Peru, my country of birth, was praised early on in the pandemic for its swift and decisive response. The government imposed a strict lockdown that is now, at more than ninety days, is one of the longest in the world. A fiscal package of more than ten percent of GDP was announced, including cash transfers to the poorest one third of the population, credit support for businesses and, most importantly, expanded funding to the health sector. The country was supposed to be able to finance these actions without the kind of financial stress that other countries have had to face. Peru’s growth and stability has been one of the brightest spots in the world economy for more than a quarter century now. It has ample access to world credit, and a level of international reserves that exceeds one third of its GDP. I cannot think of another country in a better position at the start of the pandemic.
And yet, the results have been not only disappointing: they are among the worst in the world. In a group of twenty countries, the Financial Times identifies Peru as the one with the highest number of excess deaths. The NY Times reports that the supply of oxygen may only be one fifth of Peru’s current needs. These facts represent an utter failure of public policy, especially given that the lockdown has resulted in an economic contraction of 40 per cent, as disclosed by the Finance Minister last night.
It is obviously imperative to reflect on what went wrong, and to try to find ways to correct the government strategy, if only to minimize the remaining damage. And here we realize that, unfortunately, and as stressed by many observers, Peru’s experience is by and large a reflection of basic shortcomings in terms of economic structure, social fabric, and political institutions, which two and a half decades of rapid growth have not addressed.
Discussing those shortcomings in detail is not feasible here, but I let me direct attention to a couple of indicators and their significance:
- Two months after the start of the quarantine, the Health Ministry had used less than twenty percent of the funds assigned to it to combat the pandemic. One could conjecture that such slowness might be excusable given that Covid-19 has been surprisingly devastating in terms of contagion and fatality rates. But the Health Ministry’s rate of budget execution was only 40 percent in 2019. Hence we must look for other explanations of the poor budget execution. Which others? Here I venture outside my expertise, but I wonder whether a factor is that officers are reluctant to spend any funds because of fear of jail if they are accused of corruption, bribery, or graft (a fact that the NY Times article cited earlier seems to suggest but fail to expand on: “Anti-corruption prosecutors have opened more than 500 inquiries since the lockdown began on March 16, most often looking into reports that officials pocketed money that was supposed to pay for food aid or personal protective equipment.”)
- In an exceedingly important post in focoeconomico.org, Hugo Ñopo tells us that about one half of Peruvians at home lack a refrigerator at home. No surprise, then, that they have to disobey the lockdown mandate and visit a market every day. And get infected: when the government sent testing teams at several markets, it found that as many as 80 percent of the vendors were infected. We need to ask why the government did not predict this outcome much earlier, especially given that it was known and clear that a crucial objective of the policy response was to prevent agglomerations and contact. Instead, some specifics of the response were bound to maximize rather than minimize congestion. For instance, curfews and reduction of operating hours meant that the same number of buyers congregated in the markets in a shorter time period. More generally, in several instances, Peru’s policies have undermined each other.
These thoughts suggest alternatives for quick reform and action. (In particular, a discussion of the role of economic policy incentives and health directives, you may want to check my work with Andrés Velasco). I remain optimistic and believe that it is not too late for Peru’s policy effort to find a better footing. But the virus clock keeps ticking.