In this conference organised by LSE’s Peruvian Society, speakers reflected on how the new political map of Latin America is influencing Peru’s integration into transnational markets and what this tells us about the opportunities and challenges facing developing countries when interacting in the global economy. Speakers were Dr. Ricardo Luna (Peruvian Ambassador in the UK), Dr. John Crabtree (Centre for Latin American Studies, Oxford University) and Mr. Richard Ralph  (former British Ambassador in Peru (2003-2006) and current chairman of a UK mining company working in Peru). The conference was chaired by LSE’s Dr Evan Killick.

Dr Killick opened the conference by describing a number of factors that provided the context for this discussion; the recent re-election of Alan Garcia, the breakdown of the FTAA, the progression of bilateral trade agreements with the US, the importance of India and China as emerging markets and issues relating to the environment.

The first speaker was Ambassador Ricardo Luna, who began by referring to a shift in Latin America from the ‘old regionalism’, which focused solely on trade liberalisation, to a ‘new regionalism’, which also includes areas such as intellectual property, trade and services, labour and the environment. He described an asymmetry in how Latin American government see this process, but emphasised the active role that Peru has taken in promoting integration. For example, Peru has ratified a bilateral trade agreement with the US (although this awaits US ratification) and has played a key role in salvaging talks between the Andean Community and the EU, persuading both Bolivia and Ecuador to continue their participation.

He also referred to Peru’s support for the creation of the South American Community of Nations, which he said reflected a shared commitment to the consolidation of institutional democracy and the establishment of a more advanced network of communications across the region, both of which were a reaction to the pressures of globalisation. Finally, he said, Peru has been active in promoting a Free Trade Area of the Americas stretching from Canada to Chile along the West coast (a smaller replication of the original FTAA), which, he predicted would help to stimulate trade with the APEC countries.

The next speaker was Richard Ralph, who began by stating that his knowledge of Peru is based on his previous experience as the UK ambassador there. The UK’s role in Peru is significant, he said; for example, it is the third biggest investor in Peru (mainly in mining) and the largest export market (mainly for gold). Describing himself as a ‘self-confessed open marketer’, he admitted that he was biased towards trade liberalisation, from which the UK has benefited greatly, although he acknowledged that for LDCs it had brought uneven benefits, as well as problems and disadvantages. Nevertheless, he was optimistic that the emergence of Brazil, Russia, India and China (the so-called BRIC) would help to create a more level the playing field for LDCs in the future.

Regarding the debate about globalisation, he said that in Peru this has been focused mainly on FTAs with the US. The key argument in favour, he said, was that most of Peru’s trade is with the US, so there is a need for continued access to and competitiveness in the US market, while those in opposition feared job losses, a fall in wages and the giving away of patents. The fact that the agreement was finally ratified despite left wing opposition he attributed to a lack of alternatives; there was no possibility of a return to protectionism, he said. He also referred to Peru’s support for regional integration, particularly its support for Mercosur (of which it is an associated member) and Alan Garcia’s intention to strengthen Peru’s relationship with Brasil. Both the above are motivated partly, he said, by the fact the limited progress on other regional agreements (CAN and CSN).

Turning to the issue of left wing politics in Peru, he said that, although left wing candidate Umala failed in his election campaign, he does represent a pressure from the grassroots level in Peru, which Garcia would have to take seriously.

Assessing the overall impact of globalisation on Peru, he thought that, although there have been winners and losers, on the whole Peru has benefited greatly from trade liberalisation. He referred to the phenomenal GDP growth, record levels of FDI, huge export growth, fiscal stability and the growth of the middle class as examples of this macroeconomic success. He predicted that, if Peru could maintain current policies for the next ten to fifteen years, it would become a more prosperous country and that this would have a ‘trickle down’ effect, allowing more social problems to be addressed. However, he acknowledged that this has not happened yet, particularly in the sierra and jungle, where poverty levels remain high. There are also continuing problems in Peru which worry US and UK investors, he said, which include too much bureaucracy, corruption, a lack of judicial transparency and security issues.

On the subject of mining, he said that this has been the backbone of Peru’s economic success, but that it is a conflictive sector. However, for all the problems, he thought that the pre-eminence of corporately responsible western companies in the sector made it more likely that internationally approved practices regarding the environment and relations with the community would be followed. He concluded by saying that globalisation offered a tremendous opportunity for Peru to begin seriously addressing the problems that affect it.

