NCPA - National Center for Policy Analysis


May 5, 2008

Peru has been experiencing fast growth -- better than 6 percent annually -- for almost seven years, and it has largely occurred on the coast and in the capital city.  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, says columnist Mary Anastasia O'Grady.

A fundamental change that has won converts to market reforms in the past two decades is price stability:

  • In 1990, inflation reached 7,000 percent, but over the past six years it has averaged 2.3 percent.
  • 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.

There has been plenty of success since protectionism was lifted:

  • High growth rates -- averaging 11 percent 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 story of the "cluster" of small metallurgical companies that has emerged in Lima is especially compelling. They have also become exporting powerhouses.
  • The agricultural sector on the coast has also revived, in part because restored private-property rights; 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, say O'Grady.

Source: Mary Anastasia O'Grady, "Peru Takes the Other Path," Wall Street Journal, May 5, 2008.

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