If we just talk in economic terms – political terms would be another story – Peru has
become a benchmark for Latin American countries in a little more than two decades.
With high economic growth rates and a lot of commercial openness, Peru has experienced
a decrease in poverty and has seen a growing middle class throughout the country in recent
years.
But hold on a moment, because this virtuous circle of economic prosperity could be reaching
its end.
And that’s not all.
Although things have gone reasonably well over the last decades, some problems haven’t
been solved at all:
For example, Peru’s huge dependence on raw materials, its lack of diversification, and
its inability to join global production chains.
And all of this raises some questions:
Will Peru be able to overcome these issues and emulate the Asian tigers?
Can the country join the 4th Industrial Revolution?
Why on earth haven’t they managed to overcome their dependence on raw materials yet?
We’ll try to answer these questions in this video.
But first, folks… we need to take a closer look at the reasons for Peru’s takeoff.
(THE FOUNDATIONS OF THE PERUVIAN PUSH)
What has driven Peru’s success in the last 25 years?
This is a very important question not only for Peru, but for other Latin American countries
– and for practically anyone who wants to see their country escape poverty.
Well, folks, to answer this question, we need to highlight two major factors.
The first is orthodoxy and macroeconomic stability.
No, don’t worry, it's not boring at all.
See, one of the keys to Peru’s growth, is that its various governments have opted for
economic continuity.
There won’t be a second round.
The president of the republic has been reelected.)
I’m not willing to turn my back on my country or on democracy.)
This means that although the country’s political leaders have had political differences – yes,
like everywhere else, it’s inevitable and healthy – they understood that there was
a development model, a vision for the country that they couldn’t mess with.
Alberto Fujimori, Alejandro Toledo, Alan García – in his second term, of course – Ollanta
Humala, Pedro Pablo Kuczynski and now Martín Vizcarra.
Six presidents with different political approaches but, basically, the same economic model.
It reminds me of the Lord of the Rings - but instead of a ring, there’s an economic model:
One model to rule them all.
The fact is that in the last 25 years, Peru has had its deficits and public debt under
control, they have respected the Central Bank’s independence and avoided the temptation to
run the bill-printing machine, and they have generally promoted investment.
For example, let’s take a look at the evolution of foreign investment in the country.
You see, between 1980 and 1994... it barely doubled.
But between 1994 and 2005 it multiplied by four.
And between 2005 and today it has multiplied by almost seven.
In a nutshell, foreign investment has increased more in less time.
All that folks, has caused Peru’s growth rates to average almost 6% per year for more
than 15 years.
Check this out.
“At an APEC meeting they asked me what I thought would happen to the Peruvian economy
and the international crisis, and I said that the only thing I was sure of was that the
country that was going to grow the most this year was Peru.”
Luis Alberto Moreno, President of the Inter-American Development Bank.)
Of course, economic growth ends up favoring almost everyone in one way or another.
You don't have to have a Nobel Prize in Economics to understand that.
In less than 15 years, a short period of time... the purchasing power per capita in Peru has
almost doubled and poverty has fallen by 30—30—percentage points.
But... percentages are sometimes hard to understand.
To really illustrate the importance of such a reduction in poverty, we should talk about
people.
Seven million Peruvians came out of poverty in less than 15 years thanks to the country's
economic growth.
But... along with stability and macroeconomic continuity...
The country’s other strategic commitment has been opening up to foreign investment.
This policy began in the 90s, continued throughout the turn of the century, and remains today.
Today Peru has free trade agreements with all three major economic zones: The United
States, China and the European Union.
It’s also part of the Pacific Alliance and, in general, its foreign policy is very much
aimed at achieving new trade agreements.
And all this, of course, has had consequences.
Exports have increased from 3 billion dollars in 1990 to more than 52 billion today.
In other words, they’ve multiplied by 17.
But just a second, let’s not get too excited just yet.
OK, these results have been fantastic, that's true.
But, now the model... the model seems a bit exhausted.
And yes, you know we love talking about the positives, and of course Peru has many good
things going for it,
But, folks, as with Enron, Blockbuster, and Nokia, if we don’t pay close attention,
things might not end well.
That is, they could slap you right in the face.
So, Let's look at the main problems that are preventing
this country from emulating the tigers and dragons of the Asian continent.
Listen up.
The people demand a Congress shut down.)
(THE PERU THAT BREAKS) FRAGILE PERU
Peru hasn’t escaped poverty yet.
Despite its almost 25 years of uninterrupted growth, the country still has a lot of poverty.
Worst of all, despite this growth, in recent years, the Peruvian economy has been like
a tyre with a slow puncture that could get worse---a lot worse.
Allow me to explain.
Peru is still continuing to grow, but at a much slower rate which is becoming more than
evident.
The country’s growth is weaker and confidence among businessmen has decreased a lot.
But that's not the worst part.
The worst part is that the biggest changes are slow to arrive, much more than expected.
As we’ve already mentioned, there’s still a lot of poverty in the country and in spite
of its sustained growth, Peru still doesn’t have a productive, diversified, and modern
economy.
