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.