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Peru’s Self-Sabotage

Peru may be among Latin America’s fastest-growing economies today, but its long-term prosperity is far from certain – not least because its economy is largely dependent on the export of raw materials and hydrocarbons. Worse, though the government recognizes the need to pursue growth-enhancing reform, its approach is all wrong.

SAN MARCOS – You may know Peru as the cradle of Incan civilization. Or you may have tasted its outstanding cuisine. But Peru boasts another impressive characteristic: it is among Latin America’s fastest-growing economies, with GDP up by 4.8% year on year in the first quarter of 2014. Peru’s long-term prosperity, however, is far from certain.

In fact, Peru’s economic growth – which is based largely on exports of raw materials and hydrocarbons – is already slowing, from annual rates of 5.5-6.9% over the last three years. And, though the government recognizes the need for growth-enhancing reform, its approach is all wrong.

Specifically, President Ollanta Humala recently won legislative approval of a set of “realistic” procedures to reduce the red tape perceived to be hampering investment in the extractive industries – the very industries on which the economy should become less dependent. The new law seriously weakens Peru’s ability to regulate land use, set environmental quality standards, and rein in corporate misconduct through environmental-impact assessments.

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