Peru lifts 2017 budget to deal with extreme flooding

by Reuters
Saturday, 18 March 2017 00:09 GMT

(Adds comments from finance minister and analyst on impacts on growth, context)

By Teresa Cespedes and Mitra Taj

LIMA, March 17 (Reuters) - The government of Peruvian President Pedro Pablo Kuczynski is hiking the 2017 budget by 3 percent in order to fund emergency and recovery efforts as the Andean nation grapples with deadly downpours and extreme flooding.

Peru's Finance Minister Alfredo Thorne said the 4.4 billion sol ($1.35 billion) increase, which will be published in an urgent decree on Saturday, would not affect his 2017 fiscal deficit target of 2.5 percent of gross domestic product.

The decree will also create a special tax exemption for companies that donate food and other goods for emergency efforts, Thorne said.

At least 62 people have died in rain-related events since December, many in recent days after a sudden warming of Pacific waters near Peru unleashed torrential downpours, landslides and flooding.

Kuczynski, a 78-year-old economist, said Peru has not seen such extreme rains since the powerful global El Nino weather pattern of 1997-1998.

Before the floods, Kuczynski's government had been working to counter the impacts of a corruption scandal that has delayed its plans to boost domestic demand with infrastructure projects.

Thorne told Reuters he did not expect the extreme weather to prompt a downward revision to official growth estimates of 3.8 percent for 2017 and 4.3 percent for 2018.

The floods might even help bolster economic growth starting in the second quarter if the government can orchestrate a rapid reconstruction effort, despite the damages wrought, said Pedro Tuesta, the chief Latin American analyst for 4Cast and a Peru native.

"Peru may have fewer assets but the flow of production could be larger," Tuesta said. "But it all depends on the government response."

About half of Peru has been declared in emergency to expedite resources to the hardest-hit areas, the government said.

The extreme weather could fan inflation as some food prices have risen on supply disruptions from farming regions.

The floods have destroyed 1,250 km (777 miles) of highway and blocked parts of the main road linking the interior of the country to Lima, according to the civil defense institute.

More than 56,000 acres of crops have been damaged, including in areas that grow grapes, mangoes and bananas for export.

$1=3.25 soles

(Reporting by Teresa Cespedes and Mitra Taj; Editing by Meredith Mazzilli and Lisa Shumaker)

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