Peru’s PM optimistic economic reforms will pass Congress

By Mitra Taj and Marco Aquino

LIMA (Reuters) – A day after meeting with the head of the opposition-controlled Congress, Peru’s prime minister said he was optimistic lawmakers would back President Pedro Pablo Kuczynski’s economic reforms, including plans to cut the value-added tax rate.

The prime minister, Fernando Zavala, who recently stepped down as chief executive of beer maker SABMiller, said that if Congress does block the gradual VAT rate reduction to 15 percent from 18 percent, Kuczynski would seek “alternatives.”

“The possibility always exists that it will be denied,” Zavala told Reuters in an interview. “But we do think that when they see the comprehensive proposals, we’ll get a vote of approval.”

Kuczynski, a centrist 77-year-old former investment banker who took office on Thursday, pitched the tax reduction as central to his plans to modernize Peru by encouraging small businesses to pay taxes. But lawmakers with the rightwing party of his defeated rival Keiko Fujimori have slammed the reform as a drain on government revenues.

Zavala said his cabinet was also considering new and complementary tax proposals to make it easier for small businesses to operate on the books.

“Seventy percent of the economy is informal,” Zavala said. “To jumpstart economic growth we have to tackle this.”

Kuczynski has also proposed rolling out infrastructure projects and slashing red tape to bring annual economic expansion back to at least 5 percent a year, after slumping mineral prices sapped investments in Peru, a global copper and gold exporter.

Zavala said Kuczynski’s team had expected the fiscal deficit, government spending capacity and economic growth to be in better shape than they are by now.

“We expected the situation to be better,” Zavala said. “That means bigger challenges for us but we still think we’ll be able to meet” our goals.

Kuczynski has had a frosty relationship with Fujimori’s party since the two traded attacks in a tight race for the presidency in June.

But the president of Congress, Luz Salgado, a longtime member of Fujimori’s party, has praised Zavala, who spent his second day on the job offering her public apologies after Kuczynski said he would peel off new members of her party to pass legislation.

“There are good spirits” now with the Fujimoristas, Zavala said, adding that Congress will likely vote on approving his cabinet on Aug. 18.

If Congress blocks Kuczynski’s cabinet twice in his government, he can call for new parliamentary elections.

Zavala said it would never come to that. “No way,” he said.

(Reporting by Mitra Taj and Marco Aquino; Editing by Leslie Adler)