From Lima to La Paz
Peru and Bolivia are neighboring Andean countries that have long been associated with poverty, drug trafficking, ethnic tensions, and political upheaval. Both experienced hyperinflation in the 1980s, and both saw presidents resign from office in the 2000s. Both nations also have abundant mineral wealth, giving them tremendous economic potential. Yet in recent years, their trajectories have diverged quite radically. Simply put: Peru has become more like Chile, while Bolivia has become more like Chávez.
Indeed, the Peruvian business climate has become increasingly friendly to private investment, while the Bolivian business climate has become increasingly hostile to it. Peru has strengthened the foundations of its democracy, while Bolivia has moved toward populist autocracy. As a result, Peru is now considered a rising star among developing economies, while Bolivia is considered a mini-Venezuela.
In the World Bank’s 2012 Ease of Doing Business Index, Peru is second only to Chile among Latin American and Caribbean nations, ranking 41st overall, while Bolivia ranks a lowly 153rd, trailing such dictatorial countries as Iran, Tajikistan, Algeria, Gambia, and Burkina Faso. The only Latin American and Caribbean states that place lower than Bolivia are Suriname, Haiti, and Venezuela.
Again, it’s important to remember that Bolivia is blessed with massive natural resources, including huge natural-gas reserves. But plentiful resources don’t translate into favorable conditions for investment. In its 2012 survey of political risk in 25 of the world’s leading mining countries, the consulting firm Samuel Dolbear ranks Bolivia as the second-riskiest for mining investment — even riskier than Kazakhstan and the war-torn Democratic Republic of Congo. Only Russia places lower. Peru, by comparison, ranks (along with Ghana) as the ninth-safest destination, and its total score is more than twice as high as Bolivia’s, not to mention 20 percent higher than Argentina’s.
Peru’s strong showing in the Samuel Dolbear and World Bank surveys can be attributed in large part to the stabilizing, free-market economic policies adopted by Presidents Alejandro Toledo (2001–06) and Alan García (2006–11). Thanks to their efforts, a country once ravaged by hyperinflation and chronic economic disasters now has low inflation and a healthy banking sector. Its economy grew at Chinese levels in 2007 (8.9 percent) and 2008 (9.8 percent), maintained positive growth (0.9 percent) during the global financial crisis in 2009, and then roared back to 8.8 percent growth in 2010.
In January of that year, the Christian Science Monitor declared, “Peru has matured politically to the point where analysts — and investors — are beginning to talk about another regional powerhouse creeping up alongside Brazil.” As Peru-based journalist Simeon Tegel points out, “No Latin American or Caribbean economy grew more than Peru during the decade to 2011, with an average annual GDP increase of around 5.75 percent.” Peruvian growth slowed to 6.9 percent in 2011, and it is expected to be 5.5 percent this year — but that will be the fastest growth rate in the region, according to the International Monetary Fund.
Not only has economic growth been torrid, it has led to major gains for the Peruvian poor, along with a sense that the country’s deeply entrenched social problems are finally being fixed. “Something extraordinary is happening in Peru,” writes Mexican author Enrique Krauze, noting that the absolute national poverty rate has fallen from 53 percent to 31 percent over the last decade. “We’re a China in miniature,” Peruvian intellectual Alfredo Barnechea told Krauze.
Speaking of the Asian giant, it has been critical to Peru’s recent growth spurt: China now receives about 15 percent of all Peruvian exports and is the country’s biggest trading partner. China and Peru signed a formal free-trade agreement (FTA) in 2009, and bilateral trade increased by 46 percent in the twelve months after the FTA took effect. During the first quarter of 2012, Peruvian exports to China were up by 17 percent over the same period a year earlier. While China trade has made Peru a much richer country, it has also made Peru more vulnerable to a Chinese economic slowdown. Yet Peru still boasts sound fundamentals and enjoys greater stability than in years past.
The same cannot be said of Bolivia, which in the latest World Economic Forum Global Competitiveness Index ranks 136th (out of 142 countries and territories) for goods-market efficiency and 140th for labor-market efficiency. It remains the poorest nation in South America, although that didn’t stop President Evo Morales, a Hugo Chávez disciple, from buying a $39 million presidential plane and a $300 million Chinese satellite. Since 2006, the year Morales took office, Bolivia’s ranking in the Heritage Foundation/Wall Street Journal Index of Economic Freedom has plummeted from 67th to 146th. Peru ranks 42nd in the 2012 index, up from 63rd in 2006.
One of the first big economic decisions Morales made in 2006 was to nationalize Bolivia’s natural-gas industry. The results were sadly predictable. “We have shrinking reserves,” the president of the Bolivian Chamber of Hydrocarbons told the Financial Times in August 2010. “This is not due to geological reasons, but because there have not been any significant investments in the past five years.” In fact, despite its vast natural endowment, Bolivia has become a net importer of hydrocarbons.
