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Inclusive growth: the ‘trademark’ of Peru’s government

Interview - April 16, 2013
Juan Federico Jiménez Mayor, Prime Minister of Peru, speaks to Business and Investment about the country’s National Agreement that is helping foster inclusive socioeconomic growth by unifying the efforts of the government and society aimed at reducing poverty and increasing investment in the nation’s future. Mr Mayor also discusses record investment levels in Peru’s science and technology sector, as well as continuing the push for transparency, decentralisation and closer commercial links with the world’s main trade blocs.
JUAN FEDERICO JIMÉNEZ MAYOR, PRIME MINISTER OF PERU
JUAN FEDERICO JIMÉNEZ MAYOR | PRIME MINISTER OF PERU
In recent years Peru’s economy has seen the highest growth rate in the region, with an average GDP growth rate of 6%, which looks set to continue in 2013. In accordance with this trend, your government is implementing the Bicentenary Plan 2021, which aims at diversifying the economy and going beyond the country’s traditional sectors: the mining industry and agriculture. In addition, your administration intends to allocate the benefits of Peru’s economic growth to meet the population’s needs by implementing social programs boosted by President Ollanta Humala, so as to reduce poverty levels. I should like to begin by briefly discussing the National Agreement. What are its goals and how does it work?
 
The National Agreement is a political and social platform of the state, in which political parties, civil society and the state participate in order to coordinate policies.
 
This platform was created in 2001 by former president Alejandro Toledo. However, its origin had been brewing during the political transition, when Alberto Fujimori’s regime collapsed and Valentín Paniagua put forward the need to develop a long-term agreement to all political and social forces.
 
Spain established the Moncloa Pacts, and the National Agreements aim to ensure that the political transition should give rise to conditions of democracy and respect for civil, political and economic rights, which create the country’s development framework.
The National Agreement is currently active. Moreover, in the second semester of last year, Peru’s water policy […] was approved, which proves the fact that the Agreeement is still in force.
 
It is an important and interesting framework, which I have personally used in order to reassert national policies of domestic security: one of the main causes for concern in many Latin American countries, where crime rates are increasing. 
 
It is also an interesting framework to reflect and to create conditions for sufficient coordination that enable us to establish important reforms, not only to implement temporary policies – as is usually the case in Latin America and, more concretely, in Peru. This is one of the aspects that the government is emphasising in particular.
 
We are talking about change and transformation policies led by the government in some essential national fields, oriented toward greater tax collection, better pension funds, higher education and healthcare levels, and a better national civil service in the field of public administration. All in all, a series of changes which aim to foster growth in the economy and investment, and to make the country more flexible, for instance, the reform that is being implemented in the modernisation of the state. 
 
In summary, the goal of the National Agreement and of this administration is inclusive growth.
 
Without a doubt, this is the government’s trademark. The government is deeply engaged with the development of a social agenda; the creation of the Ministry of Development and Social Inclusion, led by Carolina Trivelli, is playing an important role in strengthening programs already in place and in creating new projects that are helping to reduce the poverty gap in Peru at a faster rate.  
 
One example is the fact that we can now help older people who do not have, or have never had, any type of support. Now they benefit from the Pensions 65 plan, a program aimed at allocating subsidies to adults over 65 years of age.
 
Before this program was implemented, in Peru only one out of four elderly people benefited from a pension. That fact led to the need to establish non-contributory pension schemes. The goal is to focus on people and households without any help and those living below the poverty line, so as to provide them with social assistance.
 
Economy and Finance Minister Miguel Castilla stated that the rate was still three out of 10.
 
That is true. It is a problem that still has to be resolved. Poverty has been greatly reduced in Peru: from previously high levels we have brought down the percentage of those living in complete poverty to 27% and those in extreme poverty to around 6%. We still have to reduce these levels. This is the hardest stage, since we are targeting extremely excluded groups, who are very spread out across the country. Peru does have a very disperse population, with small groups of people living along the Andes and in the Amazon.
 
I understand there are several regional and rural development programs. 
 
Rural living and poverty are very closely connected. These are precisely the exclusion areas that are outside the market, therefore the state strives to include them in the market, to enable them to create their own economic conditions and lift themselves out of poverty. 
 
So is the Bicentenary Plan 2021 the roadmap in order to achieve that goal?
 
We are now revising the Bicentenary Plan 2021. We will do a complete revision of the plan until the end of 2013. Our view – mine and that of the government and of President Humala – is that we need a plan with the greatest chance of implementation. Very often in Latin America and in Peru, great plans and fabulous projects are designed but never accomplished. In this sense, our goal is to set a plan that truly creates what we promised: productive diversification.
 
