The government’s programme of support for business, Reactiva Perú, has become the focus of strident criticism over the last week. This seeks to inject liquidity into companies whose business has been affected by Covid-19 through subsidised government lending through the banking system. Credits would be distributed through the central bank (BCRP).

Stung by accusations that banks would use this credit to make money by lending on at higher rates of interest to ailing companies, BCRP President Julio Velarde made clear that lending would be on the basis of an auction whereby the Bank would channel credits through those banks committing themselves to the lowest rate of interest.

This scheme was sharply criticised by Armando Mendoza, Oxfam’s resident economist, as being open to abuse. He pointed to the oligopolistic nature of the Peruvian banking system and the lack of proper competition between major commercial banks as opening the way to underhand dealing. Although the system may have good intentions, he alleged, these ran the risk of being violated since banks would continue to profit from the public purse.

He also criticised the way in which Reactiva Perú was biased towards larger companies in the formal sector at the expense of the huge number of small and micro firms in the informal sector in which the bulk of Peruvian workers are employed.

There have also been many complaints that while companies seek support from the state, laid-off workers and their families are expected to finance themselves from drawing down their own resources through compensation for years served (CTS) and/or from their pension pots in private pension funds (AFPs).