FINANCIAL TIMES SPECIAL REPORT | Wednesday September 22 2010
Line up for an unpredictable power game Naomi Mapstone Page 3
Grappling with problems of success
Booming mineral prices and open doors for foreign investors led to country’s economic and social transformation, writes John Paul Rathbone
ega Plaza looks and feelsmuch like any shopping mall, anywhere. Hidden speakers pipe The Girl from Ipanema. Posters ply car payment instalment plans. There is a Cineplex, a busy gym and a local fast food outlet that retails a “Kobe Steak” burger. What is unusual, though, is Mega Plaza’s location: on a dusty stretch of the Pan-American highway, a few miles north of Lima’s historic centre. Only 20 years ago, the “northerncone” suburb, in which Mega Plaza squats, was a collection of vegetable plots and makeshift hovels – home to hardscrabble rural settlers seeking refuge from a dirty war between the army and Maoist guerrillas that eventually claimed 70,000 lives. Now more than 2m people live there – about a quarter of the capital’s population. Most of its straw hovels have been replaced by brick housing; some evenhave swimming pools. Mega Plaza is the brash face of South America’s fastest growing big economy, and part of Lima’s recent transformation from melancholy and languid capital into boisterous and traffic-churning metropolis. Peru has been a mining country since pre-Incan times, and much of its transformation is due to the booming prices of its mineral exports, such as copper and gold. But other exportproducts, from asparagus to designer clothes, have flourished too. As well as trade, which has tripled in value in the past 10 years, Peru’s $140bn economy is being driven by private investment (which is growing at 13 per cent a year) and domestic consumption (rising at 6 per cent). The country has thrown open its doors to foreign investors. In real terms, the economy is now almost three timesthe size it was when settlers first came to the northern cone. Inflation is now edging up – but at 2.3 per cent annually is manageable. And while soaring commodity prices have turbocharged Peru’s growth of late – in June, the economy grew at a blistering 12 per cent compared with the previous year – the boom looks more sustainable than most. Peru’s savings rate is 22 per cent – high by regionalstandards. There is hardly a budget deficit to speak off. A plethora of free trade agreements has been sealed, including with the US and China. The country’s debt is ranked investment grade. The only big blip is the chance of a global “double-dip” – but then Peru grew through the last recession in 2009. There are paradoxes to the boom, though. Alan García, who took office in 2006, remains one of theleast popular presidents in the Americas, with an approval rating of just 27 per cent. This is despite a dramatic fall in poverty. Over the past decade, the percentage of Peruvians living on less than $4 a day has fallen from 49 per cent to less than 30. That is a bigger improvement than socialist Venezuela, according to harmonised CEDLAS-World Bank data. One reason for the paradox, perhaps, is theliterally towering figure of Mr García himself (aged 61, he stands at 6ft 2inches tall – a foot higher than his countrymen’s average). Still head of the mildly populist Apra party, Mr García’s first presidency from 1985-90 is recalled with horror by many for its guerrilla violence, debt default, attempt to nation-
Lima: the city has been transformed from a melancholy and languid capital into aboisterous and trafficchurning metropolis, largely due to booming prices of Peru’s mineral exports
alise the banking industry and, most of all, hyperinflation. In 1990, prices rose by more than 7,000 per cent. Although Mr García retains his sharp tongue and lofty rhetoric, he has changed with the times, embracing the free market and free trade policies implemented by his...