García likely to give Peru more of the same

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When Juan Luis Cipriani, the Cardinal Archbishop of Lima, publicly upbraided Peru’s outgoing administration last week, he echoed what for some time has been the subject of political gossip in the capital.

Cardinal Cipriani attacked the government of Alejandro Toledo for spending its final weeks throwing swanky parties, toasting its economic achievements and awarding medals of honour to its officials. Peru had improved, he said, but “we cannot say it is much better, given the abysmal social differences that still exist”.

The festivities are as much about the future as the past. A few months ago, the Toledo administration feared that its economic legacy could be squandered by Ollanta Humala, the radical nationalist presidential candidate, who promised to nationalise “strategic sectors”, lift barriers on Asian imports and raise taxes on foreign investors.

Instead, Alan García, who narrowly beat Mr Humala in a run-off election last month, will on Friday be sworn in as Peru’s president, with every indication that he will secure the economic achievements of the Toledo era.

Mr García – who, as president from 1985 to 1990, limited foreign debt payments and sparked an acute economic crisis – was elected on a platform of “responsible change”, but his government is looking increasingly likely to be more marked by continuity with the previous regime.

Under Mr Toledo, Peru has unquestionably enjoyed economic success: gross domestic product grew 6.7 per cent in 2005 and is heading towards 6 per cent growth this year; inflation is low, the currency is stable and the government may post a small surplus this year.

But Mr García and others have noted that the benefits of this wealth have not been widespread. Much of the growth has come from high metals prices, boosted by Asian demand, which have been a boon for the mining sector. But the extractive sector is foreign-owned and capital-intensive, and in the country generally underemployment is high, social indicators have not improved substantially and most Peruvians live on less than $2 a day.

The enduring poverty – particularly in highland areas where subsistence agricultural communities live in pre-industrial conditions that belie the country’s macroeconomic progress – is behind the frustration, anger at Lima’s political and economic elites and desire for root-and-branch reform of how the Peruvian state operates.

In the first round of presidential elections in April, Mr García edged out Lourdes Flores, the only one of the three leading candidates who promised continuity with the policies of the Toledo government.

Her defeat and the resulting García-Humala run-off prompted much soul-searching in Peru about the need for change, pitting Mr Humala’s pledge of a “great transformation” against the former president’s equally vague “responsible change” slogan.

But in shaping his cabinet, Mr García has opted more for his personal goal of showing that he can be trusted with the country this time around. He has built up a solid, sensible, competent team, the indication being that “responsibility” will take priority over “change”.

This was clear last week, when Mr García named Luis Carranza, a fiscally orthodox banker, as his finance minister.

For the past year, Mr Carranza has been working for BBVA, the Spanish bank, but he was previously deputy finance minister under Mr Toledo. He reportedly resigned over government plans to increase public spending.

Markets, business groups and Wall Street were delighted with the appointment. As Credit Suisse put it last week: “We see Carranza’s appointment as a signal of continuity with the current economic framework and of García’s commitment to fiscal prudence.”

The question is whether that prudence will give Mr García wiggle-room to bring some tangible improvement to the daily lives of most Peruvians.

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