Is Bolivia (population: 10 million) a much smaller nation than Peru (29 million)? Yes. Does it suffer the disadvantage of being a landlocked country, whereas Peru sports a 1,500-mile coastline along the Pacific Ocean? Sure. But their divergent fortunes are chiefly a result of the disparate quality of policymaking in Lima and La Paz. Morales has governed in the mold of Chávez. His current Peruvian counterpart, President Ollanta Humala, a onetime radical who took office last July, has thus far governed like his two immediate predecessors, García and Toledo, both free-market centrists. Humala now realizes that the Chávez model is a path to economic and political ruin. If only Morales would take that lesson to heart.
(You can read this article in Spanish here.)
Twenty years ago the the Maoist nuts from Sendero Luminoso were setting off bombs in downtown Lima. Now the ladies and gentlemen walk along those streets in fashionable clothes.
Fifteen year ago American leftist Lori Berenson plotted with the Tupac Amaru Revolutionary Front to blow up the Peruvian Congress.
Peru could have gone in the wrong direction.
Alberto “El Chinito” Fujimori and Vlademiro Montesinos did the dirty work to save the country from the Maoists. Let us thank them and all the brave soldiers who lost their lives fighting the Shining Path.
Absolutely right; well said.
Undoubted. Fujimori went a little off the rails later – but it’s to the credit of Peruvian democracy that even that was handled in a civil manner. All credit tio the Peruvian people.
Bolivia and Argentina, and indeed, other countries, should intensely study Peru’s economic, and other policies and adopt them as their own. What a great blessing this would be for their countries and people!
Great news about Peru. I was there in the 1980s and remember the bombs, blackouts, and hyperinflation.
Hey PJ Media–do you guys actually have a whole Spanish edition? What a great idea if so.
Excellent post, EastLosCon. I was very fearful for Peru for so many years and I’m glad to read this good news here. Your points about the Maoist nuts is absolutely correct and a debt of gratitude IS OWED to all those who sacrificed over the years to defeat them. If only China could rid itself of the Maoist nuts over there, their embrace of capitalism notwithstanding.
The mero mero of PJ Media, Roger Simon, has been known to frequent the ethnic restaurants of SE Los Angeles — Huntington Park Area.
Anybody who crosses the 405 and comes over to our side of town is a little bit bilingual.
I had the good fortune to spend a few months working as a volunteer for a Bolivian government agency in the capital, La Paz, and in the country at large. I have traveled also in Peru, in the north and the south as well as in its capital, Lima. I believe that Mr. Darenblum underplays the importance of geography and demographics, as well as history, in accounting for the differences in the social and economic conditions and outlook in those countries. I would be the first to agree that the socialist/Chavista policis of Evo Morales bode ill for the welfare of Bolivia; however even under to most enlightened governance, Bolivia may never be able to achieve the success of Chile or even Peru, and therefore it is unfair to ascribe Bolivia’s poor performance to the policies only of its present government, misguided though they may be. I will try to be as brief as possible in a outline of the principal disadvantages under which Bolivia has labored for much, if not all of its history, as I see them.
1. Bolivia has fought and lost wars of territory against all of its neighbors except Argentina. The most significant of its losses was its entire Pacific coast, which loss included one of South America’s best Pacific ports, the world’s greatest deposits of nitrate, and what would become the world’s greatest copper mine. It lost to Brazil the vast and important rubber bearing province of Acre, in the Amazon. It lost more Amazonian teritory to Peru. And it lost its Chaco region to the relatively weak but geographically advantaged rival Paraguay in an unforgettably brutal and shameful defeat. All of those losses are deeply imprinted in the mind of every Bolivian and have had a profound effect on the difference between the Bolivian and the Peuvian national character. Other countries sing of their victories, Bolivia sings of its defeats.
2. Bolivia is the most geogaphically isolated country in the New World; while Peru, with its great, historic capital of Lima is a hub for other South American destinations. Most airlines will not even fly into La Paz because, with its airport at 14,000 feet elevation, the air is too thin to guarantee safe takeoff and landing by airliners. Overland access to La Paz is an undertaking that requires serious planning and contingencies for delay, which is almost inevitable. My own overland travel from Lima to La Paz and back was delayed en route 24 hours each way, due to landslides set off by earthquakes one way, and washouts and mudflows triggered by rain fall the other way. Overland travel from Lima to LaPaz is a matter of at least two days even without delays. Overland travel to the major cities of other neighboring countries is barely imaginable.