Essentially, Peru continues to depend on raw materials.
And now, if growth slows down, the question is, how much longer will it take to change
things?
We can’t answer this, but what we can try to do is explain why it’s so hard to make
changes in this country.
Well, folks, here are some ideas.
Jaime Bayly: Set a grade for your first government
Alan García: You’re so unfortunate.
I’d fail myself, what can I say?
Jaime Bayly: If you fail yourself as president, why should we vote for you now?)
The first problem – I think we might all agree here – is political… and it starts
with corruption.
Have you heard about the Odebrecht case?
Well that's just the tip of the iceberg.
The deal here is so dodgy that at least five of the country’s latest presidents are suspected
or involved in cases of corruption.
Three are in jail---Fujimori, Humala and Kuczynski— and Toledo is on his way there.
And then, Alan García, well, I'm sure you already know his tragic and unfortunate end.
Alan García: former Peru president dies after shooting himself before arrest.
THE GUARDIAN)
But this isn’t the only political mess.
In Peru, parties get on so badly, and politics are so polarized and fragmented, that agreements
are as difficult to reach as a presidential candidacy composed of Mauricio Macri and Cristina
Fernández de Kirchner.
Well, now that I think about it, that might actually be easier.
The fact is that this enormous polarization has stagnated the de facto economic reforms
agenda.
Since the international crisis, the country has barely made any significant structural
reforms.
But, some claim that the government and Congress’s lack of productivity had a positive effect
back in the day: the economic reforms of the 90s remained in place because of how little
the political class could get done.
That is to say, this immobility prevented politicians from changing the country’s
economic course, leading to the aforementioned stability.
But of course… the problem is that time passes and eventually, changes are required.
But….
That’s not all.
In the end, between their corruption and their inability to reach agreements, Peruvian politicians
have turned Peru into the Latin American country with the least confidence in their political
organizations.
In other words, Peruvians would trust Vito Corleone or Darth Vader more than their own
politicians.
The second problem is that the apparent good performance of the country's economy has camouflaged
other issues... which haven’t progressed well at all.
One of them is productivity... which hasn’t only not improved, but since as far back as
1975, it’s progressed negatively.
Yes, yes, you heard that right.
Progressed negatively.
“In the long term, the net result shows a secular stagnation in Peru’s productivity.
This is the main cause of its lack of convergence of per capita income with that of more advanced
economies.”
Marta Ruiz-Arranz, IDB advisor)
Now, why is this important?
Well, folks, to look at it another way, with data in hand, this means that a single American
worker is as productive as five Peruvian workers.
And of course, this is unsustainable.
70 years ago, this figure wasn’t five but three.
An American worker was three times more productive than a Peruvian worker.
Today he or she is five times more productive.
Mind you, this doesn’t mean that Peruvians work less, but that the jobs created in the
country have a very low added-value, which generate very little.
And that, of course, is due to structural problems... such as the inability to attract
high added-value investment, a lack of competition, a feeling of legal insecurity, a lack of entrepreneurship,
infrastructure problems – a true mess – etc., etc.
Surprised?
Well you shouldn’t be.
In fact, productivity isn’t the only factor that has got worse.
This is how Peru has evolved in the World competitiveness ranking:
And this is important, because one of the secrets of the Asian economy is that they
did in fact began by specializing in activities with little added value.
That is,, they competed with low wages.
But at the same time, they always tried to improve their level of competitiveness.
And, as you can see, that hasn’t happened in Peru.
This explains why traditional exports, the usual ones, metals, oil, fishmeal... represent
more than 70% of all Peruvian exports.
By the way, just a thought: Can you imagine a Peruvian political leader watching this
video?
But… if things are going well, what else does Peru want?
The country is growing.
Venezuela is worse.
No, no, no… everything is alright.
Come on, enough of this already.
It’s time for a nap, or football... or whatever.
For example, one of the areas in which we can see the results of this sluggishness is
in education, an essential pillar for a country’s modernization.
After 25 years of strong economic growth, the Peruvian education system continues to
have more holes than a wedge of gruyere cheese.
According to the IDB, the Inter-American Development Bank, only 30% of all educational infrastructure
can be considered adequate.
Anyway, folks, these are the main problems that the country faces.
But... just a second.
Peru has done many things well in recent years.
We can’t end the video on such a negative note.
So…
(PERU PROGRESSING)
Folks, despite their problems, Peru has had one of the best economic performances in Latin
America in the last three decades.
As we saw earlier, poverty levels dropped rapidly, and that is very good news.
Also, between 2011 and 2017, the middle class went from 9,847,000 people to almost 13.5
million.
This is an increase of 40%, 40% in less than five years.
And although growth has slowed down, the country is still the fastest growing member of the
Pacific alliance.
Anyways, with this video, we attempted to explain why Peru is having a harder time than
expected making the big leap.
But now….
It’s your turn.
Do you think that Peru will finally manage to emulate the success of the Asian dragons?
Leave your answer in the comments and in the survey.
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