Stability and progress: Balancing economic growth with an emphasis on social inclusion

Once known as a country blighted by economic and social upheaval, Peru has now experienced more than two decades of relative stability and progress, increasingly so since the turn of the millennium. That strong economic progress has occurred during a period of high commodity prices is no coincidence considering the rich mineral and energy resources found high in the Andes Mountains and deep in the Amazonian jungle. While Peru’s commodities industries may have aided its economic growth, they have been supported in recent years by expanding sectors such as construction, retail and agriculture.

Yet despite ongoing modernisation, the list of unfinished business is long on several fronts, including the struggle against social inequality – the chief campaign platform of the incumbent President Ollanta Humala – as well as campaigns against corruption and rural poverty, and efforts to develop infrastructure.

Having tasted stable economic and political progress Peruvians are hungry for more. Investment continues to flow into the country, while the many free trade agreements signed in recent years have provided Peru’s export-oriented extractive, agricultural and manufacturing industries with a strong platform to reach some of the world’s largest markets, including China, the US and the EU. A quick glance at Peru’s books reveals low levels of public debt to GDP – at 19% in 2012 according to the IMF – as well as high international reserves that would leave fiscal chiefs in Washington and most European markets envious.

Political History

Peru was part of, and is home to, one of the greatest civilisations in the Americas. The Inca empire, which ended with the arrival of Spanish conquistadors in 1532, was centred on Cusco, home to the world-renowned Machu Picchu.

After nearly three centuries of colonial Spanish rule, Peru declared its independence in 1821 and its sovereignty was recognised by its former colonisers in 1879. After a significant period of aristocratic rule that left a rigid social structure in place, a series of nationalist and populist movements gathered momentum and led to the creation by Victor Raúl Haya de la Torre in 1924 of the most important political party in modern Peru – the American Popular Revolutionary Alliance (Alianza Popular Revolucionaria Americana, APRA).

While APRA remains the most well-established political party in the country, its ideological philosophy has been transformed several times from its origins as a vehicle for increased socialism in policymaking to its current status as a moderate party much closer to the centre of the political spectrum.

For nearly half a century, political power in Peru shifted tenuously between democratically elected governments dominated by the country’s military juntas and oligarchy, with military coups not uncommon. Finally in 1979, after more than a decade of military rule, a constitutional assembly was formed, led by APRA’s founding father, Haya de la Torre, (who died the same year), which would eventually return power to a democratically elected civilian government under the 1979 Constitution.

Modern Narrative

The 1980s in Peru were marked by severe economic hardship and the rise of guerrilla warfare and armed violence in the country, which contributed to an increasingly unstable environment. President Fernando Belaúnde Terry, who was overthrown by a military coup in 1968, was reelected in 1980 and made the small, yet important, reform of returning several of the nation’s newspapers and media to private ownership – thus reigniting open political debate. Belaúnde also oversaw one of the first democratic transfers of power in Peru in decades when President Alan García (of APRA) was elected to his first presidency in 1985.

Despite having a strong majority within the legislature, García’s first term was beset by challenges as hyperinflation undermined the economy. The situation was exacerbated by, and in no small part contributed to, the ongoing internal strife as militant groups such as the Shining Path and the Túpac Amaru Revolutionary Movement rose in prominence. With things looking increasingly bleak, a disillusioned populace turned to Alberto Fujimori in the 1990 elections.

Fujimori remains a controversial figure to this day. While the former president’s effective economic reforms – now commonly referred to as “Fujishock” – began to slowly rebuild the economy, his authoritative style of rule would eventually tarnish his otherwise impressive economic record.

Meanwhile, his ruthless use of the military and National Intelligence Service in the conflict against insurgent groups eventually led to his downfall following his third presidential election in the year 2000. Fujimori is now in prison after being convicted of crimes against humanity, embezzlement and bribery.

Nevertheless, the effects of Fujimori’s economic legacy are noticeable even today, predominantly as a result of his administration’s ability to bring Peru back into the global economic system by attracting foreign investment and selling several important state-owned enterprises. Privatisation during his regime resulted in dramatic improvements in the telecommunications and energy industries in particular.

The results were almost instantaneous as Peru enjoyed relatively stable economic growth throughout the 1990s. World Bank figures indicate GDP rose by an average of 4.85% annually in the eight years from 1993 to 2000. In post-Fujimori Peru there have been three presidents, each of whom has also overseen strong macroeconomic growth.

Following Fujimori’s resignation in 2000, new elections resulted in victory for Alejandro Toledo, who defeated former President García. García then ran in the 2006 elections and defeated Humala, a former military officer who once revolted against Fujimori. Humala would go on to run for office again in 2011, this time defeating Fujimori’s daughter, Keiko Fujimori, in a runoff election.

Administrative Policy

After Humala was elected on a quasi-socialist platform that promised to reduce poverty and social inequality, expectations were high among his supporters. However, little changed within society in the first year and half of Humala’s administration, and this delay has been a cause for concern among some of his supporters.