Peru’s industrial development plan […] is a project that will have, from our approach to development and sustainable economic growth, a great impact on rights, on a series of elements inherent to Peruvians’ happiness. 
 
This must involve a growth and development pattern, which obviously should open up new possibilities to industry, a field in which we are very competitive and which can be exported to the world. Our idea of connecting to a globalised world is linked to this idea of establishing what the world needs and what Peru is able to offer in a competitive way.
 
This is what Minister Castilla has also talked about: to go beyond primary economic activity and to give it some added value. While it is true that the Bicentenary Plan is being outlined, as you mentioned, a vision and a plan for diversification in different areas are indeed in place. Which sectors would you highlight in particular?
 
There are more areas of specific interest in Peru nowadays. One of them is the possibility of becoming the leading country for copper exports, if we are talking about the primary economy; but at the moment we are working on new gas infrastructure and above all a petrochemical town in the south.
We own great gas reserves, which will allow us to develop a new competitive industry on a global scale. That is because we own ethane reserves, which will enable the development of an industry that is going to link many productive chains in the south of Peru.
This is obviously going to alter the southern region, a very poor area, with the highest poverty rates. It will enable us to improve social conditions and to create development opportunities for Peruvians living in this area of the country.
But it is true that the current hot topics, what are of most concern nowadays, are the areas of infrastructure, energy and ICT: priorities that have also been mentioned by President Humala recently.
 
There are clearly several possibilities for Peru to grow and to diversify its industry. We are investing funds in science and technology precisely with the aim of promoting projects that create added value and development possibilities in the field of industry.
 
We have implemented a $100 million fund with support from the MIT for this year, two more funds that add up to $300 million, plus another couple of hundred or so. In other words, never in the history of Peru have so many resources been invested in order to develop science and technology projects. These are discretionary grants for companies, universities or scientists to develop projects, financed by the state, that are oriented towards improving genetics, spurring new inventions, technological development, new machinery...
 
A knowledge economy
 
Exactly. We also need to increase the patent system in order to permit the possession of several patents in Peru that create development conditions and investment, something that the state is going to promote.
 
The current view in Peru is that this system, in the industrial, mining or primary sectors, may be the opportunity – thanks to the resources raised by the state – to support the development of local industries which may generate more autonomous opportunities in other types of production schemes.
 
Regarding these funds that you mention and that are coming into the country, not only from international organisations but also because of the growing economy, I would like to talk about the government’s transparency program which aims at positioning Peru as a regional model.
 
Transparency started to appear in Peru in 2000, precisely when Mr Fujimori’s government fell and the first provision establishing the need for transparency in public funds and public information access was introduced.
 
Peru constituted one of the first four Latin American countries back then that implemented regulations that enabled any citizen to have access to any public document. This has shaped a constant tradition of transparency from those years of Mr Paniagua’s government until now. This tradition has been reinforced thanks to some specific laws.
 
What is important is that there is now a national convention, a general agreement regarding the provision of information by the state, the idea that it has to act in a transparent way.
 
There are probably some gaps between this intention and what is being done in some sectors, chiefly considering local governments and municipalities. There are around 1,800 […] municipalities and regional governments in the whole country. A change in this country’s political system has been witnessed, but at least transparency regulations work at the state’s greater sectors level.
 
We provide information about the earnings of any minister or high-ranking official, as well as about sworn declarations carried out every year in order to find out about the civil servants’ assets or any necessary information. Everyday some information is required by the citizens and respectively provided.
 
This is a good thing. It is the idea of an open democracy.
 
Trust in institutions is also necessary.
 
Indeed. And the relationship with the press is excellent. Besides, what we are building is linked to a whole strategy regarding an open, transparent government, something that you may check at the websites of the state’s institutions
 
You have mentioned all regions and entities currently in place. There is a model plan, the Decentralization Plan 2013-2016. The Minister of Labour said recently that “when we need to get things done, nobody is excluded, we do things and there is a dialogue”, and actually the government is very close to the people’s needs.
 
Yes, last year, in 2012, the decentralisation process had been in force 10 years, as it started in 2002 under a constitutional reform that put forward a whole scheme related to how Peru should be decentralised.
 
Nowadays, there are democratically elected regional governments. We are through the third term of office under that model. It is an irreversible process, because since the independent republican way appeared in Peru in 1821, the state has always had the intention of becoming decentralised. There have been many attempts throughout history, of which the most advanced is the current one. I have described it as “irreversible” to highlight that there is no turning back to that process. The previous attempt was undertaken under Mr Fujimori’s government, which ended in the coup d’état of April 5th [1992]. Not only was the congress closed and the judiciary affected, but regional governments were also shut down.
 