3. La Paz is set in the bottom of a great canyon, still 12,000 feet elevation. There, approximately 350,000 Hispanic and Mestizo inhabitants run most of the commerce and government beaurocracy. They have lived in a physical and cultural isolation that is hard for us to imagine. They are surrounded on the upper slopes by 800,000 Aymara Indians, who will not hesitate to shut down access the city, meaning no gasoline, no heating oil, no milk and food deliveries, until their demands are satisfied. The Aymara are a particularly embittered minority, having been defeated by a coalition of Spanish and Qichua (Inca) invaders. They do not forget. The Aymara for the most part are not really interested in commerce with the rest of the world. Unlike neighboring indignous cultures, they are not outward looking or opportunistic. When I was there, during the Presidency of Carlos Mesa, the Aymara were heavily against selling Bolivian natural gas to foreigners. Evo Morales, the current President of Bolivia is an Aymara Indian, the first Aymara to hold a position of power since the conquest. That startling fact should never be overlooked or minimized in any consideration of Bolivian politics and economics. Peru does not have that kind of complication or such a powerful regressive influence to deal with, Qichua revolutionaries notithstanding.
4. Bolivian natural and agricultural resources are locked up behind daunting barriers to transportation. To sell its natural gas, for example, the gas must be transported in pipelines from its provenance on the east side of the Andes, to a Peruvian port on the west side. Geological hudles to such an effort make the Alaska pipeline from Prudoh Bay to Valdese look like child’s play. Bolivia’s other great, modern resource, soy products from its Amazon, as well as many other products, are shipped 2000 miles down the Paraguay and La Plata rivers, through three countries in order to reach an Argentine or Uruguayan port on the Atlantic.
It is true there are many similarities between Bolivia and Peru, they were at one time united as one nation. But the extreme isolation of Bolivia and its tragic history of defeat and loss are not shared with its brother nation to the north, and to say that the difference between them is chiefly a matter of modern govenance is inadequate to the question.
6. Bigfoot
4. Bolivian natural and agricultural resources are locked up behind daunting barriers to transportation. To sell its natural gas, for example, the gas must be transported in pipelines from its provenance on the east side of the Andes, to a Peruvian port on the west side.
Bolivia’s biggest customers for its natural gas are Argentina and Brazil. Pipelines from Bolivia’s gas fields in Tarija province to Sao Paulo and Buenos Aries are already built, and traverse relatively flat ground compared to the Andes.
Your points about the insular nature of the Aymara are well taken, as are your comments about the hellish nature of transport in Bolivia.
When Bolivia was the leading tin exporter in the world, transport was much worse than it is today, yet the tin still got to market.
Gringo, you are right about the pipelines to Brazil and Argentina, I saw one of them under construction in Mato Grosso in the 90′s. Later, there was a lot of discussion in the news there about expanding shipping to Pacific markets by way of a pipeline to Ilo Peru, I think. But I doubt such a project ever got off the ground. I thought Mesa was trying hard to bring Bolivia up a little from from its depressed economic state. But there was too much going against him. I see a chilling parallel with what has happened in Bolivia: A Chavista communist swept into power as the charismatic leader of an oppressed minority, promising hope and change, the nation’s first Aymara President. Labor goons on the march, student leftists shouting “Che, Che”, a huge ethnic turnout, and intimidation of opponents. Familiar?
It is lame–and extremely counter-productive– to explain a nations failure through geographic and resource issues. Japan and Switzerland.
Simon Bolivar–
“I consider that, for us, America is ungovernable; whosoever works for a revolution is plowing the sea; this country will ineluctably fall into the hands of a mob gone wild, later again to fall under the domination of obscure small tyrants of every color and race; we will be decimated by every kind of crime and exhausted by our cruel excesses. The most sensible action to take in America is to emigrate.”
Time to give up some love for Pinochet and his Chicago Boys. Without them, there is not a single example for progress in South America.
“…failure through geographic and resource issues.” That may be true in general but not in extreme cases, and Bolivia is an extreme case. If anything it is lame to bring up Switzerland and Japan; Switzerland I can only suppose because it is mountainous, and I cannot imagine why Japan should be used as a yardstick to measure Bolivia. As for Switzerland, you could not have picked a better example of a nation with great geographic advantage. Switzerland lies at the headwaters of the great rivers (that means early trade routes) of Europe – the Rhone, the Rhine, the Danube and the Po. Switzerland lies at the center of European civilization, and yet its mountains serve as a defensive barrier to conquest by its rich neighbors. How very blessed it is by geography. Bolivia, unlike even Peru, lies at the end of the world, in the center of nothing, where no one wants to go unless to extract its minerals and take them out as cheaply and quickly as possible and then leave. Japan is an island nation in a busy sea, blessed with abundant rainfall and moderate temperature, an agricultural and horticultural paradise; and a unified people with a common history and language, whose nearest rich neighbor has been xenophobic enough not to even try to conquer it for many centuries. And I did mention some demographic and historical issues as well that distinguish Peru from Bolivia. As for Chile and Argentina, they are mores similar to Spain and Italy than to Bolivia. It is unfortunate that so many economists try to explain the success or failure of nations on the basis of economic models alone.
Free market capitalism seems to have worked whereever it is tried.
Peru was also incredibly over-regulated. These regulations were a morass of red tape that were used to protect unions and oligarchs.
Here in the USA regulation creep in the form of nanny state protections is a big problem for industry.