COVID-19 Undermines Peru’s Economic Stability
In Perú, we’ve been in confinement for more than a month and don’t know exactly when the lockdown will be lifted. The state of emergency was declared (article 137.1 of Peruvian Constitution) and the restriction of some of our rights and liberties (like freedom of displacement, association or the right to work) is accepted because we need to deal with the virus, and everyone seems to be handling the situation well, inclined to a desire to resume our rights, lives and maintain our well-being. Families are staying home in order to avoid being infected with COVID-19, which is characterized by its ability to contaminate rapidly. For this reason, the government has put in practice some measures in order to guarantee people’s basic needs. Most breadwinners can’t go to work, students can’t go to schools. It seems that now we are living in a different era, in which our digital devices are our only contact with the outside. In this article, we’re going to make a recount of the measures the Peruvian government has been putting in action in order to mitigate the economic crisis that can result from the outbreak of this extremely dangerous virus.
So far, more than 45.000 victims of coronavirus have been reported and the cases increase day after day. Being at home, at the same time, helps people avoid being in contact with others and, hence, reinforces our plan of steering clear of the virus. These measures, however, involve some important economic cost. The decisions taken by each country reflect what they value more, in some cases, it can be human life and, in others, economy. Trump’s administration is being criticized because of this and he defends himself arguing that: “We cannot let the cure be worse than the problem itself.” However, both decisions promise positive and negative consequences, and the latter need to be mitigated.
Some economic sectors are still working like food industry, which can’t be paralyzed and is guaranteed to operate during this difficult time. Health professionals that work with coronavirus patients will be paid an extra 3.000 soles (885 USD) for their hazardous work on this recent time. On the other hand, tourism, commerce and other important economy sectors, considered non-essential, remain paralyzed. For this reason, Perú has put in practice the plan “Reactiva Perú”, which aims to keep our economy moving and implements other measures to protect people’s primary rights. It is noteworthy, at this point, that Perú is qualified as the best prepared country of the Pacific Alliance to confront the economic repercussions of coronavirus. An analysis of the Peruvian Economy Institute (IPE), shows that our finances are more likely to support the economic impact of COVID-19 than Colombia, Chile or Mexico. In fact, this study expresses that our country is the least indebted of the Pacific Alliance, it just represents 26.9% of our GDP. It also has savings over 15% of the GDP and, according to the analysis country risk, its debtor quality remains stable.
The Ministry of Labor and Employment Promotion (MTPE) has implemented a new way of work, which is called remote work for people that work in sectors that develop activities considered non-essential. In this case, we have for example teachers who are working from home. This new way of employment is defined in the Urgency Decree N° 026-2020 (article 16, title II) as the provision of subordinate services with the physical presence of the worker in their home or place of isolation, using any means or mechanism that enables to work outside the workplace. However, it’s necessary that the nature of the work allows them to carry on with their duties from home. Those unable to work from home may apply for a license that permits them to maintain their salary, as long as they redeem the number of hours they were paid once the coronavirus situation comes to an end. A license can be obtained to maintain the employee’s salary without the obligation to compensate these hours. This last measure was implemented by Urgency Decree N° 029-2020.
The electronic devices that employees may use can be both provided by the employer or by the worker (article 19, U.D. N°026-2020). While working remotely, employer and employees need to comply the obligations that are detailed in article 18 of the same Urgent Decree. For example, workers need to be available, during labor hours, to coordinate with their employer.
In addition, the Urgency Decree 038-2020 has been put into motion, which approves the implementation of a perfect suspension of employment with conditions, these measures beneficiate workers and employees of micro, medium, small and medium sized enterprises to fulfil their work contracts and receive an income given by the state of 760 soles (224 USD). They also will have a health service guaranteed by the State. It is also necessary to explain what a perfect suspension of employment is and how it differs from an imperfect suspension. This latter operates when workers don’t work but they maintain the validity of their work contract and keep receiving a salary. This operates, for example, with female workers who cannot work during pregnancy and absent for a lapse of time while maintaining their work contract and their salary. Another case of this are the vacations, in which you, after working hard throughout the year, can go relax on a beautiful beach in Miami and still get paid. According to the article 17.2 of the Urgency Decree N°026-2020, this imperfect suspension of labor also occurs if a worker is infected with coronavirus.
On the other hand, we have the perfect suspension of employment, which is operating in our country due to coronavirus situation. In this case, workers maintain their work contract but don’t receive a salary. Both parts, the worker and the employer, cease, for a lapse of time, to have the responsibility to comply with the obligations that are stipulated in the work contract. This is an exceptional measure and the government is privileging the agreement between workers and employers. In order to mitigate the negative consequences of this practice, workers that are under this statement, can retire part of their fond of Compensation for Length of Service (CTS) (art. 7 U.D. 038-2020).
