Peru: Tourism and investments are harmed by the political crisis

RIO DE JANEIRO, BRAZIL – These last few weeks have been filled with uncertainty and protests that have already claimed the lives of six people (four on April 3, one on April 5, and another on April 6). Indeed, the outlook is discouraging, but Peru’s global reputation is also greatly affected.

The analyst and professor of the Pacífico Business School, José Ruidías Rojas, considers that the country’s brand in the eyes of the world has been deteriorating for months. It goes back to the peak stages of the pandemic when the country earned first place in the number of deaths per million people in its population.

“The impact that the crisis of these last few days may have is in the same way as the impact that the situation of a few months ago has been having. This situation has been caused by many external factors and well-known errors in government management. It is still too early to measure it, but I think the main responsible is the president,” he says.

“There is inflation worldwide; however, not in all countries the population is protesting against their government,” he adds.

In this way, the specialist proceeds to separate the effects of the crisis on the Peruvian brand into two aspects: the negative in the short term, and the positive, in the long term.

1. SHORT TERM

Thinking about how the country’s reputation is being affected by this crisis in the short term points to tourism. According to the specialist, it is important to consider that this sector was reactivating recently and slowly due to the “mismanagement of the pandemic”. Therefore, the recent events are driving away tourism agencies and tourists themselves.

“If you were thinking of coming to Peru at this time, you probably wouldn’t do it anymore because you may think it is dangerous: because of the strikes, because of the demonstrations,” says the PBS professor.

On the other hand, indirectly, there is the impact that the strike, the institutional crisis of the Govegovernment other confrontations or demonstrations may have on foreign investments and exports because companies will not want to invest in a country where uncertainty is a constant. Not knowing what will happen with politics and, therefore, the economy discourages prominent business people.

2. LONG TERM

The long-term effect, for José Ruidías Rojas, is a 180° turn. It could turn out to be positive.

“If this political crisis has a happy ending – in quotation marks because nobody can be happy with five dead. But, let’s say it determines an early resignation and a call for general elections, there could be a renewal in consumer confidence,” he explains.

With this, the analyst refers to the context of the demonstrations in November 2020 against the government of Manuel Merino. He recalls that when Francisco Sagasti took over the government one way or another, a calm was felt in the population, and confidence in the State returned. This calm and confidence ended up “infecting” the other national and international economy agents. Something similar could come out of this situation.

On the other hand, there is also the image built by the Peruvian population: as a society that speaks out and stands up against corruption and injustices.

“That is the image we have been giving in recent times: we are a society critical of our authorities. I have heard this a lot in meetings with Colombian, Ecuadorian, and Chilean businesspeople. They say, ‘you Peruvians are brave; you don’t let yourselves be trampled’,” says Ruidías Rojas.

THE IMPORTANCE OF CITIZEN ACTION

For the analyst, this situation should only awaken the critical vision of the population because we are in a situation “to worry about”. “One death in a protest is enough to directly impact in the short term”. Thus, Ruidías Rojas points out that it is not necessary to look at the statistics of the tourism associations in Peru to affirm that the sector has already been affected by the recent events.

“Right now, the objective is for change to come. The look that we must have must be critical enough not to discourage the fight that there must be, to let this government either change this situation (stop giving jobs to corrupt people, starts submitting to the processes, making things transparent, and start working as an ordinary government), or resign. Unfortunately, we have all realized that the first option will not happen,” he says.

WHAT IS THE EFFECT ON THE ECONOMY?

While tourism and exports are an essential aspect of this issue, they are not the only ones. Those sectors only reflect the influence of the conjuncture in the external view, but internally the effect would be even more significant. “Uncertainty affects other investments and industries, which has a huge impact on the country’s economy,” says Ruidías Rojas.

It is aggravated when considering that more than 95% of the companies in the country are micro and small businesses (MYPE). Therefore, the impact of the crisis is greater for them. “The impact of the crisis on the economy may be much greater than the impact on the Peru brand,” he says.

Inflation in the country has already risen exponentially, but inflation that generates uncertainty is even more damaging to the country – and that is the scenario we are currently in.

“Now they are talking about an impact of hundreds of thousands of soles per day of immobilization. So look at the damage they are doing, due to mismanagement, due to a series of mistakes made by people who do not even have the minimum knowledge of how our business structure is,” says the PBS professor.

IS RESIGNATION THE ONLY SOLUTION?

For José Ruidías Rojas, “the more days he (Pedro Castillo) stays in the Government, the more damage he does to the economy”. In this way, he affirms that he cannot think of a more effective and quicker solution that does not involve the president’s resignation.

“There is no other way out. The other way would be that this gentleman resets everything, that he disappears all these unpresentable people, most of his ministers, all that network of corruption around him, and that he begins to declare to the press as any president. But I see that scenario as improbable,” he concludes.