On 18 August, Economy Minister Maria Antonieta Alva attended a meeting of the Congress`s oversight commission to respond to questions, amongst them how the Reactiva Perú programme has been administered.

As we have mentioned previously, this is a programme of cheap loans intended to allow companies to pay suppliers and salaries and thus for them to remain afloat during the extraordinary recession caused by Covid-19. Its declared intention is to lend a hand to the small- and medium-sized companies that generate most employment in Peru.

Alva’s presentation pointed to some of the flaws in the programme’s design. It also gives us a glimpse to see where the money is actually going.

Reactiva Perú operates in the following way. The Central Bank (BCRP) lends money to financial entities and they in turn lend money to companies. The loans are backed by the Ministry of Economy and Finance (MEF) almost up to 100%, so that the financial entities face very little risk. But, because of the conditions for accessing these loans, the program is oriented mainly to companies in the formal sector.

To date, 372,418 companies have accessed the programme and of that total, 97.8% have been micro- and small-sized companies (MYPES), while only 1.7% have gone to large companies and 0.5% to medium-sized ones. So far so good. It sounds as if the programme is being true to its stated purpose.

Nevertheless – and here the minister`s and the MEF`s transparency is to be commended – Alva also informed that 53.7% of the money has gone to large companies, while MYPES and medium-sized companies have received 41.2% and 5.1%, respectively.

In short, more than half the Reactiva Perú resources have gone to a tiny fraction of the beneficiaries, including – as has been pointed out well before the hearing – large corporations in the mining and retail sectors as well as to law firms. If this goes on, less than 2% of companies will receive over 32 billion soles out of the total 60 billion Reactiva budget (1 US$=3.5 soles).

By contrast, 5.4 billion soles were allocated in the first Universal Family Bonus payment, covering some 8 million households, and 6.7 billion soles more are now being allocated to reach 8.6 million households.

In total, over 8 million families will have received 12 billion soles to cover six months of economic difficulties while a small number of large companies will end up receiving close to three times that amount.

Is this fair? Do these large companies actually need such large loans to survive the crisis? It is certainly arguable that those resources could have allowed those 8 million families to receive three more bonuses each, a better compensation for months of lockdown and also a way to stimulate demand in support of the reactivation strategy.