July 28, 2007 [LINK / comment]

Happy Birthday, Peru!

Peru flag Peru celebrated its birthday today, and there was much to celebrate. As is customary, the president gave a "state of the union" speech. Alan Garcia boasted about the country's economic success and explained why the changes he is making will take time to be implemented. He pledged that by the end of his term in 2011, Peru will be stronger and more socially just. That is in keeping with one of the basic principles of his party, the American Popular Revolutionary Alliance (APRA). El Comercio of Lima reported that his message was well received by most Peruvians, including several prominent business leaders. Gaining their confidence has been a monumental achievement for Garcia, who entered office with a a huge credibility gap because of the failures of his previous term in office (1985-1990). Some opposition politicians complained about Garcia's speech, however. The leader of the General Confederation of Pervian Workers (CGTP), Mario Huaman called it "triumphalist" and full of promises, warning that labor unions may not cooperate with Garcia's policies. Given Alan Garcia's past record and the current upbeat economic circumstances, it is perhaps remarkable that he didn't spend even more time bragging.

It was one year ago today that Alan Garcia was inaugurated for a second time. Having studied his first period of government in excruciating detail, I had modest expectations. I must say, however, that he has turned out far better than I had expected. Obviously, he has learned from experience. Above all, he has lowered expectations and urged patience, in contrast to the "bonanza" approach of his first government.

Garcia is fortunate to have inherited a solid economic system, which owes much to the market-oriented reforms of his nemesis, Alberto Fujimori, who led Peru from 1990 to 2000. Of all the countries in Latin America, Peru had the third highest rate of economic growth in 2006, at 6.7%, in real terms. (SOURCE: U.S. AID) Only Venezuela (9.3%, thanks to the oil boom) and Argentina (9.2%, thanks to the debt default) ranked higher. Peru's per captial gross domestic product ($2,814) continues to lag behind that of those two countries, Chile, Mexico, Costa Rica, Uruguay, and Brazil, but it is at least positioned for sustained future growth. The big question is whether the society can be reformed in such a way that the benefits of growth are more widespread without handicapping the economy with statist restrictions as used to be the case in most of Latin America.