 The final speaker was Dr John Crabtree. He began by discussing the reconfiguration of the political map in Latin America following the 2006 elections and where Peru fits in to this new political context. He did not believe these changes should be seen as a ‘pink tide’, but emphasised the need for case-by-case examination. However, he thought that many of these countries do share a common sense of desanimo about how democratic institutions work (this is particularly bad in Peru, according to Latinobarometro polls and a recent UNDP report). The impact that this has on political behaviour varies a great deal, he said, depending partly on historical factors. In Peru, the sense of desanimo is strongest in the sierra and jungle (the regions where Umala gained most votes), reflecting the strong geographical differentiation, as well as the cultural and ethnic segmentation. In light of this, he said, Garcia’s victory does not necessarily represent a victory for the political class in Peru - particularly as the victory was narrow and Umala failed to fully capitalise on the sense of desanimo. He also highlighted two ways in which Peru differs from its Andean neighbours; firstly, ethnicity was less important as a dimension of Peruvian politics and, secondly, the legacy of  Sendero Luminoso (Shining Path) had left a continuing sense of insecurity.

He then went on to discuss the issue of ‘21st century socialism’ versus liberalism in Latin America. It is wrong, he said, to view these as two polarised camps; in fact, there is a kaleidoscope of positions. He emphasised the need to disentangle rhetoric from what really happens in Latin America and gave the example of nationalisation in Bolivia, which, he said, was less of a radical change than presented. In terms of Peru’s position within this political spectrum, he said that, since the end of the 1980s, successive governments have followed liberal economic policies, but that politically this is less clear cut; for example, he described a temptation to use populism, an overreaching of liberal systems of checks and balances and a history of the use of force.

He also noted that there has been a change in the policy climate in Latin America; the Washington Consensus no longer commands such discipline, the IMF and World Bank have lost some influence and there has been a recent swing towards statism. In addition, he said, the process of economic recovery, has led to a greater self-confidence among Latin American countries and an increased focus on issues such as social policy, poverty and inequality.

He then addressed the question: does this new political map help or hinder Peru? He answered this by saying that Peru’s economic recovery had more to do with the nature of the global economy than with regional politics. For example, China’s economic growth, the buoyancy of the US economy, low interest rates and the price boom in oil and minerals had all been beneficial.

Finally, he asked, can Peru help us to understand the challenges of interacting with the global economy for developing countries? Regarding the political economy of export-led growth, Peru illustrates some of the problems associated with the ‘resource curse’, he said; for example, there are few linkages between the mining export sector and the rest of the economy, which leads to dependence and vulnerability, a lack of value-added employment and few industrial spin-offs. There is a need, he said, for greater state involvement in order to shift the surplus from mining to other sectors of the economy and enhance the ‘trickle down’ effect. He also commented that, despite continuous institutional innovation in Peru, this had not been effective in enhancing the state’s capacity, particularly regarding the its relations with society. The state in Peru needs to be more honest and open to democratic participation, he said. In his view, Alan Garcia had failed to overhaul the state institutions that prevent reform from happening.

There then followed a question and answer session in which the following points were discussed:

 - The ‘Sierra Exportadora’ programme, designed to give poor farmers in some parts of the sierra access to export markets. Someone asked whether this keeps Peru in the role of a raw materials producer. It was also pointed out that most agriculture in the sierra is not exportable and caters for the domestic market and there are fears about how the liberalisation of agricultural trade could affect these producers.

- The failure of Garcia to improve the economic situation of the poor in his first term and what could be done to achieve this. One member of the audience commented that this problem could not be addressed by talking just about macroeconomics.

- One member of the audience asked, what could the government do to ensure transparency and regulation in the mining industry? Richard Ralph answered that the biggest problem in mining was the government’s failure to find ways of redistributing the wealth accrued, but there was the problem of remaining competitive in the global economy. He also commented that  building relation with the community was not an easy task and that the state’s feeble presence was a problem for companies, as it led to problems such as criminality and drugs and created space for anti-mining campaigners.

- How the government could promote development in Amazonas, which is often overlooked in government policy. Ricardo Luna commented that a major catalyst to this will be the creation of a new Atlantic to Pacific communications network, which will allow the region to respond to the demands of China. However, John Crabtree also pointed out that there will also be negative social and environmental impacts of this development.

- Ethnicity; particularly the role of Lima as a melting pot and the reluctance to politicise ethnic issues owing to the Shining Path legacy.

- The Andean Community, which it was agreed looks unlikely to make real progress in the foreseeable future