Multi-ethnic, highly integrated and with a growing economy. Peru knows how to play West against East.
In 1990, in a long interview with the Paris Review, Peruvian writer Mario Vargas Llosa offered this description of the situation in his country: “Catastrophic. The economy is foundering. Inflation has reached record highs. Over the first ten months of 1989, the population lost half its buying power. Political violence has become extreme”.
But things have changed over the past 25 years. Vargas Llosa won the Nobel Prize in Literature, terrorism was routed, and Peru has become the star of the South American economy. Today, Lima is a Pacific puma, an Andean tiger.
“I came to Italy in 2008. I’m now going back to Peru to open a bar”, says Miguel, a waiter working in Venice. “My country will soon be richer than Chile”. Indeed, from 2007 to 2012, Peru’s GDP increased by an annual average of 6.5% – more than Colombia (4%), Chile (3.9%), or Mexico (1.8%). And according to International Monetary Fund projections, the country’s GDP will expand by 3.8% in 2015.
“Peru has enjoyed sustained economic development since 2004, which reduced poverty by 48% to under 25%”, explains Carlos Aramburú, a professor of economics at the Pontifical Catholic University of Peru. “What really drove growth were mineral prices, especially in China which was growing very rapidly until recently. In fact, the weak points of Peru’s economy are our continued dependence on primary exports and scant diversification”.
Vale un Perù (It’s as valuable as a Peru), the Spanish used to say, alluding to the prodigious mines of the Peruvian viceroyalty. Today Peru is still the world’s third biggest producer of silver and copper and fourth of gold. The mining industry comprises 15% of the economy, and it was chiefly the commodities boom that fuelled the rise in GDP (adjusted for purchasing power parity) from €121 billion in 2000 to the current €351 billion.
Another key sector is fishing: Lima’s fishing fleet is enormous and Peru’s fishmeal stocks feed half the world’s farm-raised pigs and chickens. In recent years, the manufacturing and services sectors have also grown, in particular tourism and banking. The “pearl of the Pacific”, with a population of nearly ten million, Lima is one big construction site. Shopping centres are proliferating and restaurants are packed.
Various experts contend that the roots of Peru’s success lie in the neoliberal reforms introduced by the controversial President Alberto Fujimori in the 1990s. “May God help us!” said the then prime minister, Juan Carlos Hurtado Miller, when announcing the reforms. The so-called Fujishock earned Fujimori the nickname “Chinochet” and put tremendous strain on Peru’s poorest citizens. But it helped restore an economy that today boasts international reserves of over €63 billion, a burgeoning middle class and low inflation.
“Our strengths are macroeconomic stability and independence from the central bank, which guarantees investors predictability and solvency”, notes Alvaro Zapatel, an economist with the University of Lima. “The fact that our economy has opened up to the world is also significant. It generates comparative and competitive advantages for the country”.
Though he adds that there is little doubt about the nature of Peru’s weaknesses: “They are institutional, and they prevent us from taking the big leap and entering the (Organization for Economic Co-Operation and Development)”. The informal economy accounts for 50% of Peru’s GDP, corruption is high and bureaucracy is stifling. (The director of the Peruvian Economy Institute called his country “the permit republic”).
“The health of the Peruvian democracy is troubling”, says José Saravia, a philosophy professor at Cayetano Heredia University. “Average Peruvians usually exercise their civic rights in just two ways: every so often they elect their representatives and then sit back and criticise them”.
Nevertheless, Peru’s politicians are not exactly shining examples of good governance. One former president, Fujimori, is in prison, and two others are standing trial. As for the current president, Ollante Humala, “His incapacity to govern is evident. They say his wife manipulates him”, says Carlos Aquino, who teaches global economics at the National University of San Marcos. “His public approval rating has dropped to 10%. He has no support base. His political party is weak, having been created for the elections”.
An ex-Chavista who converted to neoliberal economic orthodoxy, Humala has proved crafty in foreign policy. As a staunch advocate of the Pacific Alliance (the free-trade bloc between Mexico, Chile, Colombia and Peru), Humala has strengthened ties with Brazil and Bolivia, is at home in Mexico and has improved relations with Chile. He wants to make Lima one of the US’ strategic allies in South America and is looking to use Chinese investment to build an interoceanic railway connecting Brazil and Peru.
As an Italian diplomat who knows the country all too well says, “Peru under Humala is everybody’s friend, somewhat like Italy”. Call it equidistance a la Huancaína: Peru will share a table with America or China, as long as dinner is being served.
Multi-ethnic, highly integrated and with a growing economy. Peru knows how to play West against East.
