From The Fox Street Journal.
Peru has been experiencing fast growth – better than 6% annually – for almost seven years, and it has largely occurred on the coast and in the capital city. But the mountain and jungle regions of the country have not kept up. They remain vulnerable to the siren song of left-wing populism. ...
A fundamental change that has won converts to market reforms in the past two decades is price stability. In 1990, inflation reached 7,000%, but over the past six years it has averaged 2.3%. That means that even before any other changes in government policy, every Peruvian has enjoyed a tax cut and a boost to his savings power.
Yet price stability on its own would have left the country well below its potential. Far more impressive is the restructuring of the economy, which has led both to growth and to a more equal distribution of opportunity. While a boom in commodity prices has certainly fueled development of late, Peru is also sprouting entrepreneurs in a variety of nontraditional industries. And these innovators are making their way onto the global stage.
The key reform that has made all this possible is the opening of the economy, which until 1990 had very high tariffs designed to protect local industries.
Peruvian journalist Jaime Althaus documents the effects of the opening in his 2007 book (Spanish only) titled "The Capitalist Revolution in Peru." Far from "deindustrializing" the country, Mr. Althaus argues, trade liberalization has strengthened Peruvian manufacturing. Under high tariffs, the industrial sector served mainly as an auto and electronics assembler, using inputs from abroad. But when protection ended, local manufacturing began to discover its comparative advantages.
There were plenty. High growth rates – averaging 11% a year from 1990-2002 – have occurred in sectors that make china, porcelain, knitted fabrics, plastic products and basic chemicals, to mention a few. ...
The agricultural sector on the coast has also revived, in part because private-property rights there (though not in the interior) have replaced the collectivized system of the 1970s. As a result, investment has poured in. Modern farming has put the coast on the map as a global supplier of asparagus, grapes, sweet yellow onions, mangos and organic bananas. All of this has been supported by the deregulation and privatization of key sectors like telecom and banking. And the biggest beneficiaries of openness have been consumers.