Why has Peru’s economic growth spurt come to a halt?

After regularly posting impressive numbers of 6 and 7% annual GDP growth a few years ago, Peru is now down to more modest figures. Is economic openness is now longer yielding results?

As Latin America dwindled into economic crisis, with Brazil, Argentina and Venezuela succumbing to a global financial storm, Peru always displayed remarkable growth figures and great resilience towards global market downturns.

Last year however, the figures were not impressive, despite being positive, especially when compared with other Latin American economies, the “Peruvian miracle” showed signs of deterioration.

When the 2008 financial crisis struck the Americas, Peru suffered, and went down from an impressive 9.7% growth, to a disappointing 0.9% growth in the span of two years. However, instead of slowing down, the economy bounced back in spectacular form, posting an 8.8% growth for 2010.

These numbers, and those preceding them come as a result of the free market policies introduced by Alberto Fujimori during the 1990s, which continues generally unaltered until the present day.

Peru’s mineral wealth makes it attractive to foreign investment, and the neo-liberal policies that prevail in Peru have capitalized on this condition by ensuring companies could invest easily and at low cost. The free market framework of the Peruvian economy even lasted through self-declared “center-left” president Ollanta Humala, as it proved efficient in sustaining growth.

The cracks in the system began to show in 2014, when the economy grew 2.4%, a very disappointing figure considering 2013 saw 5.9% growth, showing the economy slowed down over 50%, and is still to recover.

Analysts are quick to assume that the dramatic slowdown of the last couple of years comes as a result of the Peruvian economy’s dependency on global commodity prices. With oil, gas and mineral prices on the low end, Peru has had trouble exporting at competitive prices, thus resulting in a predictable slow down.

The explanation could run a bit deeper though, it could be argued that the policies introduced by Fujimori 26 years ago are finally displaying the flaws that their opponents pointed out at the moment of their inception. Critics of this radical free market approach argued that in the long term, privatization and economic aperture would result in the irreversible “primarization” of the Peruvian economy. Which meant the economy would dwell almost exclusively in the primary sector, and would depend strongly on their ability to extract raw materials.

This explanation is backed by some statistics that show the manufacturing sector down 3.9% in 2015, and the construction sector down 2.7% for the same year. Peru’s stagnation then, could be consolidated, and their enviable growth reduced to modest figures.

However 2016 is an election year in Peru, the conservative right is the best represented in the elections as Keiko Fujimori’s returning participation shows her leading the polls. Pedro Pablo Kuczynski, always vocal against Fujimori policies, is currently second.

Despite their political discrepancies, economically both candidates share a similar vein. They want to recover foreign investment, strengthen international ties and reposition commodity prices.

Kuczynski, for one, was finance minister under President Alejandro Toledo’s tenure (2001-2006), and was responsible for some of the most frugal years in Peru’s recent history. Keiko Fujimori, on the other hand, is daughter to the man who built up Peru’s national reserves from $0 at the end of Alan Garcia’s presidency, to $10 billion at the end of Fujimori’s.

Both candidates show the capacity to shine through, but a completely different proposal could catch up to them. Veronika Mendoza is the socialist quota for this election, she is outspoken when opposing free trade and foreign investment, and has called Fujimori’s presidency a “dictatorship” on several occasions.

Mendoza is currently in the running, only 0.6% behind Kuczynski. The current landscape has earned her a valuable following, as subsidies shrink and prices for consumer goods rise her socialist approach garners a respectable following.

This could well be a keystone year for Peru´s economy. With the candidates all trying to sell their own remedy for the crisis, the ballots will be the ones to decide the path to recovery.

LatinAmerican Post |

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