Populist measures applied between the 1970s and 1980s generated a severe impact on the national economy, to the point of delaying in more than three decades the Economy growth of the country, warned the president of the Central Reserve Bank (BCR), Julio Velarde.
During the master conference “The role of monetary policy and the foundations of the Peruvian economy”, held at the San Pablo Catholic University, in Arequipa, Velarde explained that the combination of subsidies, fiscal deficits, protectionist policies and absence of exchange adjustments led to an inflationary spiral that marked a whole generation.
“After 1973 a huge deficit began to be seen because we imported oil at a five -time price, and it was decided not to move that increase to the consumer, but subsidize it. This generated an imbalance in the commercial balance and flowed into a crisis that was accentuated in the second half of the seventies,” he recalled.
The result was a growing inflation: it went from a digit in the first half of the seventies (7.5%), two digits in the second half of that decade, then three digits in the first half of the eighties and, finally, four digits in the second half of that decade. “Only in 1990 began the adjustment that allowed, with a gradual process, that Peru reaches the least inflation in the world today,” he said.
Velarde stressed that the consequences of that hyperinflation were devastating. In the 1980s, the product fell more than 10% in three consecutive exercises. According to estimates, the Peruvian economy recently recovered the level of 1967 in 2003, which meant 36 years of stagnation. “We were more than three decades without growing due to a macroeconomic defrost. That is impossible to recover,” he said.
The economist added that, even if Peru had grown in those years to “the poor rates we grow now” around 2.4% per year, the product would have expanded in 150% in that period. “Instead of growing five times since 1950, we would have grown eight times. We wouldn’t be so poor,” he said.
Velarde also stressed that this phenomenon was not exclusive to Peru. Much of Latin America, he said, lagged in front of Asia since the sixties and seventies due to macroeconomic mismanagement, at the closure of markets and high tariff policies. “In a high inflation environment, where price signals are unclear to assign resources, growth is necessarily affected,” he said.
Finally, he pointed out that Peru today is in a more solid position, with more stable macroeconomic foundations, although the experience of these decades should serve as a reminder about the cost of populist decisions.
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