Peru Economic Analysis

Essay by PaperNerd ContributorUniversity, Master's September 2001

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Overview "At the end of the 1960's, novelist Mario Vargas Llosa asked the question, "En que momento se habia jodido el Peru?"� (When was Peru screwed?). Ironically, similar sentiments had been expressed a hundred years before when fellow countryman Manuel Gonzales Prada observed, "el Peru es organismo enfermo: donde se aplica el dedo brota pus"� (Peru is a sick body: wherever one presses a finger, pus comes out)"�. (1) The sentiments of these two Peruvians accurately describe the economic history of Peru. Peruvian history has been a chaotic tale of a country trying to overcome Spanish rule, revolts for independence, succession of rulers, liberal reforms, military rule, returns to democracy, and periods of extreme inflation and economic hardship. (2) One of the major economic problems that Peruvians have faced throughout their economic history has been foreign ownership of their natural resources. Peru has been described as a beggar country sitting on a pile of gold.

Natural resources are very abundant in Peru, but as a result of poor management, foreign countries have exploited Peru of its natural resources, and only a very small percentage of the native population have benefited. As a result, unequal distribution of income is another major problem in Peru. (3) Other problems that have devastated Peru are extreme government regulation, periods of hyperinflation, terrorism from in-country guerrilla groups, and a history of continued corruption in the politics of the country. (4) The high level of governmental regulation lead to high import tariffs, this, combined with the unstable conditions caused by guerrilla forces, resulted in foreign governments reluctant to invest directly into the economy of Peru. Hyperinflation has occurred twice in Peru history. Once in the Pacific War (1879-1883), the second under the mismanagement of President Alan Garcia (1985-1990) where inflation reached a rate of 2.2 million...



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