Chapter III of Supreme Decree N° 003-97-TR is the legal normative that rules when to apply suspension. Article 12 of this Decree explains that it can operate if occurs an event that could be catalogued as force majeure or fortuitous case. In this case, we are stepping into a force majeure event because we can’t control the apparition and expansion of coronavirus and we couldn’t event prevent it, it is outside our dominance. The key point here is that this can last only for 90 days.
While measures have been taken to reduce the economic impact of the coronavirus outbreak on workers and employers, another part of society remains in the shadows because of their line of work. Hernando de Soto in his book “The Other Path” (1986) explains that the activity that these workers realize is informal because, in Perú, the cost of emerging to a formal one is too expensive. Actually, they represent 72.5% of our Economically Active Population (EAP) and 18.6% of Gross Domestic Product (GDP). The database of the Minister of Labor and Employment (MTPR) doesn’t proportionate a real number of the independent workers that live on their day to day income because most of them are informal workers and that’s a considerable issue in these times. We don’t know for example the exact number of street vendors that operate through the country. For this reason, when social isolation was first ordered, many of this people decided to disobey the mandatory quarantine justifying themselves by arguing that “if we don´t work, we don't eat”. Informal economy has been a big problem with which Peruvian economy had to deal for a long time and now more than ever.
As we maintain social isolation, there was a crucial debate on the Congress about the Administrators of Pension Funds (AFP). They are, nowadays, in the eye of the storm, and the Congress has decided that workers and employees can retire 25% of the fund that they’ve accumulated during their work years. The amount can’t be less than 4.300 (1.269 USD) and can’t exceed 12.899 soles (3.808 USD).
The International Monetary Fund has said that after coronavirus situation, a global economic recession might be lurking. Considering this, the Minister of Finance and Economy is injecting liquidity in micro, small, medium and big enterprises in order to avoid a stage of massive unemployment. For this reason, the Help Enterprise Fund is giving 300 million of soles (about 88 million USD) to maintain in float small enterprises. Secondly, they have increased the pathway of the program “Crecer”. Although, there are around 80 thousand of fixed term contracts that haven’t been renewed.
National Superintendence of Tax Administration (SUNAT) has implemented a course of action due to coronavirus situation, putting in practice the following Superintendence Resolution: N° 054-2020/SUNAT, Nº 055-2020/SUNAT and Nº 058-2020/SUNAT. This is a new manner to help alleviating enterprises tax burden. Actually, tax earnings have decreased by 17.9%. This is a measure that has been taken globally.
Finally, for those who are poor and the extremely poor, a program has been developed by the Minister of Development and Social Inclusion that is called “Yo me quedo en casa”. Its objective is to provide families in need with 380 soles (112 USD) to help them get through the current situation. However, there is still so much to do considering that, almost 7 million of Peruvians, don’t have access to public services like water or electricity.
In conclusion, as we may have seen, the government is taking a long list of measures in order to mitigate socio-economic impact of coronavirus. Nonetheless, this implicates a great challenge. Fortunately, we have maintained a stable debtor qualification which allows us now to work with the International Monetary Fund. Our National Savings allowed us to react swiftly to this Global Health Emergency. These are the days in which countries all over the world need to ponder over what they value more, which can be human life or economy cost. Decisions need to be taken in accordance with human rights. Article 3 of the Universal Declaration of Human Rights expresses that we all have the right to the life and it is the government's duty to protect it. Now, during these difficult times, we need to work together, government and society because we both form the State.
I’d like to quote the definition of State of Victor Garcia Toma, Peruvian constitutional lawyer:
“The State is an autonomic political society organized for structuring the convivence, we are a group of people interrelated because of the necessity to survive and perceive common benefit. This requires a relation based on social force and a hierarchical relation between government and society.”
References:
Soto, H. . (2009). El otro sendero: Una respuesta económica a la violencia. Lima: Grupo Editorial Norma.
https://www.inei.gob.pe/media/MenuRecursivo/publicaciones_digitales/Est/Lib1589/libro.pdf
https://www.ipe.org.pe/portal/el-arsenal-economico-ante-la-crisis-alianza-del-pacifico/
The Universal Declaration of Human Rights (1948)
García, T. V. O. (2014). Teoría del estado y derecho constitucional .
Political Constitution of Peru (1993)
Edited by Hiba Arrame