Informality, infrastructure deficiencies and political uncertainty are the major obstacles that the Andean country must overcome on its way to becoming a “club of rich countries.”
While the APEC organization has captured the attention of Peru's international agenda in 2024, the Andean country has another bloc in its sights to boost its economic growth. This is the Organization for Economic Cooperation and Development (OECD). This international cooperation organization has 38 member states and its purpose is to coordinate economic and social policies.
The organization is known as the “club of rich countries” due to the presence of industrialized economies such as the United States, Australia, Japan and most members of the European Union. However, in the last three decades, the OECD has added emerging economies such as Mexico (1994), Chile (2010) and Colombia (2020) as full members.
Since 2012, Peru has been hoping to be next on the list, although it must first comply with the OECD's fundamental principles. These standards include a commitment to democracy and the market economy, as well as adopting measures to fight corruption, fiscal policy and corporate governance. Given this scenario, the President of the Council of Ministers, Gustavo Adrianzén, was optimistic.
“We are getting closer to the goal of joining the OECD with a joint effort by the Executive and the different social forces in Peru,” declared the Peruvian Prime Minister during his participation in the 9th High Level Meeting of the Board of Directors of the OECD Development Centre in Paris (France) on December 11. Previously in June, Adrianzén estimated that Peru would finally join the OECD in 2027.
However, the political instability of the Andean country is a tough nut to crack. For example, in March, the Peruvian Congress approved Law 31990, which established a fixed period of eight months for the Attorney General's Office to accept the request for effective collaboration and verify the information provided by the collaborator. This change was criticized by the Ministry of Justice and the Ombudsman's Office for weakening judicial investigations in corruption cases.
Outside, the new law had already set off alarm bells. It turns out that in October 2023, the OECD Anti-Corruption Committee sent a letter to the then Prime Minister Alberto Otárola with several suggestions for the Peruvian State. One of the most forceful was to prevent the approval of Law 31990, something that was ultimately not fulfilled.
As a result, the OECD temporarily suspended Peru's accession process and sent a multi-sectoral commission to assess the country's situation. The actions of the Boluarte government caused controversy by refusing to disclose the OECD letter and adopting a position opposing the Congress's initiative. Incidents like this could be repeated, given that the OECD has more than 200 legal instruments, 25 committees and 29 working groups that issue observations for Peru to receive and rectify on an ongoing basis.
THE POINTS TO IMPROVE
For Patricio Lewis, associate researcher at the think tank Red de Estudios para el Desarrollo (REDES) , labor productivity should be one of the axes to be addressed by the Peruvian State.
“In our country, this indicator reaches a third of the average of OECD countries, which makes a significant increase crucial to achieve the status of a high-income country. There we also have important challenges such as the high rate of informality, which is an obstacle to achieving inclusive and sustainable growth. Other practices that would align us with the OECD objectives are improving infrastructure and transport connectivity to promote economic diversification in Peru,” Lewis told AméricaEconomía .
It is worth noting that in recent years the Peruvian State has planned and developed a series of large infrastructure projects such as the expansion of the Jorge Chávez International Airport, the Chancay megaport and the new lines of the Lima Metro.
However, challenges remain: at the beginning of December, the OECD's public governance committee warned that Peru has an infrastructure gap of 50% of gross domestic product (GDP). Faced with this problem, Ana Rosa Valdivieso, the High Representative for Peru's Accession Process to the OECD, recommended that the country establish more transparent public-private partnerships (PPPs). If clearer rules of the game are established, businessmen could effectively participate in infrastructure processes, as well as improve tendering.
“Alliances between companies and the public sector are obviously essential, because a good part of the country's investment comes from the private sector. So, in that sense, private investment must be encouraged, in such a way as to relieve the State of higher expenses and share some of the responsibility, relying on companies and other types of organizers, because this is a transversal process,” said María José Ibáñez, economist and researcher at CENTRUM PUCP for AméricaEconomía .
Ibáñez believes that the Peruvian State has taken a step forward by simplifying the bureaucracy associated with the formation of new businesses. The economist compares this measure with the one applied in Chile, where it also emerged to increase competitiveness.
