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News from 2020-09-29 / KfW Development Bank

Green recovery in Peru

Wind turbines on a field
The loan will help to overcome the consequences of the Corona crisis while supporting innovative climate change investments.

KfW Development Bank is providing Peru a loan in the amount of EUR 250 million (in the USD equivalent) and, in the process, is linking the fight against the impacts from COVID-19 with its commitment to achieve climate goals. The funds, which KfW is providing in the short term on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), will benefit both objectives. Loans will help small businesses and their employees to survive the current economic crisis. As soon as the economy begins to recover, the funds will be used to promote climate-friendly investments.

Peru has been particularly hard hit by the coronavirus crisis. With its 33 million inhabitants, the country has the highest COVID-19 death rate per capita and, together with Brazil, has the highest infection rate of all the South American nations. The number of cases in Peru is many times higher than in Germany,.

The government issued shelter-in-place orders and other severe limitations that lasted for several months. But nearly two thirds of the Peruvian labour force is employed in the informal sector and workers need to leave the house to secure their survival. They could not afford to stop working during the quarantine. “This is why it was critical that we implement the loans very quickly,” says Diana Arango, the KfW Project Manager responsible for the project, “which we were able to do in just four months while maintaining high quality and compliance standards.”

The loan amounts are mainly directed towards micro and small enterprises (MSEs), which do not usually have much capital and are seriously affected by the economic impacts of the coronavirus restrictions. However, MSEs distinctively shape the national economy of the fourth-largest South American country. According to the International Labour Organisation (ILO), they employ nearly half of the entire Peruvian workforce. “We want to use this loan to stabilise the Peruvian economy and save jobs”, says Claudia Arce, KfW Director of Latin America and the Caribbean, because “thousands of them are at risk”.

 Stephan Herzberg (German Ambassador in Peru) and Carlos Linares (Chairman of the Board - COFIDE)
Stephan Herzberg (German Ambassador in Peru) and Carlos Linares (Chairman of the Board - COFIDE)

The Peruvian Financial Cooperation partner is COFIDE (Corporación Financiera de Desarrollo), the country's development bank, which was founded in 1971. To date, over 300,000 MSEs with liquidity issues related to the coronavirus crisis have received funds from COFIDE. It manages the two funds within the Peruvian government's Emergency Aid Programme. One supports the MSEs in general, the other provides loans specifically for MSEs in the tourism sector.

The EUR 250 million equivalent in USD is the largest individual loan that KfW has ever granted to a Peruvian institution. “We welcome the fact that KfW and the Federal Ministry for Economic Cooperation and Development (BMZ) primarily directed the funds to MSEs that were particularly affected by the pandemic,” says Carlos Linares, President of COFIDE, “and will then make it possible for us to finance further green initiatives.”

Investments in sustainable development have recently stopped due to the coronavirus crisis. Moreover, Peru and other Latin American Countries generally do not have sufficient domestic capital available to finance measures towards achieving the climate protection goals of the 2030 Agenda.

Within the context of the global fight against climate change, the Peruvian government passed close to 60 measures in 2018 in the energy, transport, industrial, construction and water sectors. The intent was to reduce carbon emissions in the country by 30 per cent and promote sustainable development – provided that they would receive international aid. The state estimates that the costs for the entire programme will be around USD 16 billion.