report said that overall employment from December 2008 through February 2009 fell by 0.7 percent in metropolitan Lima compared to the same period the year before, although it said that formal sector employment grew by 5.1 percent.

Matuk said statistics institute figures show that the number of employed Peruvians in metropolitan Lima who lack a college education has actually fallen by 3 percent since February 2007.

“In the past two years there have not been substantial improvements in household living standards and employment is basically stagnant because growth has been based on raw materials” like mining and other non-labor intensive industries, Matuk told the Associated Press.

How to lie to a President and succeed (16-III-09)

Posted in 03 - Marzo, Año 2009 with tags , , , , , , , , , , , , , , , , , , on March 16, 2009 by Farid Matuk

Peruvian economic authorities are two as in many countries, one in charge of fiscal policy and other in charge of monetary policy. As in many countries too, fiscal policy is in charge of a Minister, who is an appointee of the President; and monetary policy is in charge of the head of the Central Bank, who in Peru is choose by the Congress.

Until May 2008, both authorities had a point of agreement in economic policy and macroeconomic forecast, in a document called Multi-annual Macroeconomic Framework (Marco Macroeconómico Multianual), which is prepared by the Ministry of Economy and subscribed by the Central Bank, through an attached letter of acceptance.

Actual Peruvian president, hold the dubious record of producing the most lasting hyperinflation (Cagan definition) in Latin America, in his first tenure between 1985 and 1990, and this legacy hunts him.  At the beginning of the present economic crisis in 2008 he declared “Peru is insulated”, now he declares that Peru will be in top 5 world wide highest GDP growth for 2009, in an optimism that exudes maniac behavior.

But the world economic crisis has produced a hidden divorce in Peru economic authorities, in the process of trying to satisfy a President who believes that economic panic could be cured by hypnosis, the Ministry of Economy and the Central Bank have build macroeconomic forecast based on presidential needs and not on technical criteria.

In the table below, is possible to see how the public documents from both institutions, available through Internet, document two different ways to fulfill a GDP growth rate out of reality. ME stands for Ministry of Economy and CB stands for Central Bank.


Date of Issue

GDP growth rate

Import growth rate

Export growth rate


May 28th ‘08





Oct 24th ‘08





Dec 17th ‘08





Feb 2nd ‘09





Feb 5th ‘09





Feb 23rd ‘09





Mar 21st ‘09





Date of Issue

Elasticity Import – GDP

Ratio Trade Gap – GDP


May 28th ‘08




Oct 24th ‘08




Dec 17th ‘08




Feb 2nd ‘09




Feb 5th ‘09




Feb 23rd ‘09




Mar 21st ‘09



Even today is March 16th, Central Bank web site link to its March document is dated March 21st, who know why. Going to substance, the column for GDP growth rate shows a reduction from 6.5% to 5.0% from May ’08 to Mar ’09; which looks as a shy reduction to many analysts but maybe Peru has a secret formula for growth.

The column for Import growth rate shows substantial differences between the Ministry of Economy and the Central Bank, which is more evident in the column Elasticity Import – GDP. The Ministry of Economy has elasticity value that varies between 1.9 and 2.7, which fits with my own econometric estimations for this coefficient. But the Central Bank has an elasticity value that varies between 1.4 and 0.4 which is unrealistic from an econometric point of view, as well with historical data. Unless the Central Bank is planning a drastic change in its actual monetary policy, therefore the Peruvian currency will have a free fall enough large to reduce imports.

Finally, the last column shows the ratio for foreign trade and GDP, if May 2008 is taken as base line with financial markets willing to lend to emerging economies, actual circumstances imply a smaller gap since financial availability is lower than before for emerging markets. Also if terms of trade are constant, the baseline gap remains constant; but if there is deterioration of term of trade for Peru, then we have large gap; and today all analysis assumes deterioration for Peruvian terms of trade.

Assuming the Ministry of Economy export – GDP elasticity and the Central Bank export growth forecast, it is possible to simulate several scenarios. In order to reach the ratio for foreign trade and GDP of the base line, which is 4.8%, the maximum GDP growth rate feasible is 2.5%.

If foreign influx of capital is less than baseline scenario May 2008, and terms of trade deteriorated relative of baseline scenario May 2008, then GDP growth rate will be below 2.5%. From other analysis (in Spanish) made with short-term and medium-term real-sector economic cycle, the outcome is more grim with a GDP growth rate negative in 2010-Q1 of -1% (see “Fundiendo Motor” and “Compulsion a la Repeticion“).