The Organisation for Economic Co-operation and Development (OECD) Development Center Director Mario Pezzini affirmed Peru can become a high-income country by 2025 if it speeds up growth and carries out the required structural reforms.
“If Peru grows at rates of over 5% per year, that would reduce the time it needs to become a high-income country. It would definitely reach this status by 2025, it all depends on the growth rate,” Mr. Pezzini told Andina news agency.
In this respect, the OECD official said the Inca nation needs to work on reforms to enhance productivity by "working hard with SMEs." In addition, it has to reduce informality and built the infrastructure required to further boost its production sector.
Since its logistic multimodality is still weak, the South American nation has an outstanding infrastructure agenda to bolster production rates. Peru's multimodal transport is centered around highways, which increases transport costs. Said costs are even higher than tariffs on local production, and in turn have an impact on regional integration.
The World Bank classifies countries in three categories based on their gross national income (GNI) per capita: low-income (US$1,025 or less), middle-income (between US$1,026 and US$12,475) and high-income (US$12,476 or more) economies.
Nevertheless, if Peru sustains the last decades' growth rate and does not make any efforts, it will not become a high-income country until 2029, Pezzini warned.
In this sense, he highlighted President Kuczynski's government “has a policy program which is re-focusing towards priorities similar to those proposed by the OECD,” which will contribute to speeding up the country's economic growth and development.
Likewise, he remarked there are international variables which are beyond Peru's control, such as the global trade level and economic growth slowdown.
Investment flows
On the other hand, the OECD Development Center Director said investment fund flows from Europe and other developed nations are migrating to emerging countries such as Peru due to their countries' negative interest rates. However, these are yet to arrive in the Latin American region in significant levels.
“It is a recent situation. Rather than fiscal policy, the main tool to face the crisis was to work on monetary policy by reducing interest rates, which thus facilitated investment flow,” he explained.
“Foreign investment is not reaching Latin America in relevant levels, but this is not the main measure to help draw investments. The region has to face its structural challenges, and these cannot be offset by foreign capitals,” he observed.
According to Pezzini, Latin America’s average growth rate was 0.5%, Africa’s stood at 3.7% and Southeast Asia’s at 5%, which puts it at a disadvantage compared to other regions, in terms of investment attractiveness.
“From a GDP-growth point of view, Latin America does not have a comparative advantage. It certainly has its own advantages, but Southeast Asia has production capacity and skilled workers,” he added.
Despite the drop in international trade, global integration has grown over time and, in this respect, Latin America presents a low integration level.
“Deeper integration in the region would facilitate the production diversification required to grow. Rather than competition between countries, the region needs increasing coordination. This would benefit everyone; logistics and public policies efforts are essential here,” he said.
Income distribution
The expert also underscored becoming a high-income country takes more than bolstering economic growth. It also involves reducing income inequality among the nation's population and different regions.
“The problem is not simply economic growth, but also income distribution. If the distribution level remains as polarized as it is now, it will not facilitate Peru's development. It is not only about inequality among people, but also places, because there's a severe territorial mismatch,” he expressed.
Mr. Pezzini participated this morning in a panel on economic growth and poverty reduction at the Peru-OECD 2016 Forum. The OECD official was joined by Peru's Economy and Finance Minister Alfredo Thorne, World Bank Group Global Practice on Trade and Competitiveness Senior Economic Policy Advisor Mary Hallward-Driemeier and Inter-American Development Bank Regional Economic Advisor Marta Ruiz Arrand.
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Published: 10/15/2016