Latin American Dynamism

There seems no end to the stream of reports describing rising political tensions between world powers, violent demonstrations wherein governments shoot at and kill their own citizens, desperate refugees fleeing war zones, or imminent economic collapse of whole nations. In this regard, one thinks of recent developments in such countries as Ukraine, Syria, Egypt, South Sudan and Central African Republic, and such regions as the South and East China Seas (all of which this writer has addressed in previous blogs).

So it's time for some good news. Wracked for years by hyperinflation, corruption and political instability that frequently morphed into outright thuggery and terrorism, Peru has in the past decade transformed itself into Latin America's economic star. Over this period, growth has averaged some 6 per cent per annum, rapid enough to almost double the size of the economy, and inflation has been beaten down to a precedent-setting (especially for Latin America) rate of some 2 per cent. This remarkable performance reflects in part a prolonged and favorable climate for foreign investment undertaken by the world's gold- and copper-mining corporate giants; capital inflows have surged, at times to a point requiring the Peruvian central bank to intervene in the foreign exchange market to prevent both too rapid an appreciation of the sol and excessive domestic liquidity. But it is also the result of good, or at least much improved, government. A string of Peruvian administrations, often following guidance from the IMF and World Bank, has implemented and sustained an ambitious reform agenda that has included investment in both human capital (education) and physical infrastructure as well as the removal of labor market bottlenecks, all of which have enhanced productivity and international competitiveness. There are challenges: the global growth shock that permeates through lower commodity prices in recent quarters is reducing the country's growth through a drop in exports and widening of its external current account deficit; and with slower (though still strong) growth, and still-high poverty, inequality, and crime rates, Peru's increasingly reclusive, center-left President, Ollanta Humala, faces rising unpopularity.

Overall, though, Peru is a political and macro-economic success story. Lima, its capital, now receives thousands of foreign tourists, who traditionally headed mostly to Cusco, the former Inca capital, and the ruins of Machu Pichu. As typically happens as an economy develops and matures, whole new sectors of the economy are emerging, from the bottom up, notably, for example, the restaurant industry. Lima's business district is the home of the Astrid y Gaston restaurant, ranked 14th in the world by Restaurant magazine. (The Astrid's founder, Gaston Acurio, who has set up 37 restaurants in several countries that now record annual sales of $100 million, is so popular as to be talked about as a Presidential candidate.) Further, Lima has 52 privately-run cooking schools, and is home to France's Cordon Bleu school's only Latin American location.

Governments throughout the world, in both developed and developing countries, anxious to foster economic development such as has occurred in Peru, would do well to emulate just what that country's policy-makers have done - summoned the political courage and persistence necessary to implement a broad, macro-economic, political and legal framework within which private sector investment can flourish.