LatAm INVESTOR: Peru’s infrastructure programme is beset by delays; how would you get it moving?
PPK: First I need to explain why infrastructure is so important for Peru. Right now we are suffering a slowdown, similar to that of Colombia and Chile, which is driven largely by a fall in exports due to metal prices, the slowdown in China and some temporary factors like the El Niño phenomenon, which hit fishing. One big way to counteract that slowdown would be public investment and infrastructure. After all we are in a relatively strong economic position, with substantial fiscal reserves at about 15% of GDP and international reserves at 30% of GDP. So we have some money – the problem has been with the execution.
“We also need to improve the quality of the people working in the civil service…”
On the electricity side, we are in a good position like wise we have seen some progress with transport projects. But difficulties arise in local infrastructure. This is partly because of regionalisation which was pushed through in 2001, without proper preparation. Some local governments have more corruption and weaker civil services, which means that there are a tonne of projects that have been approved by the Finance Ministry, that don’t end up being executed. The worst failure is in water and sewerage, which is terrible in some of the provinces. However, I believe the situation could be fixed quite easily. I think the solution would be to give users a big discount if they pay their bills, we did something similar with in electricity in 2001 and it was a big success I reducing the backlog of payments.
LAI: Mining is the mainstay of the Peruvian economy; how would you boost it?
PPK: We are very strong in mining indeed we are the most competitive copper producer in the world. But of course there are still lots of improvements that could be made. We need to change the distribution of royalties. Under the present scheme the areas surrounding the mine get a cannon, which is like a severance tax, but they have to wait a long time to receive the money. First the mine must be built and then it must make a profit before the local areas start to benefit. However, we know where the big mines will be over the next ten to 20 years so we should make the social investment in those areas now. We should improve electrification, schools, hospitals and roads in those areas. We should make the social investment before we start a project so that the people who live there are interested in what the mine can bring.
LAI: Many firms find it difficult to work with the Peruvian state; how will you make it more efficient?
PPK: We need to streamline government structures and improve professionalism. I want to reorganise the ministries so that the sectors that they cover will each be run by a permanent secretary – like the system you have in the UK. So where you have ministries that cover various sectors – such as mining and energy – you would have a permanent secretary for each sector. Obviously the Minister is in charge, but under him I want to eliminate the political appointees and instead have a base of top civil servants. The law to do this already exists it’s just not being applied enough.
We also need to improve the quality of the people working in the civil service. There has not been enough effort to attract the top graduates to the civil service. You need to bring in young people, so every year we could hire 100 top graduates, based on an entry exam not an appointment, and we could fund them to study post-graduate courses. We did something similar in the Central Reserve Bank many years ago and it worked because today you have a high-quality organisation.
LAI: Education is Peru’s biggest challenge; what would you do to boost education levels in the country?
Well as a first move there is some very simple stuff that can be done. The government has 50,000 schools under its control, around half of which are in terrible shape. They need to be rebuilt and expanded. The problem is acute in the highlands where you often have one school covering a vast area. In some the children learn in ‘shifts’ with one batch attending school from 7am to 1pm and then another set from 2pm to 8pm. You can’t educate children in that way as they need a routine. Another simple solution would be to provide more babysitting services that can help working mothers to look after a child after school hours. We also need to pay teachers more.
But there are also more radical solutions and the key is to keep experimenting. For example one very positive move in recent years is the Fe y Allegria network of Catholic schools that are subsidised by the government – it has been very successful. Another interesting experiment is the Innova schools system, which has been established by the Interank Group. There are around 25 of these schools, providing for 25,000 students and they focus on new teaching methods. Every child has a tablet, which allows teachers to better analyse and track students’ progress. Pupils from these schools have achieved stunning results in the Pisa maths tests, which put them on the same level as students in Shanghai. So it is very encouraging.
However, Peru needs to move quickly to improve education to take advantage of the demographic dividend that we are enjoying. At the moment we have a young population but after 25 years the number of school goers will plateau. We need to fix our education system now so that the bulk of these students have the chance to achieve more.