WORLD BANK REPORT CRITICISES PERU ECONOMIC PLAN

  A confidential World Bank report on the
  Peruvian 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.
  

