blog | 20 julio, 2002

Peru: Clear Market Policies Needed

ILE

Peru’s economy grew strongest during the 1993-97 period. Market policies helped boost sustained private investment, with economic and social indicators showing an improvement in Peruvians’ living standards.

But many people believe strongly that those policies were implemented by a liberal government, which makes it more difficult to continue their implementation in the current political and economic climate.

Since the new government assumed office in July 2001, a clear course in the economic direction of the country has not exactly been one of its strongest points. Despite repeated recommendations by economic analysts, the government has forgotten to apply the expected shock of confidence. These should consist of deepening microeconomic market policies to attract private investment in specific sectors such as agriculture, tourism and fishing.

As expected, due to this uncertainty, many participants ask «what type of trade, tariff and tax policies do we currently have?»

We all agree that structural market reforms are both necessary and impossible to postpone. However, those who advocate more private investment through a modernization of the state, and the transfer of many of its current operations to the private sector, are in the minority.

We’re concerned that political pressure for increased government spending has grown significantly since before the current government took over.

There are strong doubts that the target of 1.9 percent fiscal deficit will be reached.

Currently, the ability to finance the 3 percent fiscal deficit is under threat, especially if we consider that there are no signs of economic reactivation. This means that fiscal revenues probably won’t improve until the second half of 2002.

On the other hand, economic growth estimates for next year by companies and investment banks range from 3 to 4 percent, although the real growth for Peruvians may be only 0.9 percent as a result of the extrapolation of the impact form the Antamina mining project and the statistical rebound of early 2001.

This is the not-so optimistic scenario that has created strong doubts about whether the target of 1.9 percent fiscal deficit will be reached, as stated in the letter of intent with the International Monetary Fund. What’s more, predictions from the experts say the deficit won’t be less than 2.3 percent.

That’s why we believe the current economic policy needs a clear direction, an ideological definition before a financed economic program. It’s not enough that President Alejandro Toledo has on several occasions expressed his sympathy with a third way, a liberalism concerned with social issues.

Nor do we agree with the optimism from those who take it for granted that market policies will prevail, especially if we consider that many of the Toledo government’s ministers didn’t share the ideological bias of former Economy Minister Pedro Pablo Kuczynski and Prime Minister Roberto Dañino, considered as liberals by international financial media.

Rather, we would urge those who defend market policies to not lose track of what’s going on in the Peruvian congress. Everything indicates that there is a strong socialist trend against any liberal-type measure proposed by the current government and the Fujimori regime. We’re referring to the following key legislative initiatives: re-establishment of labor stability, disowning the tax stability contracts, controls of public service prices and interest rates and revision of privatization contracts.

At the same time, some opposition parties have found support for their populist proposals, pressuring for the creation of a state Agriculture Bank, for the re-instatement of state workers laid off as part of the privatization process and for economic coordination between the state, businessmen and workers.

«The government of Alberto Fujimori was not liberal, but … dictatorial .. in politics and mercantile in economics.»

 

What is needed is a strong ideological conviction in the political arena, government managers and technicians that can implement a liberal regime and simultaneous support by free market institutions from civil society explaining to public opinion why it’s necessary to continue with market policies and emphasizing that the government of Alberto Fujimori was not liberal, but rather a dictatorial government in politics and mercantile in economics.

Without a clear definition of liberalism, it will be difficult for a sector within the Toledo administration to have the moral and economic conviction to continue with the expected market policies.

By Jose L. Tapia, President of Business Freedom Institute, Lima

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