Peru Fin Min Defends 2009 Budget Proposal
September 12 2008 -

-By Leslie Josephs, Dow Jones Newswires -

LIMA -(Dow Jones)- Peru's Finance Minister Luis Valdivieso brushed off criticism from opposition lawmakers that the central government's 2009 budget proposal is seeking to cut social spending.

Speaking before Congress late Thursday, Valdivieso said the budget - worth 72.36 billion soles ($24.34 billion) - aims to shield Peru from global volatility with increased savings.

Analysts and government officials say that Peru cannot maintain its breakneck economic growth amid the international market downturn.

Peru's economy expanded 9% last year and similar growth is expected for 2008.

"This change in the external conditions put serious limitations on our ability to react with greater public spending," Valdivieso said. "It means a potential reduction in our fiscal income."

President Alan Garcia's Cabinet chief Jorge del Castillo announced in the hearing that the budget includes PEN700 million in social spending.

However, opposition Congressman Washington Zeballos of the southern Moquegua region complained that the budget does not give enough funding to local governments.

Tensions have historically been high between Peru's central government in the coastal capital, Lima, and the interior provinces, many of which suffer from deficits in infrastructure.

In a statement, Zeballos said that "local governments won't be able to attend to the needs of their populations."

But Valdivieso said the backbone of the "austere" 2009 budget is to protect Peru from international volatility and rising inflation, particularly by a forecast fiscal surplus next year of 2.3% of gross domestic product.

The consumer price index for Lima rose 0.59% in August from the previous month, bringing the annual inflation rate to 6.27%. The inflation rate was well above the 1.0%-3.0% range targeted by the central bank.

Peru's Finance Ministry forecasts inflation will reach 5.8% this year and 3.5% in 2009.

Congress must approve the budget by Nov. 30.