LatinFinance - March/April 2013 - 17

Man of the year

a social policy with second-generation
social programs, productive programs.
All of these things make me happy, but I
cannot say that there is anything that has
been concluded.”
Social spending in 2013 – including
education, health and inclusion –
increased the budget by 67% compared to
the previous year.
De Soto says Humala’s push for
social inclusion could be the defining
characteristic of his tenure. “We will find
out what the man is made of when he has
to do something new rather than just keep
the trains running. This will be seen with
social inclusion, not just social programs,”
he says. “Tough decisions will be needed
in the near future and we have to hope
that he will take the bull by the horns and
deal with them.”
Once a staunch opponent of
globalization, the president has embraced
free-trade agreements and a limited
role for the state. But he cautions that
while he believes in an open economy, he
nevertheless has concerns about the free
market.
“The economic model cannot only be
focused on growth,” Humala says. “The
famous trickle-down theory – if you fill
the pockets of the rich and it will spill over
– does not work because the pockets you
are filling have holes. I promised social
inclusion, which is development handin-hand with growth. We need to sustain
growth. We cannot kill the goose that lays
the golden egg, but create the conditions
for it to lay more eggs.”

Can the miracle last?

Peru’s growth is nevertheless today the
envy of nations the world over. With
6.2% expansion forecast for 2013, it
looks set to stay that way. Yet observers
are increasingly asking how the Humala
administration will safeguard the fruits of
its economic boom over the longer term.
“The challenge facing Humala right
now is precisely that he needs to answer
the question of how sustainable this
growth is going to be,” says Liliana RojasSuarez, senior fellow at the Center for
Global Development in Washington. “We
don’t want to see a missed opportunity.”
Despite efforts to promote social
inclusion, experts fear a more

comprehensive plan to propel Peru into
the ranks of high-income countries is
simply absent. “There’s no sign that he
has a very clear commitment to a reform
agenda,” says The Dialogue’s Shifter.
“Humala is obviously someone who’s
ambitious and can sense the mood. But
I don’t think he’s somebody with a well
thought-out vision of where he wants to
take Peru. He’s someone who knows how
to manage this upward trajectory,” he
says.

“Tough decisions will be
needed in the near future
and we have to hope
that [Humala] will take
the bull by the horns and
deal with them”
Hernando de Soto, ILD
Shifter says this leads to the central
issue facing Humala’s presidency. “We
had Toledo, we had García and in both
cases people talk of lost opportunity. Will
people say the same after the Humala
administration?”
As Peru’s middle class becomes
stronger and more vocal, there is a
growing demand for public services.
The worry is that Peru’s inadequate
infrastructure – both physical and human
capital – and a poor educational system,
even by regional standards, will hamper
growth in the longer term.
The risk may not be immediate, but
it is no less profound. Ultimately, few
countries sustain high growth for more
than a generation – and even fewer
continue their high growth rates once
they reach middle-income status. “Reform
has to happen now,” says Rojas-Suarez.
“Twenty years from now is too late. By
then, the growth of Peru will already have
become unsustainable.”
In infrastructure alone, the country
needs to invest close to $40 billion over

the coming five years to reach its target
of 6% annual growth. The transportation
ministry has said the state will invest
$12 billion through 2016 building or
improving the country’s road network.
Working out how to allocate resources
– and how the public and private sectors
should cooperate towards this end –
remains a central issue. Morón says not
enough is being done in terms of creating
a national plan for infrastructure. “The
idea was to bring projects that are badly
needed to the regions, to make them
change their priorities. But that has not
happened yet,” he says. “You need strings
to pull which you don’t have right now.
That’s a missing reform that you probably
won’t be seeing in the near future.”
Morón says that one of the main
challenges is basic management of
government departments. “In Peru,
you need a president to push every
single minister all the way,” he says.
“As a minister, you may wish to tackle
fifty initiatives tomorrow but it doesn’t
depend on you, it depends on other
ministries, Congress, the opposition, you
name it. You need somebody at the top
to coordinate efforts to make sure these
things happen.”

When the wind blows

Peru’s formidable output is a function of
its mineral wealth and favorable winds
over the past decade that have boosted
the fortunes of many of Latin America’s
commodity exporters. It is the world’s
second largest copper producer after
Chile and among the world’s top producer
of silver and zinc. Production and exports
are set to increase over the medium-term.
Peru also exemplifies the positive
impact of China, its largest trading
partner, perhaps better than almost any
other country. Rojas-Suarez says China
remains central to Peru’s economic story.
“Peru’s growth is not a miracle,” she
says. “It happened for a very particular
reason: it has been the story of China to
a very large extent – China, combined
with excellent macro management
domestically. It’s a complex story, but it is
not a miracle.”
Fears that China’s growth rate will
fall sharply have eased in recent months,
yet concerns still linger over the Asian

March/April 2013

LatinFinance 17
LatinFinance - March/April 2013

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