“Recovery After the Covid-19 Pandemic: the Case of Peruvian Tourism”
The situation in which we now find ourselves in Peru during 2020, which is in the midst of a mayor global epidemic and a global economic recession, is the worst social and economic crisis over the last 100 years. GDP may report an estimated annual decline by around 15% in 2020 (IPE, 2020). Other experts’ estimates vary from 12% to 20%.
These levels of economic recession have not occurred in Peru since the economic crisis in the 1980s (Boloña, 1993). Neither the 1998-1999 recession nor the 2008-2009 slowdown have faced a crisis of such magnitude.
During the crisis of Alan Garcia’s first government, despite an inflation rate that reached two million percent (Boloña, 1993, page 6), the reduction in GDP did not go to these extremes. According to the aforementioned author: «In the last three years of the decade, there has been a fall of more than 20% of the product» (Boloña, 1993, page 17). This is equivalent to an annual decrease of 6.5%. Compared to this, Covid-19 crisis may reach an annual decline by around 15% in 2020.
The recessionary period 1998-999 in Fujimori´s Government did not reach double-digit GDP declines. Actually, GDP fell by 8.8% in 1998. The global financial crisis of 2007-2008 in Alan Garcia’s second government led to a stagnation in the economy which grew by only 1%.
The COVID-19 pandemic has already generated recession in the G20 countries. The Economist Intelligence Unit has reviewed its growth forecast for all countries globally, starting from the coronavirus pandemic. The results point to a very serious situation. The G20 group of developed countries will record a recession this year. The global economy will contract by about 2.5%.
The crisis poses an unprecedented risk to Latin American economies since the coronavirus has created a supply-demand shock on at par with a global financial collapse. The direct economic impact will be great. In particular, this will cause a serious damage to Peruvian exports. How will COVID-19 impact Latin America? Latin America’s export value contracted 3.2% in the first quarter of 2020 compared to the same period in 2019. The contraction would be higher for Peru (IDB-INTAL, 2020). The cited report estimates a decline of 30% for year 2020.
Another clear impact of the Covid-19 epidemic is the reopening of the debt crisis in developing countries. Only facing the coronavirus pandemic will demand extraordinary fiscal efforts due to lower tax revenues and lower tax collection due to higher expenses on health and social assistance. Governments in all developed countries have confirmed large increases in public spending and therefore higher public debt in their fight against coronavirus, representing an enormous problem for the poorest countries like Peru. One conclusion is that increased debt would be better than the widespread destruction of productive capacity caused by the epidemic. In the end, the public debt of all developing countries will increase widely through year 2020. Sovereign debt crises are a fact, the only question begins with: when and who. A report presented by the Economist Intelligence Unit (The Economist, 2020) projects the impact on the increasing levels of public debt in emerging countries from Latin America and Asia and developed countries such as Italy and Spain.
In short, the perspective of the global economy is terrible in 2020. Due to the coronavirus pandemic, an acute contraction of the global output is expected to occur this year. It seems that 2020 and 2021 will be years of economic growth lost. Global GDP will not recover to pre-coronavirus levels at least until 2022. The additional risk is that a second wave of the pandemic may derail economic recovery again. Also, a delay in the development of a vaccine would also pose an additional risk. (Economist Intelligence Unit, 2020).
The special situation of receptive tourism, caused by direct effect of the pandemic, is as follows: Foreign tourism to our country is currently endangered. The World Travel & Tourism Council estimates that, in the baseline scenario, foreign visitors travelling to Latin America will decline by 45% in 2020 (WTTC, 2020). Both formal and informal tourism industry in Peru used to generate $22 billion, representing 9.7% of GDP (Canatur, 2020). From March 15, 2020 and according to the Ministry of Trade and Tourism (El Comercio, 2020), the pandemic and health emergency reduced to naught the activity of this market that employs 1.4 million people who are mainly women.
All the facts presented in this introduction helped us to set the objectives of this article which aim to highlight and propose, as a stated purpose, that external sales of tourism services regain their position as the most important part of service exports in Peru. The negative evolution of total exports of goods and services in Peru during the present year urgently requires to look for alternatives for the generation of foreign exchange and employment. Alternative tourism projects like the one presented here must be closely linked to both economic revivals and positive export recovery in different regions of Peru.
The outlook for the global and national economy is terrible in 2020. Due to the coronavirus pandemic, a sharp contraction in domestic production is expected in 2020 and 2021, which will be lost years of economic growth. GDP will not recover to pre-coronavirus levels until at least 2022. The additional risk is that a second wave of the pandemic may derail the economic recovery again. A delay in the development of a vaccine would also pose an additional risk.
Receptive tourism by direct effect of the pandemic and the health emergency has reduced its market activity in Peru, which employs 1.4 million people, predominantly female labor.
Our thesis is that export growth is the main determinant of the dynamics of Peru’s GDP and unfortunately, export growth weakened leading to poor economic growth for the last five years, a very different situation from the period 2001-2013. But the very serious covid-19 crisis came “to put salt in the wound» or rather “add insult to injury” of our low growth. Only a revival of exports will reverse the decline in economic growth, as expectations of a significant recovery in domestic demand are close to zero.
Another conclusion is that we are not fully exploiting our historical, geographical and biological wealth; also, tourist activity, which can become an engine of economic growth, is being wasted. Our great past can be the engine of a great future and an opportunity to energize regional economies with better hotel services and other tourist businesses.
The solution for Peruvian receptive tourism can be a relaxing tourism on tropical beaches, complementing traditional archaeological tourism. Possibly, an island that can compete with the Caribbean islands is required. Therefore, we propose to value some of Peru’s ancient guano islands, such as the Lobos de Tierra tropical island and the Lobos de Afuera islands, a set of islands located off the coast of the tropical Piura region. The cost-benefit analysis of the project presented here gave optimistic results.
Finally, we insist on the thesis that the revival of the Peruvian economy must necessarily be based on meeting the revival of external demand, instead of relying on the growth of domestic consumption. Again, Peru’s growth projections are the lowest in Latin America and lower than the projected growth for the world as a whole.
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