Building up the Peruvian Business Sector

The first impression: sad and disturbing. From April to December a cloudy atmosphere hides the sun during six long months. The Rimac river which slightly avoids flowing through downtown Lima carries 700 thousand tons of litter each year and the river bed meets the tourist too early when he arrives at the Jorge Chavez Airport in Peru. Almost one third of the 23 million Peruvians live in the city and 80 % are settled in new villages and slums around it.

But no other Latin American country has changed so fast in such a short period of time. In 1990, Peru was sunk in a violent war against the Maoist rebels of the Shining Path, and suffered the aftermath of the Government lead by Alan García, who in three years destroyed one third of the national production and created inflation at a rate of 4000%. In 1994, Alberto Fujimori, an ex-University Dean, rescued Peru from a total downfall, achieving an annual growth rate of 12.9% (a world record of the year) and obtained a significant reduction of the inflation rate, the lowest since the 1960's.

Moving from a left wing platform in 1990 and attending the population's needs, Fujimori adopted the free market plan of his opponent Mario Vargas Llosa, liberating the exchange market and eliminating controls from the capital markets. He also started an aggressive privatization plan; reducing taxes but increasing the government's income from 4.5 to 13.9% through an efficient tax raising plan. Peru also bought the country's foreign debt in the secondary money market, reducing it approximately two million dollars.

The economic liberalization has made it more attractive for foreign investors to do business in Peru. Fujimori has shown that the free market system can work if people have the necessary freedom to operate. Taking into account economic success in Peru and in Chile as well, the question is: Does the Latin American democracy work? Since both Fujimori and Pinochet have shown their dictatorial authority, but they have also limited their power in the economic activity, the question should be: How can we limit a democratic government's power in order not to interfere with a free market economy?

Guatemala and Peru have very much in common: their social structure, a young population with mostly indigenous people, a political history of guerrilla and counter revolutionary movements. All this and also a culture of corruption, and interventionism in the economy. But if Peru continues discarding all mercantile myths, their youth will be able to build a better nation, with greater resources, in order to write a history much different than ours. Quo vadis Guatemala?