1. Peru 1990-2004 Peru 1990-2004 : Changing Economic Policies and the Decline in Malnutrition Rates Michelle Jurkovich Economics 465 Winter 2008 Michelle Jurkovich Economics 465 Winter 2008

2. The Question  According to the 2007/2008 UN Human Development Report, Peru’s malnutrition rate dropped from 42% of the population (average taken between the years of 1990- 1992) to 12% of the population (average taken between the years of 2002-2005). The obvious question is both WHY and HOW?  According to the 2007/2008 UN Human Development Report, Peru’s malnutrition rate dropped from 42% of the population (average taken between the years of 1990- 1992) to 12% of the population (average taken between the years of 2002-2005). The obvious question is both WHY and HOW? UNHD Report can be obtained from: http://hdr.undp.org/en/statistics/data/

3. To Compare  During the same span of years, Latin America witnessed the following changes in malnutrition rates: -Chile: 8% to 4% -Mexico: no change at 5% -El Salvador: 12%-11% -Brazil: 12%-7% -Venezuela: 11%-18%  During the same span of years, Latin America witnessed the following changes in malnutrition rates: -Chile: 8% to 4% -Mexico: no change at 5% -El Salvador: 12%-11% -Brazil: 12%-7% -Venezuela: 11%-18% Picture taken from: www.bio-pro.de/.../ulm/hunger_338x464.jpg (originally from the Eiselen Foundation)www.bio-pro.de/.../ulm/hunger_338x464.jpg Statistics taken from UNHD Report (2007/2008) which can be located at: http://hdr.undp.org/en/statistics/data/

4. The Hypothesis The decline of malnutrition rates in Peru must have been the result of political and economic reforms in the 1990’s.

5. Summary of Findings While we cannot prove causation, the correlation of the following with the decline in malnutrition rates will be examined:  Increase in privatization and liberalization  Increase in foreign investment (and domestic investment)  Decrease in trade deficit (increase in exports) and stable currency  Increased political stability  Increased agricultural output  Modest increase in agricultural credit While we cannot prove causation, the correlation of the following with the decline in malnutrition rates will be examined:  Increase in privatization and liberalization  Increase in foreign investment (and domestic investment)  Decrease in trade deficit (increase in exports) and stable currency  Increased political stability  Increased agricultural output  Modest increase in agricultural credit

6. The History Chart taken from: Alvarez, E.H. (1995). Economic development, restructuring and the illicit drug sector in Bolivia and Peru: Current policies. Journal of iNteramerican Studies and World Affairs 37(3), 125-149. Chart taken from: Alvarez, E.H. (1995). Economic development, restructuring and the illicit drug sector in Bolivia and Peru: Current policies. Journal of iNteramerican Studies and World Affairs 37(3), 125-149.

7. Economic Problems-1960s  Underperforming export industries  Lack of risk-taking and investment in improving export industries (neither domestic nor foreign investment sufficient)  Economy heavily dependent on mining industry which was controlled by foreign firms  Other industries (agriculture, oil, fishing) faced constraints and/or required funding to expand RESULT: Upset the balance of payments  Underperforming export industries  Lack of risk-taking and investment in improving export industries (neither domestic nor foreign investment sufficient)  Economy heavily dependent on mining industry which was controlled by foreign firms  Other industries (agriculture, oil, fishing) faced constraints and/or required funding to expand RESULT: Upset the balance of payments Source: Bertram, G. & Thorp, R. (1978) Peru 1890-1977: Growth and policy in an open economy. Columbia University Press, New York: 287.

8. Juan Velasco 1968-1975  State intervention -Expropriation of the International Petroleum Company -Agrarian Reform Law -Mining industry removed from foreign control -Industrial Reform Law -Fisheries Law -State control of banks  State intervention -Expropriation of the International Petroleum Company -Agrarian Reform Law -Mining industry removed from foreign control -Industrial Reform Law -Fisheries Law -State control of banks Source: Bertram, G. & Thorp, R. (1978) Peru 1890-1977: Growth and policy in an open economy. Columbia University Press, New York: 301-302.

9. Fernando Belaunde (1980-1985)  Attempted economic liberalization, but resorted to a populist focus  1982 Debt Crisis  Attempted economic liberalization, but resorted to a populist focus  1982 Debt Crisis  Return to state intervention and redistribution  Hyperinflation (1988-1990)  Populism Alan Garcia (1985-1990) Photo (attributed to AP) taken from: http://www.britannica.com/eb/art-93962/Alan- Garcia-campaigning-for-president-of- Peru?articleTypeId=82 Source: Crabtree, J. & Thomas, J. (1998). Fujimori ’ s Peru: The Political Economy. University of London, London:11-13.

