NCPA - National Center for Policy Analysis

Economic Freedom Making Peruvians Capitalists

April 19, 1996

Peru is going all-out to involve its citizens, particularly low-income Peruvians, in the privatization process as the country embraces capitalism.

In November 1994, the government of President Alberto Fujimori launched a program designed to involve citizens in auctions of shares of formerly state-owned enterprises.

  • With almost 50 percent of the population below the poverty line, 3,000 people bought out all the telephone company shares available in the fist auction in less than three hours.
  • In the second auction, 6,600 investors -- many of them lower-income -- bought out all available shares in 45 minutes.
  • So far, 18,500 people have participated in the three auctions held to date.
  • The government aims to involve 100,000 to 200,000 by this June, and half a million by 2000.
  • President Fujimori's economic reforms guided Peru to the highest real economic growth rate in the world, 12.9 percent, in 1994.
  • As a result, by 1994 the poverty rate had dropped from 53.6 percent to 45.8 percent.
  • Major tax and trade reforms have been enacted and the privatization program has sold off 51 state-owned enterprises, garnering $3.6 billion.

To achieve the widest possible participation in the auctions -- particularly among those below the poverty line -- the government offered shares on very favorable terms.

  • They can be paid for on a three-year installment plan with 10 percent down and a subsidized 12 percent interest rate.
  • The government launched an active marketing campaign among Peruvians making less than $500 per month.
  • Investment limits -- $1,400 maximum and $200 minimum -- were designed to discourage wealthier investors from snapping up all the shares.
  • Future auctions will feature even smaller minimum and maximum investment amounts.

Of those that invested, 90 percent had never bought shares before. Only 3 percent of participants have sold their shares and only 2.5 percent have failed to pay their monthly installments.

One other benefit of bringing investment to the lower classes: The Maoist Shining Path guerrilla movement, a legitimate threat to the government as late as 1992, has virtually disappeared.

Source: Carlos Graham, "People's Capitalism Makes Headway in Peru," Wall Street Journal, April 19, 1996.

 

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