Stability transforms economic hopes
HAVING WEATHERED RECENT GLOBAL ECONOMIC DIFFICULTIES BETTER THAN MANY OF ITS NEIGHBORS, PERU'S CHALLENGE NOW LIES IN ATTRACTING FOREIGN INVESTMENT TO ITS KEY INDUSTRIES

STAND AND DELIVER Alejandro Toledo, President of the Republic of Peru.

When President Alejandro Toledo took office this past July, many Peruvians felt their country was not just turning a page in the history books; it was writing the table of contents for a whole new
volume. Peruvians saw the departure of Alberto Fujimori as more than just the end of a decade’s rule that dwindled into misgovernance and corruption. It was one of history’s rare second chances to wind up a system that has existed practically since the country became independent in 1821, “characterized by authoritarian rule that has left 54% of Peruvians living on less than two dollars per day,” according to the President of the Council of Ministers, Roberto Dañino.

But no matter how glad they were to see the last of Fujimori (when the scandal-spattered president bolted to Japan and faxed back his resignation, lawmakers refused to accept it just so they could have the satisfaction of removing him from office), there is no denying him some credit for what was accomplished in the early years of his presidency: ending Peru’s estrangement from the multilateral lending organizations, and dealing forcefully and successfully with rampant terrorism. After that came seven fat years, followed by two lean ones in 1998 and 1999, when the El Niño phenomenon played havoc with agriculture and the Asian crisis dried up some of Peru’s main export markets.

In the six months since his inauguration, President Toledo does not claim to have turned the situation around. He says his main priorities are “creating productive jobs, investing heavily in health, education and nutrition and rooting out corruption. We realize that in the globalized world in which we live, Peru has to compete for access to capital. Political, economic and legal stability are all of vital importance in engaging with the investment flows that can launch Peru’s short-term recovery, and lead to a period of sustained growth. Our primary concern is attacking poverty, but we know we will never get anywhere by patronizing its victims. We want to teach people how to fish, rather than serve them a fish dinner.” As Mr. Dañino adds, “the main mission of the government is the outright fight against poverty.”

But what exactly has the government done by way of turning these good intentions into on-the-ground change? A typical example is that 50% of all revenue from privatization of state companies is set aside and used to build decent roads. As Transport Minister Luis Chang says, “the other day I was talking to some farmers who told me they were being offered one sol, that is a third of a dollar, for a box of 15 papayas. Just transporting that to Lima or Callao would cost three times as much, and the fruit would half spoil before it got there. But if a highway existed to cut travel time from 36 hours to eight, it would become a viable business for everyone concerned, farmers, shippers and exporters.” In addition to the nitty-gritty issues, analysts say that President Toledo’s agenda will have to tackle the big issues such as structural reforms, significant investment in research, development and human capital, and creating public institutions that are untainted by corruption and responsive to people’s real needs.

Of course, all this requires major financing, and this will not be easy to come by now that the world economic downturn has cut growth expectations to 1% for the current year, as compared with last year’s 3.1%. Deputy Minister for Integration and International Trade Negotiations Alfredo Ferrero says that if the government gets it right, Peru can become competitive in productivity, cost-efficiency and with its know-how, particularly in the textile, mining and fishing industries, and niche products taking advantage of the country’s more than 180 micro-climates.