10. Fujishock  “Orthodox economic management”  Removed subsidies  Removed price/wage controls  Financial liberalization  Reduced trade restrictions  Increased privatization Result: Reduced inflation (from 7,417% in 1990 to 15% in 1994)  “Orthodox economic management”  Removed subsidies  Removed price/wage controls  Financial liberalization  Reduced trade restrictions  Increased privatization Result: Reduced inflation (from 7,417% in 1990 to 15% in 1994) Source: Alvarez, E.H. (1995, Autumn). Economic development, restructuring, and the illicit drug sector in Bolivia and Peru: Current policies. Journal of Interamerican Studies and World Affairs 73(3):131-132 Picture from: news.bbc.co.uk/.../ _705482_fujimori300.jpg

11. Economic Indicators Chart in: Alvarez, E.H. (1995, Autumn). Economic development, restructuring, and the illicit drug sector in Bolivia and Peru: Current policies. Journal of Interamerican Studies and World Affairs 73(3):133

12. Attracting Foreign Investors  Brady Plan allowed for 50% debt reduction  Successful resolution to hostage crisis  Decline in the trade deficit (down 21% in only two months (1997)--exports increased by 15%/imports by 7%) INVESTMENTS:  Telfonica (Spain)--$600 million in 1997  Southern Peru Copper Corp.--$3billion investment on infrastructure  Nestle buy-up of D’Onofrio stock (1997)  Brady Plan allowed for 50% debt reduction  Successful resolution to hostage crisis  Decline in the trade deficit (down 21% in only two months (1997)--exports increased by 15%/imports by 7%) INVESTMENTS:  Telfonica (Spain)--$600 million in 1997  Southern Peru Copper Corp.--$3billion investment on infrastructure  Nestle buy-up of D’Onofrio stock (1997) Moffett, M. & Vogel, T.T. Jr. (1997, April 25). Investors are breathing easier in Peru--End to hostage siege may help Fujimori’s reforms. Wall Street Journal (Eastern Edition): A10.

13. Increases in Privatization Chart found in: Kay, B.H. (1996, Winter) “Fujipopulism” and the liberal state in Peru, 1990-1995. Journal of Interamerican Studies and World Affairs 38(4): 65.

14. Peru’s Financial Success RankCountryExchange RateInterest RatesInflation 1Peru111 2Mexico452 3Chile526 4Brazil674 5Colombia335 6Argentina247 7Venezuela763 Source for data: O’Brien, M. (2006, March 1). New frontiers, new challenges: Latin America’s central banks are winning the fight against inflation, but better economic standing has created new hurdles for them. LatinFinance (175):34-36.

15. “A Heroic Political Gamble”  Fujimori made an agreement with Shell and Mobil to develop petroleum industry  Initial $800 million investment  $6 billion to Peru’s government during 30 year timeframe  Unpopular with Peruvians  Fujimori made an agreement with Shell and Mobil to develop petroleum industry  Initial $800 million investment  $6 billion to Peru’s government during 30 year timeframe  Unpopular with Peruvians Source: Unlisted author. (1996, May 25). Fujimori sells. Economist 339(7967):48-49.

16. Agricultural Industry Chart found in: Crabtree, J. & Thomas, J. (1998). Fujimori ’ s Peru: The Political Economy. University of London, London:96.

17. Agricultural Credit Chart found in: Crabtree, J. & Thomas, J. (1998). Fujimori ’ s Peru: The Political Economy. University of London, London:101.

18. Agricultural Output Chart found in: Crabtree, J. & Thomas, J. (1998). Fujimori’s Peru: The Political Economy. University of London, London:98.

19. Alejandro Toledo  “In Spain on a state visit this week, Alejandro Toledo warned of growing discontent in Latin America because of a ‘divorce between economic policies and the concrete results people see in their pockets’…Since he took office in 2001, Peru’s economy has grown at 4% a year or so. But he is the most unpopular president in Latin America, his approval rating in opinion polls below 10%.” Source: Author unlisted. (2004, July 10) Strikes, sleaze and violence. Economist, 372(8383):32.

20. While We Cannot Conclude Causation…. It should be considered that malnutrition rates dropped after/during the following:  Increase in privatization and liberalization  Increase in foreign investment (and domestic investment)  Decrease in trade deficit (increase in exports) and stable currency  Increased political stability  Increased agricultural output  Modest increase in agricultural credit It should be considered that malnutrition rates dropped after/during the following:  Increase in privatization and liberalization  Increase in foreign investment (and domestic investment)  Decrease in trade deficit (increase in exports) and stable currency  Increased political stability  Increased agricultural output  Modest increase in agricultural credit

21. Possible Reasons for Poverty  High numbers of unskilled workers available relative to jobs drives down unskilled wages (in contrast to higher wages for skilled workers) -Perhaps should have developed additional “labor-intensive exports.” Instead, exports were not diversified, and mining sector favored (where comparative advantage already existed)(pp. 120-121).  Inefficient taxing system (p.120)  Lack of access to education in midst of population boom (p. 120)  Concentrated wealth (p. 130)  The question of economic growth and its effects on “particular kinds of poverty” (p.123) Source: Sheahan, J. (1999). Searching for a better society. University Park, Pennsylvania: Pennsylvania State University Press.  High numbers of unskilled workers available relative to jobs drives down unskilled wages (in contrast to higher wages for skilled workers) -Perhaps should have developed additional “labor-intensive exports.” Instead, exports were not diversified, and mining sector favored (where comparative advantage already existed)(pp. 120-121).  Inefficient taxing system (p.120)  Lack of access to education in midst of population boom (p. 120)  Concentrated wealth (p. 130)  The question of economic growth and its effects on “particular kinds of poverty” (p.123) Source: Sheahan, J. (1999). Searching for a better society. University Park, Pennsylvania: Pennsylvania State University Press.

22. References -References were included on each slide - http://en.wikipedia.org/wiki/Peru was consulted for general information

23. Questions?