PERU IS HEADING TOWARDS A DANGEROUS NEW POPULISM / THE ECONOMIST

Bello

Peru is heading towards a dangerous new populism

Unless the government can check the pandemic and revive the economy




In march when covid-19 first appeared in Peru, the government’s response seemed exemplary. President Martín Vizcarra imposed a swift lockdown.

Taking advantage of Peru’s strong fiscal position, his economic team launched the most ambitious aid package in Latin America, worth 12% of GDP.

Four months on, the outcome is disappointing.

With more than 350,000 cases and at least 13,000 deaths, Peru has suffered grievously from the pandemic. In April its economy contracted by 40% compared with a year earlier.

What went wrong?

Covid-19 exposed weaknesses that strong economic growth in this century had concealed. Even by Latin American standards, Peru’s health system is flimsy.

Total spending on health care per person is only two-thirds of the regional average; the system is fragmented between public and private and between national and regional authorities; and there were only 276 intensive-care beds for 33m people in March.

Some 70% of the workforce toil in the informal economy, many living in dense shanty towns and travelling on overcrowded buses.

For all these reasons, the government opted for one of the world’s strictest lockdowns. It extended to shutting down most big mines, although many are naturally isolated. All this amounted to an induced coma for the economy.

The government did its best to compensate. It has guaranteed Central Bank emergency credits worth 8% of gdp to businesses. The bank auctioned them, which drove down interest rates.

María Antonieta Alva, the economy minister, points out that as well as big companies, 156,000 small and micro businesses got credits worth $515m.

The government also gave an emergency payment of $220 to more than 6.5m households. Yet getting the money to people was hard: only 40% of Peruvians have bank accounts. Some of the payments were made via mobile phones but had to be collected from the state bank, which has fewer than 1,000 cash machines.

The lockdown did slow the spread of the disease, and the government has expanded health facilities. But the virus has not been defeated and as Peru opens up again cases are rising.

In Arequipa, the second city, patients are dying in tents in the street. Having been too strict, Peru’s health restrictions now look too lax.

Mr Vizcarra is better at the grand gesture than at follow-up, negotiation or delegation. Official information has often been confused. On July 15th he reshuffled his cabinet, sacking the health minister and bringing in Pedro Cateriano, an experienced politician, as prime minister.

“We will have better political leadership from this cabinet,” says Carolina Trivelli, a former minister. But she adds that the underlying problem is the frailty of the state and its lack of connections to or even knowledge of citizens.

At least economic recovery may be swifter than elsewhere, thanks partly to the injection of credit. Mines are now operating again, and electricity consumption is on the way back to normal. Ms Alva has allocated an extra 1% of gdp for public works. If all goes well the economy may end the year having contracted by less than 10% and could make up much of that in 2021.

But this depends in part on business confidence, which is being undermined by a legislature bent on populist measures ahead of a general election due in April. In September Mr Vizcarra dissolved the congress elected in 2016, which was dominated by supporters of Keiko Fujimori, the daughter of an autocratic former president. It was obstructive and had many corrupt members. Its replacement is as bad.

Many of the new lot on both the right and the left are inspired by a crude anti-capitalism.

Congress has suspended tolls in roadbuilding contracts; it has allowed pensioners to withdraw up to 25% of their private pension funds and threatens to refund some workers’ contributions to the state pay-as-you-go system, which would bankrupt it. It wants to impose price controls and freeze loan repayments although banks have already offered grace periods to many debtors.

The crisis has exposed shortcomings in Peru’s economic policies, as well as in its state. There are too many de facto monopolies. But they need intelligent regulation, not persecution.

“For the first time in 20 years populism is gaining strength to the point that it could govern the country after the election,” fears Carlos Basombrío, a political consultant. Preventing that will require more effective leadership from Mr Vizcarra.