Meanwhile, the business and investment community also share a key interest in the progress of the current administration. Preliminary fears of the incoming administration saw the Lima Stock Exchange’s (Bolsa de Valores de Lima, BVL) main index – the BVL General Index – suffering its worst single-day plunge in history when it fell 12.5% following Humala’s election. Notwithstanding, the business community too has been somewhat surprised with administrative policy, albeit in a far more positive way, as those fears have been allayed by Humala’s commitment to achieving his objectives within the social realm through the continuation of successful economic policy.

Possibly the biggest issue in the country today is how to handle ongoing controversies within the mining industry. While it has been one of the key motors of economic growth for decades and the primary destination for foreign direct investment, it has also become a symbol of inequality, which has sparked social conflicts around the country. Humala’s first act in office regarding the sector was to increase royalties to fund government social programmes. Despite this, social unrest continues to plague the industry.

Some observers believe President Humala may be able to bridge the gap and act as negotiator-in-chief to resolve the numerous ongoing disputes. This challenge looms about as large as it did when Humala entered office in July 2011.

Humala’s ratings slumped by about 20% in the fourth quarter of 2011 as social conflict embroiled the $4.8bn Minas Conga mine project. However, by January 2013, the numbers had improved somewhat, with a poll commissioned by Datum International showing Humala’s approval rating had climbed to 57%. Although this was a marked improvement, it proved to be relatively short-lived, with the president’s popularity rating dropping down to 27% by September 2013.

Family Matters

Humala’s slight swing towards the centre has lost him certain elements of support, even including his own family, with brothers, sisters, cousins and his own father speaking out against him. Humala’s father, Isaac, and eldest brother, Ulises, have loudly voiced their disapproval of the government, echoing the criticism of portions of Humala’s original supporters who have grown disillusioned.

Humala’s relatively short political career has charted several directions since it began in 2000 with a revolt against Fujimori. By the time he reached his first – and unsuccessful – election run back in 2006, his platform was modelled after Venezuela’s recently deceased President Hugo Chávez.

His decision after 2011 to broadly maintain a course set out by his predecessors, which has resulted in sizeable reductions in poverty over the past decade, gained popular support. Elements of Humala’s desire to empower Peru’s lower socioeconomic classes found a path into policymaking decisions, such as restructuring taxation of the country’s vast natural resources.

While it is still too early to judge the overall effectiveness and efficiency of Humala’s government in creating a more equitable and prosperous society, the initial fears on the part of the business community of a hard turn toward socialism have been allayed amid what has turned out to be a moderate government.

Executive Structure

The president is elected to a five-year term, meaning Humala will finish his term in 2016. The president serves as both head of government and head of state, and may serve more than one term provided the periods are non-consecutive, as was the case with President García.

The vice-president (VP) is elected alongside the president as a running mate in the general election and though Peru often has two VPs, a first VP and a second VP, currently Marisol Espinoza is the only serving VP as the former second VP (Omar Chehade) left office in January 2012 after abuse of power allegations surfaced in relation to a private acquisition of the Andahuasi sugar plantation. The office remained vacant at the time of writing.

The most important role of the VP is to fill in for the president on a temporary basis in the case of illness, travel or other related issues that prevent the president from performing his or her responsibilities, or on a permanent basis in the case of death. The president also appoints a president of the Council of Ministers – a prime minister – to oversee his Cabinet, which must be approved as a whole by a congressional vote of confidence. Should the prime minister resign, as was the case in October 2013 when Juan Federico Jiménez Mayor stepped down, the entire Cabinet must also resign. Though the president is permitted to retain ministers in a subsequent Cabinet reshuffle.

The president, with the approval of his Cabinet, may propose laws which then pass through Congress, while he also holds both general and line-item veto powers on any approved laws coming from Congress. At the time of writing, Humala’s Cabinet consisted of 19 members, led by Prime Minister Cesar Villanueva Arévalo, who was appointed on October 31, 2013.

Judicial Structure

The autonomous judicial branch comprises a four-tier national court system, which on the smallest scale operates at a district level. Trial courts handle matters on a provincial level, while the superior courts operate on a departmental level, though there are just 25 departments for the 28 superior courts. At the top of the judicial branch sits the 16-member Supreme Court. Supreme Court judges are appointed by the National Council of the Judiciary, which also oversees the appointment and monitoring of public prosecutors and officials. The Supreme Court holds jurisdiction over the entire nation, though the Constitutional Court can exert a final decision on certain matters. Also a seven-member body, this time elected to five-year terms by Congress, the Constitutional Court serves to interpret and preserve the eponymous document.

Legislative Structure

The legislature consists of a unicameral congressional body made up of 130 representatives, known as the National Congress. The legislative branch is of course responsible for passing laws, but additionally it approves the national budget, ratifies treaties and authorises government loans. Congressmen are elected to five-year terms on the basis of proportional representation concurrently during the general presidential election. The proportional representation basis generally produces a multi-party system when compared to a system of single-member district voting whereby two political parties often dominate.

