Is Peru the Cheap Chile?


Peru has come a long way since the dark days of the insurgency led by the Shining Path movement that, although still not entirely ended, significantly wound down around ten years ago after 20 bitter years of internal conflict. It now represents an excellent example of what Latin America can achieve with thoughtful, progressive reform and a will to break with the past; together with Colombia, Peru represents perhaps the most improved Latin American country since 2000, and a positive counterbalance to unorthodox policies of Chavez’s Venezuela.

The country has a rich, almost magical history, perhaps best symbolized by the glorious Incan city of Machu Picchu. The famous Nazca Lines, left by a long-vanished civilization, have evoked theories as exotic as the use of hot air balloons hundreds of years ago to a runway for extraterrestrials.

The estimated GDP growth in 2010 was 8.7%, and is forecast to be at or above 5% p.a. over the next five years, with inflation in a 1-3% band, and the current account is only -0.2% of GDP; despite these positive numbers and the fact that its 30m citizens represents a population almost double that of Chile, Peru often appears to be overlooked by multinationals looking to business in the region, even exporters that struggle with the duties of the Mercosur trading group, and the cost of entry to the market is generally more favorable, especially with a concentrated central population in the capital, Lima.

Key indicators include the following:

GDP (PPP) per capita $8,626, 87th out of 181 markets measured (Source: IMF 2010)

Ease of doing business: 36th out of 183 nations (Source: World Bank 2010)

Human Development Index: 63rd out of 169 (Source: UNDP 2010)

Economic Freedom: 45th out of 179 (Source: Heritage Foundation 2010)

Corruption Perception: 78th out of 178 (Source: Trasparency International 2010)

Competitiveness Rank: 73rd out of 139 (Source: World Economic Forum 2010)

Peru compares favorably to Chile on many of these indicators, and generally ranks ahead of Colombia, which appears to be getting far more positive press than Peru. Only in competitiveness does Peru rank outside the first or second quartile of the markets measured by each respective indicator, a long way from Venezuela, which more often than not ranks in the fourth quartile.

Since 2006, Peru has signed trade deals with the US, Canada, Singapore, and China, concluded negotiations with the European Union, and begun trade talks with Korea, Japan, and others, and the country has committed itself to endorsing free trade.

A wide open presidential election in April 2011 and a run off likely in June perhaps do not help with the markets, which always dislike volatility and the unknown, but the current incumbent, Alan Garcia, has managed to sustain growth following the reforms made by his predecessors, Alberto Fujimori and Alfredo Toledo, despite a previous term as president in 1985-1990 that is accepted generally as disastrous. In the last election, President Garcia narrowly beat Ollanta Humala, a left leaning ex-army Lieutenant Colonel supported openly by Venezuela’s Chavez, which gave rise to concerns about the true political progress made by Peru and was a reminder of its “flawed” democracy.

The country still needs to make progress in a number of areas, particularly its over dependence on commodity exports, and education as more than one-third of 15 year olds are classified as borderline illiterate by the OECD, but an orderly transition to the next government and a continued independent and orthodox central bank should ensure that Peru continues to grow faster than the rest of Latin America and together with at least Colombia will join Chile in a group of truly emerging nations. As with similarly placed markets it is the emerging middle class that offers the greatest opportunities in the medium to long-term, particularly as many of the presidential candidates are pledging to reducing the current 35% poverty rate (down from 44.5% in 2006).

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: