Peru and the IMF
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"I am delighted to be here today, the final stop on my visit to the Andean region. It has been a very good visit. It has given me a much better understanding of the region and its people, the challenges they face, and the strenuous efforts being made everywhere to meet employment and other social aspirations and to build lasting prosperity.
"Today in Peru, I had the privilege to meet with President Alejandro Toledo, Finance Minister Pedro Pablo Kuczynski, Acting Central Bank President Oscar Dancourt, Minister for Women and Social Development Ana María Romero-Lozada, Minister of Housing, Construction and Rehabilitation Carlos Bruce, and other senior officials. I also had a very constructive meeting with Peruvian political leaders. I was able to spend some time with the people of Villa El Salvador, and this was a moving experience; I learned much from the experience of its Mayor, Jaime Zea Usca.
"The year 2004 has been a very good year for Latin America, which registered its strongest rate of growth in a decade, and growth prospects for 2005 are very strong. Within Latin America, Peru's economic growth rate was one of the highest in 2004, and I commended the authorities on their progress in promoting sustainable growth. During President Toledo's administration, fiscal consolidation has been pursued and significant progress has been made in implementing growth-enhancing reforms, including recent pension reform, part of the government's economic program, supported by a precautionary Stand-By Arrangement from the Fund. These efforts have paid important dividends; economic growth has been robust, inflation has remained low, and vulnerabilities associated with dollarization and public debt have been reduced, enhancing international confidence in Peru's economy. We are also pleased to see that the authorities are making good progress in their discussions on free trade agreements with several countries, underscoring Peru's commitment to free trade.
"In my discussions with the authorities, we all agreed that significant challenges persist, and there is a need to continue strengthening the political consensus for the reforms. Poverty is still high and, to reduce poverty by half, in line with the Millennium Development Goals, Peru will need to sustain average annual rates of growth of at least 4 percent a year. In that context, it will be essential to maintain sound macroeconomic policies and deepen the implementation of growth-enhancing reforms. There is also a need to continue to increase social spending and further improve the efficiency of government spending, including through well-targeted spending programs, within the framework of the fiscal sustainability objectives embodied in the fiscal responsibility and transparency law. These objectives include reducing the fiscal deficit to 1 percent of GDP in 2005 thereby underpinning the broader objective of bringing Peru's public debt to under 40 percent of GDP by 2006.
"Sustained growth also requires stepping up investment in infrastructure, with a view to eliminating existing bottlenecks. Peru is one of the countries participating in the Pilot Project on Public Investment and Fiscal Policy, which is to be considered by the Executive Board of the Fund in coming months. Meeting Peru's large infrastructure needs requires continued efforts to broaden the tax base, improve government spending allocation, and actions to promote private sector investment. In this regard, further efforts are required to increase public savings, including through the elimination of tax exemptions, and the public investment framework needs to be strengthened to improve the prioritization and programming of new projects while ensuring maintenance of the existing stock. Public-private partnerships are also a key component of the policies to address existing infrastructure needs. The National System of Public Investment (SNIP) is already playing a key role in ensuring the quality of public investment.
"My visit underscores the importance that the IMF places on our relationship with Peru. We believe that the successful implementation of the authorities' economic program is reinforcing confidence in the continuity of prudent macroeconomic policies, and should help set the basis for Peru's strategy for exiting from Fund financial support. The IMF looks forward to continued policy dialogue with the authorities and to providing its assessment of macroeconomic and financial sector issues, supplemented by technical assistance in the Fund's areas of core expertise," Mr. de Rato said.
IMF EXTERNAL RELATIONS DEPARTMENT