Party People

The political system in Peru consists of an assortment of varied parties that span the political spectrum. The ever-changing names, alliances and newly formed political parties in a fluid system often result in constituents voting for individuals rather than political organisations. At the time of the 2011 elections, there were a total of six political parties represented in Congress; however, this number has since increased. Peru Wins (Gana Peru, GP), Humala’s party, is a leftward-leaning coalition of the Peruvian Nationalist Party and the Union for Peru (Unión por el Peru, UPP), as well as several smaller parties including the Socialist Party, the Peruvian Communist Party and the Revolutionary Socialist Party. In addition to winning the office of the presidency in the 2011 election, GP won the most seats (47) in Congress. Popular Force (Fuerza Popular, FP) is a right-wing conservative party formed by Keiko Fujimori, the daughter of imprisoned former President Fujimori, for the 2011 general election. FP and Keiko Fujimori lost that general election in a runoff, but placed second in the congressional race, picking up 37 seats.

Peru Possible (Perú Posible, PP) is one of a number of centrist political parties and won a total of 21 seats in the national legislature. The party, which has its roots in a previous party known as Country Possible, was established back in 1994 by former President Toledo, who replaced Fujimori in 2001. After sitting out the 2006 elections as required under constitutional law, Toledo ran for a second term in 2011, finishing in fourth place among 11 presidential candidates.

The Alliance for Great Change (Alianza por el Gran Cambio, PPK) is yet another electoral coalition, this time formed to support a non-partisan candidate in Pedro Pablo Kuczynski (PPK). The Christian People’s Party, the Alliance for Progress, the National Restoration Party and the Peruvian Humanist Party coalesced behind PPK, who would go on to finish third in the general presidential election, while the party ended up winning 12 congressional seats.

The National Solidarity Alliance also formed in the run-up to the 2011 election behind the former mayor of Lima, Luis Castañeda, with members coming from the National Solidarity Party, the UPP and Cambio 90. Castañeda finished fifth in the run for president, while the party secured nine seats in Congress.

Last but certainly not least is APRA. Founded in the early part of the 20th century by Haya de la Torre, the APRA and one of the few major institutionalised parties in the country and the party of two-term former President García. Despite being the oldest party in the country and holding 36 seats in the former Congress under García, APRA secured just four seats in 2011.

Elections

General elections for both the president and Congress are held every five years. All Peruvian citizens aged from 18 to 70 are required by law to vote, while those 70 and older are permitted to abstain. Members of the military and the national police force are not allowed to vote in general elections. The office of the National Registry of Identification and Civil Status determines and keeps track of those who must vote, while general elections are conducted by the National Office of Electoral Processes. Finally, the National Jury of Elections monitors political campaigns and elections to determine their legality.

The last three elections following the resignation of Fujimori have produced varied results, a consequence of Peru’s multi-party system. In fact, the last three congressional bodies have consisted of more than a dozen different political parties and electoral alliances, with APRA and PP the only two parties to have seated members in each.

Foreign Relations

Developing external relationships that concentrate on economic integration and trade continues to be the focal point of foreign policy for Peru, which is a member of several regional and global economic associations, including the Pacific Alliance, the Andean Community and the Asia-Pacific Economic Cooperation. A raft of FTAs have been signed in the past decade including important accords with the US, China and most recently the EU, facilitating rapid growth in both exports and the wider economy. While neighbourhood quarrels have not entirely disappeared following the signing of a comprehensive peace agreement with Ecuador in 1998, armed conflict has been replaced with greater diplomacy as exemplified by ongoing efforts to resolve a centuries-old border dispute with Chile at the International Court of Justice in The Hague (see analysis).

Obstacles Ahead

Though the country is now considered to have a relatively free and fair democracy boasting an outspoken media which fuels political debate within the country, Peru’s governance does face several significant long-term challenges.

While Peru maintained its 61st position on the World Economic Forum’s “2013/14 Global Competitiveness Report”, the same position it held in 2012/13, several problematic factors remained for doing business in the country. Inefficient government bureaucracy, corruption and restrictive labour regulations were noted as the most problematic factors. While government instability has become less of a concern, some memories of the authoritarian regime of Fujimori still linger. What is of greater concern is a lack of political continuity with frequent ministerial changes and – with them – different priorities in policies and objectives. Other indicators also saw Peru score disappointingly low out of the 144 nations included. The country ranked 128th in the category of burden of government regulation, 127th in public trust in politicians and 125th in judicial independence.

Outlook

While the continuation of successful democratic transfers of power represents a major step forward in solidifying the political framework, there is still a significant amount of work to be done in terms of improving governance at all levels. The current administration has made the fight against corruption a priority and progress has been made on this front, though effecting change all the way down to local governments is a medium- to long-term task.

The multi-party system has been a boon to ensuring a plurality of voices in the central government; though it also brings with it the risk of inconsistency in policymaking decisions in the long term. Nevertheless, as current administrative policy has displayed an ongoing focus on alleviating social inequality and poverty through economic growth, Peru will likely continue to advance economically and politically, hopefully ironing out the wrinkles along the way.