Bribery Probes Strike Fear Into Peru Officials, Stall Investment

(Bloomberg) -- Government officials in Peru are so scared of being accused of corruption that they have hobbled an infrastructure program needed to revive economic growth, an industry group said.

In the wake of the Odebrecht bribery scandal, bureaucrats have become wary of taking decisions on a backlog of projects for fear of being implicated in corruption probes, said Gonzalo Priale, chairman of the National Association for the Infrastructure Promotion, which represents companies investing in public-private partnerships.

“Fear is affecting the whole investment process,” Priale said in an interview in Lima. “We need to fight corruption, but keep investing.”

The so-called Carwash investigation has landed more than a dozen former government officials and businessmen in jail in Peru and paralyzed Odebrecht investments in irrigation, highways, and a major gas pipeline. The malaise is affecting a backlog of other public-private projects awarded by previous administrations or pending approval, including a $2 billion Lima ring road that’s been waiting years for the go-ahead, Priale said.

Under the public-private partnership program, companies -- many of them foreign -- build and operate infrastructure and recoup their investment over time. Only $1 billion of new public-private contracts were awarded last year, compared with an initial target of $4 billion.

The state of anxiety has reached such a level that public officials appear afraid of taking decisions that may prove unpopular, such as installing road tolls, Priale said.

“There’s a lack of leadership at the highest level, starting with the presidency” of Pedro Pablo Kuczynski, Priale said. “Much more dynamism is required.”

Kuczynski’s office and the Finance Ministry didn’t respond to emails seeking comment.

The blame doesn’t just belong to the Odebrecht scandal. A controversy over the public-private contract to build the Chinchero airport last year has also undermined Kuczynksi’s efforts to close an infrastructure deficit estimated at almost $160 billion.

Industry is hopeful things will start to turn around soon, Priale said. Proinversion, the government agency that manages the private-public partnership program, plans to award $4.5 billion in contracts this year, including two ports, a railway and the Michiquillay copper deposit.

The government is also readying legislation to prevent the corruption scandals from jeopardizing about 30 billion soles ($9.3 billion) in public investment this year, Finance Minister Claudia Cooper said Tuesday.

Moving ahead with a new contract for the Chinchero airport in Cuzco and approving pending public-private hospital contracts in the short term would send encouraging signs to investors, Priale said.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net.

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Philip Sanders

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