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Transition man.

Peruvians next month will elect a successor to President Alejandro Toledo, who since taking office has suffered from what are arguably the lowest approval ratings of any leader in the Western Hemisphere. Despite the criticism, the country's economy has grown at unprecedented rates. Fernando Zavala, who took over as Minister of Economy and Finance in 2005, will oversee the transfer of Toledo's economic policies to the next administration. Zavala spoke with Latin Trade Correspondent C.J. Schexnayder about what the next leader must do to keep the economy chugging along.

Why has the Peruvian economy strengthened despite the lack of approval of the president and Congress?

In Peru's case, as in other countries, economic growth is no longer tied to politics. In Peru there have been a series of factors that have led to this economic growth. To be fair, the economic administration deserves credit. The president has supported everything that economy ministers Pedro Pablo Kuczynski, Silva Ruete and Jaime Quijandria have done. There has been much emphasis on letting the Economy Ministry do its technical work and that has allowed us to separate ourselves from the political issues that often stifle economic growth.

Is the upcoming election expected to affect the economy?

We are expecting economic growth of 6% for 2005 and private-investment growth of around 11%. There are times when key investments can sustain growth through the future, and what the Economy Ministry is trying to do is to not allow this election year to affect the fiscal year.

What has been the driving force behind Peru's economic growth over the course of the past five years?

We just completed pension reform, which was approved at the Constitutional level, and everything from the investment-promotion processes from the 1990s is bearing fruit today. So it's a combination of everything that took place in the 1990s and everything since the beginning of 2001 when President Toledo took office. As to growth, there are projects that started up in the 1990s, all the mines for example. But there are also projects stemming from this administration, such as [natural gas project] Camisea and new mining initiatives. The construction sector has been a key driver. We are seeing progress in Mi Vivienda [housing agency], which has worked out well in terms of employment and productive chains. International [commodity] prices have also been in our favor lately. So that's why I believe it's a combination of positive external and internal factors. But, internally, the machine is working.

What must the next administration do to ensure ongoing economic growth?

I think the big issue is that, for the first time, there has been a change of government when the country is in a period of growth. Exports are up 5%. The big area of discussion concerning the future is how do we grow by more than 7% while eliminating poverty as quickly as possible. I think that's the point and all of the candidates know this. The debate has changed, and I think the next administration will bear the responsibility of continuing to grow on the bases already put in place.

What has been done, particularly in the past year, to aid the transition?

In budgetary terms there are a lot of important things, such as pension reform, decentralization in such a way that allows regions to manage more of their own growth prudently. We put several regulations and laws into place to make sure decentralization does not affect the country's fiscal health. Our fiscal law is prudent and transparent and will ensure a responsible economic transition. As to the economy, we have made Mi Vivienda more sustainable for the long term, and another big issue is opening up the economy, which basically the means [free trade] agreements we made with Mexico and Chile, and the one we are negotiating with the United States as well as with Asia and with the European Union, to cut tariffs.

How important for growth is free trade between Peru and the United States?

For us it's indispensable, first because it strengthens the [Andean Trade Promotion and Drug Eradication Act] and, secondly, because we estimate that it represents growth of at least a percentage point a year for the next 30 years.
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Title Annotation:Fernando Zavala, Minister of Economy and Finance of Peru; presidential elections
Author:Schexnayder, C.J.
Publication:Latin Trade
Article Type:Interview
Geographic Code:3PERU
Date:Mar 1, 2006
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