Two themes were considered the most important in media-terms this week. First, the Government Expenditure Programme, and second, the diplomatic affair with Chile.
The Government Expenditure Program is aimed at protecting the country aginst the finantial turbulence affecting the world economy. After considering initially that the crash in Wall Street will not affect us, the President urged his Economic Staff to prepare a defensive plan.
In Keynetian terms, nothing new. Expenditure to counterbalance the economic cycle and maintain growth. The peruvian programme includes major investment in infrastructure (around 10,000 million Soles, currently 3,300 million Dollars), and tax exonerations for private investment in local projects. Both proposals indeed do not considerate the impact on inflation, and the Government deficit for 2009. Major issues to be considered, specially if we take note that the Tax Pressure is expected to drop next year.
Following the Expenditure Plan, the BCR (Banco Central de Reserva, similar to the Fed) announced a reduction in interest rates for next january, and a lower retention rate for bank currency. Following the investment Push, consumption will be also promoted. However, the BCR expressed its concern for the inflation rate.
This days the BCR was also selling a couple million dollars in the local money market. Obviously to retain the 3.10 Soles / Dollar relation until the end of the year. But reserves are going down, like the prices for our main metal exports. Another Issue that must be carefully considered. In our recent economic history, always a deficit in Current Account ended the Fiesta.
The problems with our first international investor, Chile, are expected to end with this week. The Goverment Chancellor, Mr. Garcia Belaunde, answered a question about the Copper Law in Chile (this Law directs 10% of Copper Exports to Chilean National Defense) last sunday, and the chilean government took it as an “intollerable intromission”.
The Chilean end the week announcing a strengthening of its north border and local programmes to relaunch his first region. Mainly, Arica, and Antofagasta.
No problems, we are concentrating our efforts in growht, not in war. Last but not least, gorgeous Jennfifer Aniston was the portrait of GQ. A worderful gift for all of us. Love not War is the consigna.
PS. The Private Sector in Peru claims to support the Government Programme. One of its proposals includes again, tax exemptions. Will be commented tomorrow…