Poverty and Economic Inequalities in Peru during the Boom in Growth: 2004-14

Abstract

In the first decade of the twenty-first century, Latin America experienced strong growth that was primarily attributable to high export prices and growing demand from China. Moreover, democratic transitions in the region brought to power governments with highly contrasting economic policies and different visions of the sectors that were driving growth. These governments also differed in terms of the social policies they implemented to combat poverty and inequality. Countries with ‘heterodox’ policies (Brazil, Ecuador, Bolivia, Argentina and Venezuela) that promoted efforts to better distribute the fruits of growth increased social expenditure and encouraged, to a greater or a lesser degree, productive diversification, particularly in the internal market. Countries with ‘orthodox’ policies (Chile, Colombia and Peru) promoted foreign investment in the primary export sector (mining, oil, fishing, soybean cultivation, etc.), which was considered the main driver of growth, and implemented conservative fiscal and monetary policies that created a climate of confidence for investors and led to stable exchange rates and prices. This chapter attempts to assess the events of the last decade in terms of distributive aspects by comparing the cases of countries that applied heterodox policies with those that implemented orthodox policies. The study focuses primarily on Peru, where governments combined a ‘leftist’ ideology—which brought them to power—with economic policies that were close to the ‘Washington Consensus’. The author examines the results of this phase of rapid growth in terms of poverty reduction and assesses to what extent these results have been accompanied by (and possibly have been achieved thanks to) a drop in inequality and the growth of the middle class. This phenomenon is seen by some as a guarantor of political stability and by others, as a cauldron of conflict. Finally, the degree to which social expenditure and taxation can play distributive roles in this new phase of slower growth is explored.