Peru’s central bank chief and finance chief clash over economy

(Bloomberg) — Peru’s top economic officials are fighting over the country’s weak economy.

Central Bank President Julio Velarde criticized Finance Minister Jose Arista at a mining event this week.

Velarde, who has been in the role for 18 years, said in the past finance ministers have been able to block Congress from increasing public spending. But he said finance ministers are now afraid of being sacked by the Congress.

„Let’s hope our next president gets a majority of Congress,” Velarde said. President Dina Boluarte has been in power since December 2022 without congressional representation. His approval rating has fallen to 7% as he has been besieged by corruption scandals, mass protests and bad weather while presiding over Peru’s second worst recession in 33 years.

The conflict is rare in Peru, where Velarde is revered as a cornerstone of economic stability. Velarde’s longevity since 2006 has seen him hold more than a dozen finance ministers.

Arista fired Velarde on Friday. „Perhaps Julio should heed the ministry’s request to be more proactive in lowering interest rates,” Arista told reporters.

The central bank has cut rates from a high of 7.75% last year to 5.75%, the lowest among its regional peers, and Arista said it was not enough. „It won’t help restart the economy as fast as we would like,” he said.

Velarde was praised for quickly controlling inflation, which most recently reached just 2.4% on an annual basis.

But Velarde was criticized last year for holding out hope that Peru’s economy could grow in 2023, despite monthly economic data pointing to a continued slowdown. He predicts that inflation will continue to decline this year.

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„We hope (Velarte) doesn’t make as many mistakes as he did last year,” Arista said.

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