We took up again this process in 2002, with a new historical background, and it has generated a new way of politically organising the country. It has not been an easy task for Peru, as it has never been easy throughout history. Decentralisation is a challenge because it involves a new, different relationship between democracy and population; it constitutes a different way of administrating the country. It has been difficult to build new democratic structures of authority, since there were not many prepared people in Peru’s regions to rule a regional government of such dimensions.
 
It is true that the process was not very well received in the beginning, but I think that the model is already consolidated. It is still necessary to go further, thus several projects are being developed with the support of the Presidency and the Council of Ministers in order to back regional and local government management. Municipalities have a long tradition dating back to the 19th century as to how city halls function. However, the regional system is still very young, as it has been in force only 10 years, and it still demands great support in the sphere of management, therefore we are training civil servants regarding to this area.
 
The management of the most important public services, such as healthcare, education, agriculture, energy, transport, the road system... has been decentralised. The maintenance and viability of some roads are directly managed by regional governments.
It is important to consider that this is a different country, built from the democratic and political transition in accordance with a decentralisation plan oriented to consolidate democracy and to bring services closer to citizens. But this is obviously not an easy task. It always creates problems. People demand high-quality services that need to be fulfilled. For example, the healthcare system constitutes a problem in several countries, and people’s satisfaction always depends on the quality of services. The idea is to build new institutions. I think this is one of the most important reforms.
 
Modernisation is one of the areas in which we are active, as part of the political transition. Much has been said about state’s modernisation. We are leading the process from the Presidency of the Council of Ministers, from a secretary’s office established for that purpose. The goal is not only to consolidate modern legislation, but also modern organisations and processes.
 
Concerning this area, we are also trying to develop an electronic government system, so as to use the least possible amount of paper, no paper at all. We have designed several projects linked, for instance, to the establishment of companies online, something that is already possible: Peru was one of the first Latin American countries in offering the possibility of directly registering a company via the Internet in only 72 hours. This advance has enabled us to hugely increase competitiveness at international level.
 
Specially now thanks to free trade agreements.
 
Peru is one of the countries to have signed the most free trade agreements. We, the civil servants, think very often that we know everything and that we know how a political organisation has to be reformed. Then, sometimes, we implement these reforms. What we are after now is that people tell us how things should be done, where the problems of the state stem from.
 
Formalities and procedures used by citizens in order to register births, to obtain their identity card, to get a local licence to set up a business, to build a house, to transfer their car... all in all, everything, or most things, that citizens do in relation with the state involve formalities, and they may be very annoying: one has to stand in queues, waste time, spend money, be badly treated, and often has to suffer corruption in these situations.
 
Therefore an intervention system to interact with citizens has been designed. A contest called ‘The Nonessential Formality’ has been established. More than 1,500 responses have been received, which show us what should be modified regarding administration. The other day, one of my colleagues was telling me about a ‘nonessential formality’: he was going to get married for the second time, and he was asked to submit a document stating that his future wife was not pregnant. That was a requisite from the municipality where he was going to get married. He thought: “How is this related?” This is a typical example of a ‘nonessential formality’, because it does not make any sense to be required to submit such a document.
 
Sometimes, in the state, in the administration, some things are made up or invented in order to make people’s life more difficult, instead of making it easier.
 
I should like to talk about Peru as a gateway to Latin America and Asia. You have just mentioned that Peru is one of the countries to have signed the most free trade agreements, and it is true that when such an agreement was established with the US, around 2,000 companies set up here. Peru does not only have relations with the European Union and Spain, as its primary investor, but now it is also turning its attentions towards Asia. I should like to ask you for an overview regarding Peru’s orientation. Is it oriented to everywhere or does it understand globalisation in a perfect way?
 
Peru is a country that has globalised: from having the closed economy of the 80s to opening its borders and creating development possibilities. In my opinion, democracy and development always need to be combined.
 
I think this is a great example that the country is giving: it was not necessary to establish a dictatorship or an autocratic government so as to develop a successful economic model that would lead the country to growth. I think this is an extraordinary thing to be conceived in the Latin American framework.
For certain, in our country there is a view of a healthy economy, a straightforward economy regarding its macroeconomic aspects; there is also clarity in its taxes and healthcare, and it has inflation under control, national accounts always showing a credit balance, GDP that has already exceeded $200 billion and growing rapidly, a highly reasonable public debt that does not create any effect or determine GDP. 
 
Peru has a healthy and supported economy that obviously enhances the country’s focus on global trade. Peru is acting in an intelligent way with regard to international trade blocs in Asia, Europe and America.
 
