Compared with most of its neighbors, Peru continues to be an economic star in Latin America, with a projected 4.5 percent growth this year and a steady drop in poverty. But the fact that the country is no longer growing at nearly 7 percent annually — as it did over the past decade — has triggered a mini-crisis.
Government officials, opposition leaders and leading economists concede that the economy is slowing down from its high-growth rates in recent years, but differ on the reasons. While the government says it is mainly due to external factors — a drop in Peru’s exports to China, the biggest buyer of Peru’s minerals — critics say it’s because of excessive regulations on the private sector by President Ollanta Humala’s government.
Former President Alan Garcia, who is often mentioned in the local media as the front-runner for the 2016 presidential elections, told me in an interview that Humala’s government has “wasted” its first three years in power.
“Instead of taking advantage of the country’s rapid growth it inherited and offer greater freedoms to investors, they have done the opposite,” Garcia told me. “They have placed more regulations, more obstacles to the arrival of capital, and we have lost the opportunity to compensate global obstacles with measures that would have shown a greater determination to grow.”
Among other regulations, Garcia cited the 2011 “previous consultation law,” which made it mandatory to seek indigenous peoples’ consent before starting mining or other development projects on their ancestral lands. The law, supported by indigenous organizations, was signed by Humala shortly after taking office.
Because of that law, investors such as a developer wanting to build a high-rise or a mining company wanting to start a new venture must first prove that there are no archeological remains on the site, a murky bureaucratic process that can take years, critics say. Instead of placing the proof of the burden on the government, the law demands that investors prove their innocence, they say.
As a result of these laws, many oil and mining projects have left the country or suspended operations, and foreign investments fell last year.
In an effort to revamp the economy, Humala in recent weeks announced several measures to cut red tape and offer mining companies and other investors greater tax stability, locking in taxation rates for 15 years on major investments. Most economists applaud Humala’s latest reforms, but joke that the president spent three years issuing regulations that may take his last two years in office to dismantle.
But, contrary to what I found in most South American countries in recent months, most Peruvians seem to feel that the country is going in the right direction, even if Humala’s popularity is decreasing.
A survey by the GFK polling firm released this week shows that 32 percent of those questioned expect the economy to improve over the next 12 months, while only 15 percent expect it to deteriorate, and the remaining 53 percent expect it to continue stable. That’s not a bad sign in a country that — even with its mini-crisis — is growing at twice the rate of Latin America’s 2.5 percent growth rate.
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“What we are seeing now is ‘una frenadita’ (a slight slowdown),” says Pedro Pablo Kuczynski, a former prime minister who is also mentioned among the likely presidential candidates for 2016.
Kuczynski expects the economy to pick up as early as next year because Peru is expected to substantially increase its copper production in 2015 as a result of long-planned investments, and much of this production has been bought in advance for the next several years by China.
When I asked Planning Minister Piero Ghezzi whether he’s worried about his country’s “mini-crisis,” he conceded that economic growth has dropped “because we have been too complacent” during the recent high-growth years. He said Perú is starting major education, health and institutional reforms that should allow the country to resume its 7 percent annual growth rate soon.
“I think that Peru’s average growth rate over the next few years will average 5 percent if we don’t do anything, and 6 or 7 percent if we succeed with our planned reforms,” Ghezzi said.
My opinion: Peru may have a mini-crisis, but it’s doing much better than its neighbors. Most important, and despite its messy politics, Peru seems to have a social consensus that staying the course over the past 15 years has paid off, and that evolution has proven to be much more effective to reduce poverty than revolution.
According to official figures, Peru’s overall poverty rate has fallen from 59 percent of the population to 24 percent of the population over the past decade. Even if the economy grows at a 4.5 percent rate this year, the poverty rate is likely to continue to fall. It’s a mini-crisis that Venezuela, Argentina and others would love to have!