By: José Ignacio Cabrejos Portocarrero
In the year 1990, Peru seemed a country in the brink of collapse. The Andean nation had gone through decades of successive ideologically-opposed governments that enacted incoherent social and economic policies. The country was battling with one of the world’s highest hyperinflations (7,650%). It also faced a crisis of representation: political parties had lost the trust of the majority of the population. Democracy was also threated by an internal armed conflict, in which the state was battling two sanguinary terrorist groups. The Peruvian Truth Commission estimates the death toll of this conflict at approximately 70,000 people.
In the midst of this chaotic context, the country chose Alberto Fujimori, a complete outsider, as President of Peru. Fujimori is a divisive figure in recent Peruvian history. He is credited for saving the economy and defeating terrorism, but also has been convicted for human rights violations and corruption. Although Fujimori campaigned with a gradual reformist platform, he quickly changed course and opted for a “shock therapy” approach. This “therapy” included the removal of subsidies for basic goods, the dismissal of huge amounts of public-sector workers, a massive privatisation of state-owned enterprises, deregulation of financial markets, and the general opening of the economy for foreign investment and products. Since then, Peru has abided by the rules of the free market.
During the last decades, the Andean nation has been widely considered as a macroeconomic success story. National and foreign media talked about the “Peruvian miracle.” This is unsurprising since the economy grew more than 400%, and poverty diminished more than 30 points, during the last 30 years. Nonetheless, despite this (supposed) success, Peruvians are quite dissatisfied with their socioeconomic situation. In recent years, there have been a series of movements towards changing the constitution, against extractive activities, and in favour of leftist candidates to the presidency.
My research aims tries to understand why such a praised and “successful” economic model is now widely seen as failed by the public. I consider this topic very relevant due to the fact that several countries in the Global South have undergone this similar economic adjustment and it is likely many more nations will follow the same path in the future. Therefore, analysing the model’s flaws in Peru can serve to extrapolate lessons for decision-makers throughout the global south, and help them formulate better public policies.
During the research process, I discovered that Peru faces a plethora of structural conditions that have prevented economic growth from reaching the most impoverished areas of the country. First, corruption is widespread within the state apparatus. Most presidents after Fujimori have been prosecuted (and some incarcerated) due to corruption allegations. Corruption is present in all level of governments, and has deeply affected satisfaction with the model and democracy. Second, there is still widespread racism against indigenous populations. The regions of the country that are predominantly indigenous are also the ones with the highest percentages of poverty, school drop-out, and informality of the labour market. Third, the social protection policies (such as cash transfer or food delivery programmes) target just a small percentage of the population. Consequently, in case of an external shock, such as the COVID-19 pandemic, the vast majority of the population cannot rely on state protection of any sort.
For me, researching this matter has been very fulfilling. I have learned many new things about my home country and Latin America. I also consider that the lessons extracted from the Peruvian case can be useful for other countries. Venezuela, Lebanon, Sudan, and Argentina are some examples of nations that today face economic crises, and that will have to deal with them in the near future. In that sense, the positive and negative aspects of the Peruvian example can give foreign government officials suggestions about how to proceed.
To conclude, I want to outline three Peruvian lessons that I asses to be the most important for other nations. Firstly, macroeconomic health alone does not guarantee development. Economic reforms need to be complemented by a set of public policies that aim to overcome a country’s structural problems (e.g., corruption). Secondly, public policy needs to be human-centred. Accordingly, it needs to protect the most vulnerable populations and also try to connect them to the opportunities of the market. Economic growth is not going to “spill over” magically to the most needed. Finally, although positive macroeconomic indicators are relevant for development, these are not an inherent guarantee of success. Averages tend to hide huge inequality pockets within a nation. Let us not get carried away by the triumphalism of GDP growth.