The Ministry of Economy yields to political pressure: MML authorized to incur debts 3.5 times its income.

The Ministry of Economy and Finance (MEF) took a step back and allowed the Metropolitan Municipality of Lima (MML) to incur debt up to 3.5 times its income until the end of 2024, through Urgency Decree 006-2024. This decision comes after issuing Urgency Decree 003-2024 which temporarily suspended the possibility of borrowing for subnational governments with certain credit ratings. The MML's reaction to this initial measure was the approval of an ordinance asserting its autonomy to carry out borrowing operations with its own resources, challenging the suspension imposed by the MEF. Experts such as former Minister of Economy, Luis Miguel Castilla, point out that this retreat by the MEF in the face of political pressure could politicize the management of fiscal policy in the country, which could affect its credibility. On the other hand, the country's economy experienced a growth of 1.37% in January, which has led to various interpretations by experts. Some attribute this positive result to factors such as the increase in exports and the revival of sectors like construction. However, there are concerns about the level of indebtedness of municipalities, especially in cases like that of the MML, whose debt could reach between three and four times its income. Professor Carlos Casas warns of the risks of excessive borrowing by municipalities, as this could compromise their fiscal situation in the long term and eventually that of the country. Furthermore, there is concern that the MML's borrowing could impact the country's risk rating if the municipality cannot meet its financial obligations. In this sense, the modification of Article 10 of the original Urgency Decree to allow greater borrowing for the MML has generated criticism, as it is perceived as a decision that goes against previously established austerity measures and could increase pressure on the municipality's long-term repayment capacity. It is essential to maintain a balance between economic development and financial sustainability of local entities to avoid potential future crises. Transparency in the management of public finances and responsibility in handling debt are key aspects to ensure the country's economic stability and avoid unnecessary risks in the future.