Peru Faces a New Threat: Complacency

Andres Oppenheimer

When I visited Peru a few months ago, several people told me that the country is doing great, and that -- contrary to the political uncertainty in other Latin American countries -- the upcoming Peruvian elections will almost certainly be won by a pro-business candidate. At first, I was somewhat skeptical, but I am beginning to believe it.

Earlier this week, Peru's President Alan Garcia said publicly what I had heard in private dinner conversations in Lima: unlike in the last presidential election, when Venezuelan-backed populist candidate Ollanta Humala was a leading contender, no populist candidate seems to have a chance to win the April 10 polls.

"The danger is over," Garcia said, referring to the possibility that Peru's 20-year-old economic opening could be reversed by a radical leftist candidate. "All polls agree that an overwhelming majority of the Peruvian people support a democratic, globalized and modernizing development model. There is no anti-system threat, like there was only five years ago."

Indeed, the latest polls show that former President Alejandro Toledo is the front-runner with about 30 percent of voter intention, followed by former President Alberto Fujimori's daughter Keiko Fujimori and former Lima Mayor Luis Castaneda with about 20 percent of the vote each. All three are center-right, pro-business candidates. Humala is running a distant fourth, with about 11 percent. Most interestingly, Humala has significantly softened his rhetoric since the last election.

Why are Peruvians supporting center-right candidates? To a large extent, it's because 20 years of economic stability and a growing insertion in the global economy have helped lift significant numbers of Peruvians out of poverty. There is now a critical mass of middle-class voters who have benefited from the two-decade-old economic opening, and who have a stake in continuity. Peru's economy grew by 8.8 percent in 2010, and inflation was less than 2 percent.

According to World Bank estimates, poverty rates in Peru have fallen from 54 to 35 percent of the population over the past decade. Garcia projected this week that the poverty rate will drop further to 28 percent by the end of this year.

Unlike in several other Latin American countries, Peru's presidential race is not over which economic model should be adopted to run the country, but on how to perfect the current one. Not surprisingly, Toledo's campaign slogan -- splashed in signs across the country -- reads, "With Toledo, Peru is unstoppable."

But Peru is not yet out of the woods. While the most recent Peruvian presidents deserve credit for staying the course, part of the country's economic and political stability has been due to luck. Economically, Peru -- a major exporter of raw materials -- has benefited from high world commodity prices. Politically, center-right candidates are benefitting from Keiko Fujimori's appeal in rural areas, which has siphoned off votes from Humala.

More important, as Peruvian businessman and author Ben Schneider reminded me this week, Peru faces a new threat -- complacency.

The upbeat mood in Peru has led many Peruvians to feel -- wrongly -- that the country can keep growing and reducing poverty without major new reforms. That's a recipe for inaction, and for lagging behind, he said.

My opinion: I agree. Peru will be far from "unstoppable" unless it takes new steps to further improve its education, technology, and infrastructure levels, and become more competitive in the global economy. It has a long way to go on each of these fronts.

In the Global Competitiveness Index released last month by the World Economic Forum, Peru ranked 73rd among 139 countries, more than 40 places behind Chile.

In the latest worldwide PISA test of 15-year-old students' proficiency in reading comprehension, math and science, Peru ended 63rd of 65 countries. It had the worst performance among the Latin American countries that participated in the test.

When it comes to patents of inventions, Peru registers only about one patent a year with the U.S. Patent and Trademark Office, compared with South Korea's 8,800.

Peru deserves credit -- like Chile, and most recently Brazil -- for betting on economic stability, attracting investments and dramatically reducing poverty. But the good times will not go on forever unless whoever wins this year's elections tackles the complacency syndrome, and improves these pitiful numbers.

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