On the other hand, Lewis says that the low execution of the public budget is one of the key obstacles to reducing the infrastructure gap. “Execution is around 50% for 2024, and in previous years, it did not even reach 30%. And we are talking about the funds allocated for minor works, that is, projects that do not have much impact on the growth of the region,” added the researcher.
Two weeks ago, Peru's Minister of Economy and Finance, José Arista, announced that 36% of the national budget will be allocated to the regions. Since the Executive Branch's portfolios already have projects assigned outside Lima, the resources they allocate could exceed 45%. Lewis warns that greater efficiency is needed in the management of these resources to avoid repeating cases such as Majes-Siguas II. This is an irrigation project in the Andean department of Arequipa, whose construction has been paralyzed since 2010 due to political differences.
“Health, sanitation and education policies are left half-finished and people always turn to the Executive, but these are functions that are decentralized. So not having well-defined rules and roles for each level of government also generates unrest and a feeling of inefficiency. These are indicators that the OECD is taking into account to guarantee Peru's entry into the organization,” explained Claudia Sicoli, Director of the Economics and International Business Program at the Universidad Peruana de Ciencias Aplicadas (UPC) to AméricaEconomía .
Regarding corporate governance, Sicoli says that there is a small group of large companies that have social benefits covered. That is, salaries with high levels of productivity, job guarantees, social capital, among others. However, there is a broad network of small and medium-sized companies, which are more than 90% of Peruvian businessmen, that are deficient in this regard. “There is still a long way to go in terms of corporate social responsibility and everything that has to do with corporate governance,” he says.
BENEFITS AND FUTURE BETS
Once Peru is admitted as a full member of the OECD, María José Ibáñez assures that the country will position itself as a more attractive market to attract direct in-person investments.
“We could clearly achieve economic growth through the creation of new jobs, the transfer of knowledge and technology, as well as export activity. Because ultimately the OECD is a showcase for achieving international agreements such as new Free Trade Agreements,” said the researcher from CENTRUM PUCP.
Ibáñez also argues that strengthening human capital is key to the affiliation process. From his perspective, investments in education and research allow people to better contribute to economic growth. A concrete example is that the construction of large projects such as the Chancay megaport requires qualified labor to fill high-level jobs.
It is important to note that in November, the OECD's Director of Education and Skills visited Peru and highlighted improvements in certain aspects such as performance in the PISA tests and a drop in school dropout rates. Although, as expected, there is still a long way to go.
“In the education sector, we have problems with infrastructure, teacher training and intra-school competition. And although policies have been implemented for some time, we see that the government has made several setbacks. Teachers dismissed for poor exam results have been allowed to return to their positions and all the progress made in the qualification of universities has been destroyed,” lamented Claudia Sicoli.
Another of the major policies valued by the OECD is the energy transition. Although natural gas is making its way into public and heavy transport in Peru and the Law for the Promotion of Green Hydrogen was approved in March, experts believe that the country is lagging behind its neighbours.
“The implementation of renewable energies must be part of public policy. We are talking about an element whose conditions of exploitation and access must be regulated. This debate also involves the opinion of civil society. There are different positions depending on the region, on which energy sources would work best in each one. So, I think that reaching an agreement on these types of things would be the most difficult thing,” says Ibáñez.
Patricio Lewis, for his part, argues that Peru should promote investment in renewable energy, since it is one of the main countries that will be affected by climate change. A current example is the severe drought in Piura, a department bordering Ecuador, where residents will be left without drinking water on January 15, according to spokesmen for the Chira-Piura Special Project.
“We need to look at how we can use resources like natural gas to be much more efficient in the case of reuse. Or in the case of solar and wind energy, where we have a huge potential. The problem is the lack of capacity to manage and develop these projects,” Lewis warns.
Finally, if Prime Minister Adrianzén's prediction is fulfilled, Peru should enter the OECD in 2027, under the tutelage of the government that takes office after the elections of the previous year. This is where political uncertainty alarms both insiders and outsiders, since the National Elections Board (JNE) estimates that more than 40 political parties would enter the electoral race.
“For now, there is no clear predominant force. It seems that all parties are on the same level, so someone from any political spectrum can win. In this scenario, the future of the country will depend precisely on the priorities and lines of work of the next government,” says Sicoli. The economist says that the best solution to this problem would be to motivate the parties to form coalitions with common objectives and ideas.
