Peru’s Economy Expected to Rebound Despite Political Unrest

Peru continues to face political unrest after the imprisonment of President Alejandro Castillo in December that caused an uproar of protests and riots in April and May. “The protests reflect a decline of trust in Peru’s existing democratic order and its institutions,” according to a?United Nations?press release. “Indigenous and rural populations feel particularly excluded and unrepresented in Peru’s economic, social and political systems. They suffer the bulk of Peru’s exclusion and poverty, and claim they have been unable to benefit from years of democracy.”

Peru’s economy is set to rebound in the second half of the year as temporary shocks subside, according to the Finance Ministry. “Mass unrest, flooding and a fertilizer shortage caused the economy to contract in the first quarter, but the government forecasts a recovery later in the year,” reads a?Bloomberg?article.

Months after reaching its highest inflation rate in a quarter century, Peru’s inflation rate has eased. According to?Trading Economics, Peru's annual inflation eased for the fourth month to 7.90% in May 2023, down from 7.96% in the prior month, yet still above the central bank's 1%-3% target range for the 24th consecutive month. “It was the softest reading since March 2022, as prices slowed down primarily for restaurants and hotels (8.69% vs 9.14% in April); miscellaneous goods and services (6.17% vs 6.68%); transportation (6.28% vs 8.44%) and recreation and culture (3.45% vs 4.31%),” the report read.

However, prices accelerated for other CPI terms such as food and non-alcoholic beverages (16.41% vs 14.47%). “On a monthly basis, consumer prices rose by 0.32% in May, compared with market expectations of a 0.25% increase and following a 0.56%,” the article reads.

Customers in Peru have averaged 45.7 days beyond terms, with 23% credit professionals saying payment delays have increased and 44% saying it stayed the same, per the FCIB Credit and Collections Survey. The most common cause for payment delays is cash flow issues (43%).

What Credit and Collections Survey respondents are saying:

• “While it seems that the worst of the martial law and civil unrest delays are easing, Peru has been plagued by these in recent years. We have strong relationships with our customers so we've always been paid, but outbound remittances can get caught in the upheaval.”
• “The legal system is rarely useful. I would advise securing all transactions regardless of credit worth as the credit environment in Peru is very volatile.”
• “Peru experiences political instability from time to time, most recently beginning in December. Businesses are forced to either shut down completely or open only during specific times and movement of citizens is highly restricted. This interferes with banking operations and turns the country into largely a cash society until the unrest improves. Seems to be slowly normalizing from the earlier months’ long delays.”
• “Customers tend to process their payment on or after the due date. It is important to remind them when you need to receive the payments before month end.”

The?Credit and Collections Survey?is now open. It covers Bangladesh, Ecuador, Poland and Turkey. You will earn ICEU/Participation credit for your input. Be sure to share the link with your credit and collections network.