I consider that, in this sense, the phenomenon we are seeing in Peru is a phenomenon of diversifying its possibilities for export. Non-traditional exports have hugely increased. The commodities system is of course maintained: commodities are there because this is a country-money, this has to be recognised. Peru is lucky to own sound natural resources. This has been a constant feature since even before the Incas, when Peru’s metallurgic work was already in place. That fact creates, without any doubt, a world of possibilities.
 
We are not only talking about free trade agreements: Peru is part of APEC, it has just created the Pacific Partnership, and regarding finance Peru is part of MILA (Latin American Integration Market)... the truth is that several different associations are being established, and that helps Peru’s positioning.

Peru has opened many doors and now is going through them and entering new markets. Now we need to connect with the areas holding the greatest potential for our industrial development at a national level, in the areas where we are able to become number one: this is the major challenge. One of these areas is the petrochemical industry, but we are now exploring new ones.
 
This leads us closer to Spain. The free trade agreement is new. It has been in force since last month after some time working on it. What does this agreement represent for both Peru and the European Union? It involves greater investment and trade. But how would you define it?
 
I consider it to be essential for two reasons. First, because of our economic relations with Europe: there are sound trade relations between us. Second, it is essential in the field of human rights. And this is a factor that I would like to highlight. Mr Humala’s government has established the Ministry of Justice and Human Rights and has maintained – and maintains – a policy of respect towards human rights: civil, political and economic freedoms, freedom of speech, democracy... These are principles and values that the government seeks to highlight also form part of the development process. That is why I say that democracy and economic growth are associated. I think this is also the EU’s contribution and the view towards Peru.
 
In this sense, a different view of the country has to be considered, similar to the one that we have. And I think that it is very important to share that. Only Switzerland constitutes Peru’s second or third trade partner.
 
This leads us to discuss the new era in Peru-Spain relations. The truth is that relations have always been smooth, and remain so nowadays. We are good friends. President Humala has already visited Spain twice. Leaving aside past relations that we all already know about, how would you describe the present and the future? How should relations be?
 
Spain and Peru are trade partners, but they also share a long-standing cultural affinity; there is almost a common stock between them. Peru was at the front of the Spanish viceroyalty in South America. It was a very important territory for the Spanish Crown at that time. Of course Peru is now an independent country, but we can say that those centuries of relations have obviously influenced current relations between Spain and Peru in many aspects. One needs only to visit Lima or Peru’s main cities.
 
It is true that Peruvians feel comfortable in Spain and vice versa. If we consider the areas of trade and investment, I would like to put across your words in this article. Where should the Spanish target? Even though it is true that President Humala himself stated that maybe at this moment in time Spain does not have liquidity, but has soundness. It is something that I liked, because as it has been mentioned before, Spain is still a leading country in many areas. In my opinion, this new stage may be more cooperative. Spain can play an important role – thanks to the Diversification Plan – in tourism, energy, infrastructure...
 
I see it as a great opportunity for both countries. We want to reduce periods of time. One of the aspects that we seek to enhance is scientific and technological development. There is a whole program in this direction that we would like to consolidate with Spain.
There are many opportunities in the fields of science and technology, and we need to reduce the time period whereby Peru will be able to boost development processes in these areas. We know that there is a great deal of experience in Spain in these fields, and high capacities that could be deployed at this time in Peru.
 
This is our view in order to give incentives that may enable us to create what is nowadays somehow present in Spain, but that may not currently have the required boost. This impetus can be given in Peru, both in terms of human talent and infrastructure capacities. We can create important partnerships.
 
Very interesting projects are being implemented in Peru. In Arequipa, in the south of the country, we have the biggest photovoltaic plant in South America.

You might know that Spain is the second leading country concerning renewable energy.
 
Peru is a country that also demands energy. We need alternative, clean sources of energy. I believe that this is an area in which we can cooperate very well. Peru is the country of opportunities. 
 
I think we should finish by talking about Peru’s wonders, as Spaniards are also tourists and travel. No one could better talk about this issue than the country’s highest representative.
 
Recently we launched a very pleasant project called ‘The Friendliest Peruvian’. It was launched in Barranco and turned out well. What does it consist of? Around 2 million tourists – I do not have the exact figure – come to Peru, and the asset of the Peruvian is to be querendon: he endears himself to you. Peruvians are nice, receive and treat tourists very well, and makie them feel at home. This project seeks to promote these warm and attentive attitudes towards tourists. ‘The Friendliest Peruvian’ is a program launched in the same way that ‘The Nonessential Formality’, which tries to connect with the people. These creative ideas are been implemented in order to be in tune with citizens.

Read the original interview with Prime Minister Juan Federico Jiménez Mayor in Spanish, here.

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