Peruvian Economy and Finance Minister Pedro Pablo Kuczynski and Inter-American Development Bank Executive Vice President K. Burke Dillon sign documents for a $300 million policy-based loan to Peru to support a national program to enhance public finance, improve the targeting of social expenditures to benefit the poorest sectors of the population and deepen a reform of the public pension system.
The loan, the first by the IDB to the government of President Alejandro Toledo, will be disbursed in two tranches, one for $200 million and the other for $100 million.
The program is central to the strategy of the IDB and the Peruvian government of raising the economy’s productivity and competitiveness, improving the efficiency of social policy and modernizing the state.
Kuczynski commented that the resources will support Peru’s efforts to combat poverty “and create employment in a framework of fiscal equilibrium.”
The project supports reforms Peru is undertaking to consolidate the sustained growth of its economy and its fiscal viability, which will allow greater resources to attend to the neediest sectors of society.
Dillon stressed the importance of fiscal reform and noted that among the goals of Peru is “a substantial improvement in targeting social expenditures.”
By reducing tax exemptions and consolidating recent reforms, the program aims to restore tax collections to at least the level of about 14 percent of the gross domestic product that was achieved in 1997.
In addition, the national government will take steps to ensure that the decentralization process now under way will be carried out in a framework of fiscal discipline and efficiency.
In the area of pensions, the government will take steps to implement recent legislation designed to reduce the deficit in the public pension systems, thereby putting them on a more sustainable and equitable footing.
In the social sector, the government will undertake a series of policy measures, including pilot projects, to ensure that social and anti-poverty spending benefit the neediest groups in society.
The IDB loan is for a 20-year term, with a five-year grace period, at the variable interest rate, now 6.19 percent.