#21 Peru: International Economic Policies and Structural Change, 1968-1979

By John Sheahan

This paper was presented at the November 2-4, 1978 Workshop on "The Peruvian Experiment Reconsidered" organized by the Latin American Program of the Woodrow Wilson International Center for Scholars.

Summary

The social reforms instituted in Peru from 1968 to 1974 had great promise but were betrayed by an incomplete and inconsistent strategy of economic change, particularly in dealing with the external sector. The reforms and the structural changes linked to them had their own weaknesses - concern for questions of ownership seems to have dominated concern for their effects on employment and for help to the very poor - but they did accomplish some redistribution and could have been consistent with rising national income if the basic economic framework had been functional. The main failures of economic strategy are dismally familiar: they are the same inconsistencies that have damaged every serious effort at reform in Latin America. Aggregate demand was raised far faster than productive capacity, a frozen exchange rate in conditions of inflation discouraged exports and encouraged import-intensive investment, foreign borrowing was used as a substitute for both taxation and exports, and extreme protection for consumer goods created prodits for socially wasteful investment. Question: why is the same disastrous pattern endlessly repeated? Hypothesis: concern for efficiency, export capacity, and balance between expenditures and income is so deeply identified with political and social reaction, for such good reasons, that governments with generous social objectives treat such considerations as a form of selling out. The identification is partly right but obscures something else that is both right and crucial. Productive capacity, export earnings, and aggregative consistency do not themselves improve human welfare but they do define the limits of sustainable generosity.