Peru Set to Endure One of World’s Longest Lockdowns

Peru continues to see a rise in Covid-19 cases, and will have one of the world’s longest lockdowns, which will have a devastating effect on its economy, despite having taken early and strict measures to contain the spread of the virus.

Peru continues to see a rise in Covid-19 cases, and will have one of the world’s longest lockdowns, which will have a devastating effect on its economy, despite having taken early and strict measures to contain the spread of the virus.


Despite being one of the earliest countries in Latin America to impose strict lockdown measures, Peru has been hard hit by the Covid-19 pandemic, with an economic impact that shrank its GDP by 40.5% year-on-year in April. And with quarantine measures set to continue, the South American country’s lockdown will be one of the world’s longest.

Peru entered lockdown on March 16th with the declaration of a national health emergency, and which has now been extended until June 30th.

The lockdown measures included the closure of the country’s borders and airports, the prohibition of non-essential forays outdoors and the imposition of curfews at varying hours in different parts of the country, some of which have been lifted, while a ban on movement on Sundays, to limit contagion, remains in place.

But despite those timely measures, Peru is an example of how difficult it is for people to isolate in a country in which such a large percentage of the population lives off the informal economy, where staying home means not earning a living, and is therefore not an option.

And while there has been government assistance for low-income families and small businesses, the virus has continued to spread as citizens go about their activities out of necessity rather than in defiance of the lockdown measures.

Peru’s death toll from Covid-19 currently stands at 6,688, with more than 230,000 confirmed cases, while its southern neighbor Chile has recorded 3,362 deaths and Ecuador 3,896. Bolivia, in comparison, has recorded 611 deaths.

Peru is only surpassed in South America by Brazil in terms of its death toll, where the number of fatalities has now surpassed that of the UK, with 43,485, in addition to 874,000 confirmed cases.

‘An Extraordinary Challenge’

The country received a lifeline in late May, in the form of an $11 billion flexible credit line arrangement from the International Monetary Fund (IMF).

“Peru qualifies for the FCL by virtue of its very strong fundamentals and institutional policy frameworks and track record of economic performance and policy implementation,” the IMF said in a statement announcing the facility.

“The arrangement should boost confidence, and combined with the comfortable level of international reserves, provide insurance against downside risks,” it added.

“The Covid-19 shock poses an extraordinary challenge, which is pushing the Peruvian economy into a recession. The authorities have responded decisively by putting in place stringent containment measures and a large policy package to limit the socio-economic fallout, which has been possible thanks to Peru’s ample fiscal space and monetary policy credibility,” the IMF said.

The reality on the ground has been harsher however as, beyond the high death toll and number of cases, the economic impact has been severe and will be long-lasting.

April’s 40% economic contraction followed a 16.2% shrinkage in March, when the lockdown was first imposed, while industrial production during first quarter dropped by 13.1%, according to the Peruvian statistics agency (INEI).

Peru’s GDP contracted by 3.39% during first quarter, which contrasts with the 2.16% growth the country recorded in 2019, and which was the lowest rate of growth in a decade. BBVA Research had forecast GDP growth for 2020 of 3.1%.

The hardest-hit sectors have been retail, construction, manufacturing, mining, oil and gas and transportation, as well as the hospitality and tourism industry, according to INEI.

The lockdown caused the loss of two million jobs, Economy and Finance Minister María Antonieta Alva said in late May, and the impact of the pandemic on the economy has come as a heavy blow following Peru’s above average levels of growth among other Latin American economies over the last decade.

To March 2020, Peru had accumulated more than 120 consecutive months of economic growth.

Part of the reason the country’s economy took such a hit is because it is heavily reliant on exports, from minerals and liquefied natural gas to fruits and vegetables, and demand for Peruvian exports fell by 49.3% in April.

The government launched an economic assistance program for low-income families, paying out around $222 to some 6.8 million households classified as living in poverty. However, with only 38% of the population having bank accounts, citizens were required to go to a bank to receive the payments, which resulted in queues and crowding.

As a result, the government extended opening hours in a bid to alleviate the crush.
 
And in a bid to aid businesses, the Economy and Finance Ministry (MEF) ramped up its Reactiva Perú program in early June, to provide financial support to small and medium-sized businesses, offering credits of higher value. Until that date the program had disbursed some $5.6 million, benefiting around 70,000 companies, according to the MEF.

It is the big contributors to the country’s output, such as mining, that have dragged down GDP however, with silver output down 73% in April, gold by 53% and copper by 35%, with Peru among the largest producers in the world of such metals. Construction, another major driver of the economy, saw an 82% fall in production, while the tourism and hospitality sector, which brought in $4 billion in revenues in 2019, saw a 95% decline in activity.

A Long Road to Recovery

And while the government’s economic crisis-mitigation measures have been applauded, and the stimulus plan for businesses has been one of the most comprehensive in the region, it is likely to fall short due to the virus’ economic impact and the inability, for sheer necessity, of the population to completely isolate.

Around 71% of Peruvians rely on the informal economy for revenues, and socially isolating completely is not an option, while the need to buy food or engage in commerce requires attending large, crowded markets.

Furthermore, only around one-in-five low-income families have refrigerators, according to a 2019 census, requiring them to buy food almost daily, and which is coupled with a tradition of cooking with fresh ingredients bought daily, as in many Latin American countries.

As a result, Peru’s largest concentrations of contagion from the virus have taken place in the country’s markets, according to the health authorities.

Overcrowding in houses and apartment buildings was also a contributing factor to contagion from the virus, with multiple family members sharing rooms in low-income households.

As in many other countries, these socio-economic factors have highlighted the vulnerabilities that can exacerbate a crisis such as the Covid-19 pandemic, even on relatively robust economies.

In its June 2020 Global Economic Outlook, the World Bank warned that, “for emerging markets and developing countries, many of which face daunting vulnerabilities, it is critical to strengthen public health systems, address the challenges posed by informality, and implement reforms that will support strong and sustainable growth once the health crisis abates.”

As the country now enters its final two weeks of lockdown – unless the government imposes a further extension – and transitions towards the full reopening of its economy that it desperately needs, Peru will face the challenge of easing restrictions on movement in a way that avoids a resurgence of cases, as happened in Chile, which partially lifted restrictions in May, only to re-impose lockdown amid a new surge.

Peruvian President Martín Vizcarra said at the time that “what may have been the correct decision a month ago can require adjustment in the light of the results, and not just in Peru, but around the world.”

As in many countries, Peru’s emergence from lockdown will be a gradual, step-by-step process, and the ensuing economic recovery will likely be a long one.

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