Peru’s Italian job
Economic success cannot indefinitely co-exist with political weakness
Apr 12th 2014
WHEN Bello reported on the latter years of Carlos Menem’s rule in Argentina, he would sometimes be enjoined to take no notice of the political scandals lapping around the regime. The important thing, he was told, was that the economy was run by responsible technocrats, as in “the Italian model” of the post-war decades. He heard something rather similar when Ollanta Humala was poised to win Peru’s presidency in 2011. Politics was a mess, a prominent banker confided, but what really mattered was that the economy was well managed.
Almost three years into Mr Humala’s presidency, both of those things remain true. But far from being a reassurance, Peru’s adherence to the Italian model is actually a cause for concern.
Mr Humala, a former army officer and a political chameleon, first ran for president in 2006 as a supporter of Venezuela’s Hugo Chávez. He lost that election and in 2011 reinvented himself as a pro-Brazilian social democrat. But after winning this race, he opted to stick with the free-market policies that have brought a decade of strong growth.
Miguel Castilla, the economy minister, is revered by private business. The most powerful member of the government, last year he beat back an ill-advised plan to nationalise the Peruvian operations of Repsol, a Spanish oil company. Although economic growth has slowed a little, Mr Castilla is confident that it will rise again to 6% or more for the next three years, thanks to big new mines and an ambitious programme of private-public infrastructure partnerships. On March 28th the government awarded a $6 billion contract to build a second metro line in Lima.
But politically Mr Humala has struggled. His approval rating has fallen to 25%, down from 54% a year ago, according to Ipsos, a pollster. He is on his fifth cabinet in less than three years.
His makeshift coalition commands only 43 of the 130 seats in Congress, which last month twice voted to reject the latest team.
That prompted a minor constitutional crisis. Only after Mario Vargas Llosa, Peru’s leading novelist and a Humala supporter, warned melodramatically that a power vacuum might open the way to a military coup did parliament give its approval.
In fact, the current cabinet is an improvement on its predecessors. It is stuffed with capable technocrats. The problem is that the president himself has failed to provide the government with political leadership. Mr Humala has been almost reclusive, leaving the talking to Mr Castilla as well as to the bright and ambitious first lady, Nadine Heredia. On security, the president prefers to work through army friends—a bad idea when radical reform of the police, the public prosecutor and the judiciary is needed.
Yet Peru’s political problem goes much deeper than Mr Humala. His two predecessors were similarly unpopular. Peruvians hold their politicians and Congress in contempt. It is not hard to understand why. Back in the 1980s economic collapse, hyperinflation and the terrorism of the Shining Path destroyed the country’s faith in its leaders. In the 1990s Alberto Fujimori stabilised the economy and crushed the Shining Path. But he was an elected autocrat who sent tanks to close Congress and undermined the party system. Almost 70% of Peruvians work in the informal sector: they feel that if they have prospered, it is through their own efforts, not because of the politicians.
The real lesson from Italy is that if the political system is unable to act in the long-term interest of the majority, it ends up contaminating the economy with its failures. Peru is a democracy without meaningful parties. A regional election in October is likely to repeat the last one, in which 23 of the 25 regional presidents were independents.
Thanks to mining and gas royalties, they command a big chunk of public money. One important region, Áncash, has become a mafia mini-state. Ten political opponents of the regional president, César Álvarez, have been murdered after denouncing corruption. His critics accuse Mr Álvarez, who denies all wrongdoing, of having bought off prosecutors. This month Mr Humala froze Áncash’s bank accounts.
Mr Humala’s predecessors completed their terms despite their unpopularity (though they were better at building alliances than he is). But what will happen if Mr Castilla proves over-optimistic?
If the flow of money that has transformed Peru in the past two decades began to dry up, a discredited political system would be unable to buffer and channel public discontent. The risk then is that the parallel lines of economics and politics would converge—just as they have in Italy.