Peru to Become More Business-Friendly

New president will cut taxes and bureaucracy and boost infrastructure.

BY LATINVEX STAFF

Foreign investors expect more investment and trade after business favorite Pedro Pablo Kuczynski assumes Peru’s presidency next month.

“The government is likely to remain highly supportive of foreign investment, with minimalist state intervention,” Diego Moya-Ocampos, Senior Analyst for Latin America and the Caribbean at IHS Country Risk, said in an analysis. “The president-elect has also promised to continue to expand Peru's oil, mining, and gas industries, which have driven most recent growth. Kuczynski has pledged to reduce the bureaucratic burden on companies seeking to undertake natural resource development and to reduce the time between granting concessions and starting extraction activities.”

Peru’s next president -- who assumes office on July 28, 2016 – has also pledged to reduce income tax from 27 percent to 10 percent and value-added tax from 18 percent to 15 percent over a five-year period, encouraging investment and using fiscal stimulus to encourage formalization of Peru's large informal sector. “He also plans to stimulate small-scale agricultural production, providing new sources of credit for small-scale producers and increasing efforts to grant proper land rights to peasant farmers,” Moya-Ocampos says.

Kuczynski succeeds Ollanta Humala, a leftist politican, became president of Peru in July 2011.

“Although the outgoing government hasn’t made major changes to the economy, it has generated a paralysis of investment as a result of excessive bureaucracy, new procedures and the lack of enthusiasm to promote new projects and generate confidence,” says Aldo Defilippi, executive director of the American Chamber of Commerce in Peru.

Peru ranks third in Latin America in terms of doing business, lagging only Mexico and Chile, according to The World Bank’s latest Doing business report. Meanwhile, it has Latin America’s sixth-most competitive economy, according to the latest Global Competitiveness Index from the World Economic Forum.

In the first round of presidential elections April, Kuczynski came in second behind Keiko Fujimori of the Fuerza Popular party. In the second round June 5, Kuczynski garnered 50.12 percent of the vote against 49.87 for Fujimori.

“Cleary the first round was a “mandate” to continue with the economic policies of a quarter of a century that have achieved job growth, improving the population’s income and reducing poverty,” Defilippi says.  “That’s due to the macro economic stability, the opening of the economy and market policies. These factors have contributed in attracting more investment, both local and foreign. The first thing the new government needs to do is to continue with these policies.”

Kuczynski has served as prime minister, economy minister, energy and mines minister and central bank manager. He has also worked at The World Bank and in the private sector he served as co-chairman of First Boston for nine years and co-founded Miami-based private equity firm Latin American Enterprise Fund (LAEF).
 
“Kuczynski is someone that not only has had an honest and transparent career, but is also one of the Peruvians with the greatest experience in international finance and business,” Defilippi says. “Having occupied several positions in government he has experience. And he is someone that has the capacity to unite and knows how to listen.”
 
That talent will be needed as Kuczynski’s party PPK only has 18 seats in the 130-member national assembly and will need to form alliances with other parties to pass legislation. Fujimori’s party has 73 seats in Congress and has vowed to provide a “responsible” opposition.

“While the government-elect does not have a majority in Congress, there is a consensus for policy going back 25 years,” Defilippi says. “I am certain the first actions of the new president in forming the cabinet and seeking the right people for the respective positions will be a message of unity.”

Alfredo Thorne has been selected as Kuczynski’s new economy minister. He is a former head of Investment Banking at Mexico-based Banorte-Ixe and former Managing Director and Latin America Research head at J.P. Morgan-Chase. Meanwhile, one of Kuczynski’s vice presidents is Mercedes Araoz, a well-respected former economy and commerce minister who also worked for the Inter-American Development Bank for nearly four years.

Defilippi believes there will be an increase in both investment and trade as a result of the change in governments.

“The increase in investment will generate more work and exports as well as keep reducing poverty,” he says.

Although the United States is now the second-largest trade partner for Peru, close behind China, Peruvian exports to the US market are more value-added, diverse and with higher participation from small and medium-sized companies, Defilippi points out.

“Meanwhile, the US economy is recovering in a sustained and solid manner,” he says.

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