Peru is planning large public expenditures to sustain the economy through the looming recession.
Economy Minister María Antonieta Alva says that the plans add up to 12% of GDP, much more than in most other Latin American countries. She claims the percentage is equal to Denmark’s. The two cases of course differ in every other respect, since Denmark can work principally through wage subsidies. With 73% of the labour force in the informal sector, this is a useless measure for Peru.
Instead, Peru has concentrated on direct transfers and credit, with new programmes and the expansion of existing ones, and transfers conditional on people staying at home.
If Peru continues with lock down, then the country confronts the huge difficulty of what to do for this informal economy, in which so many people live in overcrowded conditions and enjoy poor access to an underfunded health service. In addition, ‘working from home’ can hardly be enjoyed when work requires one to be out on the street selling food or other goods.
Women are more likely than men to be in the most fragile part of the informal economy and to lack access to social security. And, as our coverage showed last week, people living in deprived neighbourhoods ask the question ‘How can I wash my hands if there is no water?’
If care is not taken, a further cost will arise down the line, ironically, from the very success of collective action in fighting poverty in these areas in the past. Communal responses to the economic crises of the 1970s and 1980s led to the spread of community kitchens (comedores populares) and small workshops that grew in response to unemployment. These activities were nurtured and sustained by NGOs. Many of these communal responses survived the onslaught of Sendero and then of the clientelism of the Fujimori regime. But with the present lockdown, such activities are now under threat. Expanded credit and transfer programmes will need to be unusually creative to enable them to continue.
A welcome sign of such creativity is the announcement by MIDIS (the Ministry of Development and Social Inclusion) that those benefiting from the social programmes known as Pensión 65 and Contigo will receive a double payment this time round. This is to avoid contagion by exposing beneficiaries to queues or crowds of people. Thus, in the next bi-monthly payment they will also receive payment for the following two months.
These social programmes target populations at high risk of catching the coronavirus, such as older adults who may have other pre-existing medical issues. The Pensión 65 programme reaches 557,000 older people, including 40,000 with severe disabilities. See data for Peru on page 39/40 of paper by Gentilini et al.
But many concerns remain. As we said last week, the system rightly requires that people be protected from corruption and identity theft. Claimants must prove who they are and be able to reach a payment point. While possible in urban areas, this may be very difficult in rural ones. The most impoverished are unlikely to have access to the five banks nominated to distribute the transfers.
A further concern is enforcement. If people are just not able to stay at home, then must the police enforce the lockdown? And if it needs to be imposed for a long period, what are the consequences for the political culture of protest and the quality of democracy? The new Law 31012 makes the threat vivid.