Lima, Peru, January 19, 2016 --  

The expected election of Keiko Fujimori may try Peruvians' patience for free market reforms.

When Peru's capital scored three slots on the World's 50 Best Restaurants competition last year, it was yet another marker that this trendy Latin American city coming of age.¹ Economic growth has seen Peru make great gains, with per capita income growing by over five times in the past 25 years.² And the gains have not just gone to the elite. The pale-faced hipsters dining in trendy restaurants in the capital have been joined by ladies with Andean features in small highlands towns, dining on simpler meals at countless joints featuring country's world-famous rotisserie chicken.

But the crash in commodity prices that has come with China's downturn has hit Peru hard. Declines in its stock market, with companies dominated by mineral extraction, has led Peru to the verge of being delisted as an emerging market, throwing it into the same pool of risky “frontier” market countries like those that dominate Africa.³ Incomes have begun stagnating. The downturn threatens to question the entire basis of Peru's success.

Always a country of surprises, recent troubles have not pushed Peru toward left-wing politics like in neighboring Bolivia. Keiko Fujimori, daughter of imprisoned former dictator Alberto Fujimori, is leading in the polls for Peru's April election.⁴ Her center-right Fuerza Popular party seeks to build on her father's legacy of free market reforms at the exact time they would seem to be unpopular.

The persistent neo-liberal bent is surprising, given Peru's history. Until the early 1990s, the government was under the persistent threat of overthrow by Marxist Revolutionaries in the Tupac Amaru Revolutionary Movement and the brutal Maoist Shining Path — organizations dedicated to freeing the downtrodden Incan majority from domination by a tiny European elite. This wealthy elite was content to maintain its position by placating the poor masses with a trickle of paternalistic payoffs.

This all changed with President Alberto Fujimori, the first president of Japanese ancestry. He was widely credited with bringing free market reforms to Peru during his decade-long rule in the 1990s, but with a high cost to the existing social order. Internationally, his reforms were overshadowed by his equally striking iron-fisted defeat of the insurgencies plaguing the country. His extrajudicial banning of the opposition-dominated congress was followed by the elected dictator's conviction of commanding death squads. These convictions keep him in prison to this day.

But a funny thing happened after he the collapse of the Fujimori dictatorship in 2000. The left-wing opposition that came to power under Alejandro Toledo, the country's first indigenous president, did not dismantle the nations's free-market reforms, and instead focussed on democratic reforms on the social sphere. Toledo did not join the ranks of crack-pot leftist leaders that have dominated neighboring countries, most notably Bolivia, Ecuador and Venezuela.

This continued liberalization of Peru has helped it become a success story, but integration with global markets mean that it faces economic decline when countries like China don't want to buy its commodity-dominated exports.

Should Keiko Fujimori win the presidency as expected, her popularity may not last. Despite remaining mum, she is widely expected to pardon her father, who remains a highly controversial figure in the country. Given the prospects of continued downturn in China, it is unlikely that commodity prices will rebound soon. The Peruvian economy may see stagnant or declining conditions for years to come.

Peruvians' enduring patience for free-market economics is striking. The election of a right-wing dictator's daughter during a time of economic trouble may the biggest test yet to see how long this patience can endure.

Related Web Columns:

The Frontline of Free Trade, November 29, 1999

Notes:

1. Peruvian Times, Three Peruvian Restaurants Among World's 50 Best, June 2, 2015

2. Google Public Data, Peru GDP Per Capita (World Bank Figures), Jan 12, 2016

3. Chicago Tribune, 'Frontier' Status Suddenly Looms for Peru, Latin America's Best Economy, January 17, 2016

4. Voice of America, Keiko Fujimori Clear Favorite in Peru Election Poll, December 14, 2015