A confidential World Bank report on thePeruvian economy has said the government's strategy does not
offer good prospects for medium and long-term growth and is
likely to lead to an early renewal of inflationary pressure.
    The report, published today by the economic monthly, The
Peru Report, said the success of president Alan Garcia's
government in stimulating output last year to achieve a growth
in gross domestic product of over eight pct "represents gains in
the short term at the expense of the long."
    Government officials had no immediate comment on the
report, which advised a reduction in the overall size of the
public investment program and greater emphasis on the
preservation of Peru's export potential.
    The report said that although the government had succeeded
in cutting inflation from 250 pct a year in the first half of
1985 to under 70 pct, its stabilisation and reactivation
program was encountering rising difficulties.
    "An early renewal of inflationary pressures, linked to
monetary expansion, exchange rate devaluation and an easing of
price controls, appears not improbable," it added.
    The world bank report said the government's policies had
reduced inflation and short-term increases in consumption at
the apparent cost of price distortions, overvaluation of the
currency, balance of payments disequilibrium, reserve losses,
and sharply diminished creditworthiness.
    It said unless the government took action quickly to fix a
competitive exchange rate and control the public sector
deficit, "the higher the probability will be that the government
will eventually have to resort to drastic curtailment of
domestic demand and either sharp devaluation or still further
controls on imports in order to stem inflation and support the
balance of payments."
    It said the bank would place more emphasis on the
preservation of peru's export potential, external links and
overall economic efficiency.
    The government's incentive policies towards the mining and
petroleum sectors, among its main traditional exports,
suggested that it did not accord high priority to their
economic viability, it added.
 Reuter
