From Lima to La Paz

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.)