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The Peruvian Miracle

9:05 AM, Jan 16, 2013 • By JAIME DAREMBLUM
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Once again, Humala finished ahead of all other candidates in the first round of voting. In the runoff, he faced the daughter of ex-dictator Alberto Fujimori, who ruled Peru from 1990 to 2000 and now sits in prison for human-rights abuses. The unpalatable choice prompted world-famous Peruvian author Mario Vargas Llosa to say it was “like choosing between cancer and AIDS.” Vargas Llosa ultimately endorsed Humala—electing Keiko Fujimori, he argued, would be tantamount to “legitimating the worst dictatorship we’ve suffered during our history as a republic”—and Humala went on to beat Fujimori by 3 percentage points (51.5 percent to 48.5 percent).

Shortly before taking office in July 2011, he named his economic team—and Peruvian businessmen breathed a major sigh of relief. Humala tapped President García’s deputy finance minister, Luis Miguel Castilla, a former World Bank consultant with a doctorate from Johns Hopkins, to be his economy minister. And he announced that Julio Velarde would be given another five-year term as president of the central bank. (Velarde was first appointed in 2006, by García.)

Since then, Humala and his team have preserved economic stability, attracted foreign investment, and maintained rapid growth. In a recent interview with the online media company Terra, Vargas Llosa praised Humala for keeping the promises he made during the second round of the 2011 campaign. “He has respected democratic institutions, freedom of press, freedom of criticism in a flawless manner, and has also respected the market economy,” observed the Nobel laureate. “Peru continues to grow and the middle classes continue to grow.”

Not only does Peru continue to grow, it is growing faster than any other economy in South America. In 2012, total merger-and-acquisition activity in Latin America declined by 3.6 percent, but M&A activity in Peru grew by double digits, according to a Latinvex analysis. “For the first time in four years,” Bloomberg News reported on November 21, “the cost of insuring against a default by Peru is falling faster than for any Latin American nation.”

Much of Peru’s growth can be credited to its mineral wealth. (About a year ago, PricewaterhouseCoopers declared that “Peru has become the third preferred destination for mining exploration investment in the world and the leading destination in Latin America.”) And it’s true that the Peruvian economy needs to diversify away from its current overreliance on commodity exports.

Yet the story of Peru’s economic miracle is not simply a story of natural resources. It is also a story of free-market policies that have been strengthened and expanded under three consecutive democratic presidents: Alejandro Toledo (2001–06), García (2006–11), and now Humala.

According to the World Bank, Peru has better investor protections than rich countries such as Japan, Norway, Denmark, and Sweden, as well as every nation in Latin America or the Caribbean except Colombia. And in the bank’s 2013 Ease of Doing Business Index, Peru ranks ahead of every independent Latin American or Caribbean country except Chile. (It is also just behind the U.S. territory of Puerto Rico.) Meanwhile, apart from a few tiny Caribbean island nations (Saint Lucia, the Bahamas, and Barbados) with a combined population of roughly 800,000, Peru ranks ahead of all but three Latin American countries (Chile, Uruguay, and Colombia) in the Heritage Foundation’s 2013 Index of Economic Freedom.

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