Peru: Democracy, Governance and Economic Performance

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Presentation by Mag. Julio AlvarezSabogal at the Southern Center for

International Studies YoungProfessionals Briefing Perus

Economic Revolution

Peru: democracy,governance and

economic performance

Atlanta, August 19th

, 2008


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Perus economic performance

The optimistic The pesimistic

2008 Perusgrowth

expectations: 7.8to 8.3 %

Highest growthrate in the region.

2009: Leading theeconomic growthin Latin America:7 %.

The Inter-American

DevelopmentBank IDB

2008-2012: 6.1%average

The Economist


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CATO Institute(Source: CATO at Liberty

http://www.cato-at-liberty.org/)

Peru is increasingly distinguishing itself inthe region as a successful marketdemocracy.

Unlike other countries () that are alsoexperiencing rapid growth, Perus growth is

characterized by widespread investmentand wealth creation as opposed toredistribution or the mere effects of highcommodity prices.
http://www.cato-at-liberty.org/http://www.cato-at-liberty.org/


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1st. : life expectancy

2nd : Adult literacy

3rd. Standard of living (measured bypurchasing power parity, PPP, income).

The Human Development Index (HDI) -going beyond income


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2000: 0.700

2000: Argentina (0.8) Brazil (0.8), Chile(0.8) and Paraguay (0.8 )

2005: 0.773

2005: Argentina (0.86) Brazil (0.8), Chile(0.867) and Paraguay (0.755)

Medium Human Development (87th out of177 countries)

Perus Human Development Index (HDI)


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2000 Infant mortality: 33/1000 live births

2005: 23/1.000 live births

2000 Life expectancy: 69.2 years

2005: 70.7 years

2000 High school registration: 86%

2005: 91.7%

Social indicators(Source: Peru country brief by The World

Bank)


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Growth > 5% for 5 consecutive years;

Diversification and growth of exports (35%growth from 2004 to 2005);

Reduction of the country risk (21,2%reduction of basis points from 2004 to2005);

Peru ranked among the top 10 WorldReformers in Doing Business 2007;

Good management of the public debt(debt stood at 38.2% of GDP in December2005);

Economic indicators (1)(Source: Peru country brief by The World

Bank)


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Total debt service (% of exports, goods andservices, and revenues): 25.9% in 2000 and26% in 2005.

High liquidity in the markets (20.2%increase from 2004 to 2005);

Improved tax collection (14.3% increasefrom 2004 to 2005); and

Fiscal surplus for 2006 (0,2% 0,4%).

Economic indicators (2)(Source: Peru country brief by The World

Bank)


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What are the foundations of this successful

trend?


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Feng Yis thesis

There is a strong relationship betweenpolitics and economic performance:

Political stability

Policy certainty

Political freedom

(Feng, Yi. Democracy, Governance, andEconomic Performance: Theory and

Evidence. Cambridge, MA: MIT Press. pp.

25)


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Weaknesses of the past (1821- 1960s)

Small urban population : 30 % urban, 70% rural = Small market

Rural population: mainly indigenous andmixed based on economies of subsistence,excluded from the small formal economy

and the official society. Urban population: middle class based onpublic sectors jobs not on market.

Inexistence of a middle class based onmarket.


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Social and political changes (70s 80s)

Rural immigration to Lima and mainregions capital cities

Large urban population: 70 % urban, 30 %rural

Immigrants were not assimilatedautomatically

Economy: Popular capitalism

Society culture: Andean urban

Political system: Outsiders


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The lost decade: the 80s

Peoples overflowing and State crisis(Matos Mar, 1984)

Political crisis: Terrorism (Shining Path):deterioration of Peruvian economy anddiscouragement of investments.

Financial crisis: (early 80s): External Debt

Crisis of Welfare State = of efficiency

Crisis of political parties = of credibility

Financial crisis (late 80s): Hyperinflation


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The liberal non-democratic decade: the 90s

Severe stabililization program

End of hyperinflation

Structural market-oriented reforms

First State reform initiatives

Economic openness and stability Enlargement of market of consumers ofgood and services (Andean immigrants)


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The liberal non-democratic decade: the 90s

Defeat of terrorism

Social assistencialism

Restricted political freedom

Political instability

Consolidation of the new face of Peru:

Andean urban Crisis caused by high corruption practices atthe government level.

International Political isolation

Ended up with Fujimoris fall (Nov 2000)


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21st Century

Formalization of popular capitalism(producers)

Expansion and consolidation of a marketof consumers (malls on popular areas)

Growth of personal credit: tripled in thelast 10 years.

Social and Cultural openness and inclusion(decentralization, gender policies)

Acceptance of Andean urban music, folkmusic, codes of beauty, etc)


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21st Century

Recognition of new social and politicalactors as valid actors.

Policy certainty: improvement of policyconsensus (16 years)

Political stability: low probability ofgovernment change (8 years)

Political freedom: improvement of civilliberties and freedom of press (8 years)


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In conclusion, from 2001 2008

Policies of economic openness andstability

Policy certainty

Policies of social and cultural inclusiveness

Improvement of political freedom Improvement of Political stability andconsensus


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All of them

have started paying off.


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Which means.

W.W.W.D


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What we

wanted to

demonstrate!


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But, who said that all that is true?


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Asian Pacific Economic Forum (APEC)Principles of Good Governance

Support of the rule of the law

Transparency

Accountability, oversight and control

Managing for performance Responsiveness to stake holders

Ethics, probity, culture and values


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2007 APEC Report on Peru foundimprovements in the implementation of

principles of Good Governance (1)

Foreign Investment Promotion Law (policycertainty)

Framework Law for the Growth of thePrivate Investment (policy certainty)

National System of Public Investment(accountability, performance incentives,prevent inefficient use of public resources)

Free Trade Agreement with USA and soonwith Thailand and China (policy certainty)


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2007 APEC Report on Peru foundimprovements in the implementation of

principles of Good Governance (2)

Transparency and Access to InformationLaw and Transparency web portals

Free access to information through asimple application

Fiscal Transparency Bulletin (evolution ofpublic finances and economic indicators)

Multi-annual Macroeconomic framework(managing for performance)


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21st Century: 2007 APEC Report on Perufound improvements in the implementation

of principles of Good Governance (3)

Electronic Government ProcurementSystem -SEACE- (managing for performanceand transparency)

Participative Budget (Responsivenness tostakeholders) allows local authorities and

civil organizations to jointly define how andwhere to allocate public resources.

Code of Ethics for the Public Function(ethics, culture, values and accountability)


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Change of values

More oriented market society.

More inclusive society.

More inclusive political system.

An Andean urban dominant culture Development of a culture of accountability.


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2004: slightly under 50%

2006: 45%

2008: 39.3 %

Projected to be reduced to under 10% ineight years

(Source: National Agency of Statistics)

Countrys overall level of poverty


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Challenges

To ensure that the progress made benefitsthe whole population.

Popular disenchantment with politicians

Risk of populism (if progress doesnt makebenefits for the whole population)

Areas related to the action of the Judiciarythat block fight against corruption, piracy, etc.

Inclusiveness of certain groups of thepopulation.


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Thanks!

Peru: Democracy, Governance and Economic Performance

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