#26 The Anatomy of and Economic Failure: Peru, 1968-1978
By Daniel M. Schydlowsky and Juan J. Wicht
This paper was presented at the November 2- 4, 1978 Workshop on "The Peruvian Experiment Reconsidered" organized by the Latin American Program of the Woodrow Wilson International Center for Scholars.
Summary
Peru is undergoing its current crisis as a result of having vigorously adopted a development strategy (import subsituting industrialization) which caused the sectors demanding foreign exchange to grow more rapidly than the sector supplying foreign exchange. The reform measures adopted by the Military Government, as well as its adoption of exchange and import control, served to aggravate the inherent tendencies; overborroing postponed the crisis while making it substantially worse.
The attempted stabilization has been unsuccessful due principally to a misdiagnosis of the situation as one of general excess demand, while capacity in industry was grossly underutilized and a large part of the labor force was un- and underemployed.
A strategy based on industrial production for export could have achieved many of the Revolution's goals, if started in 1969. Even if adopted to counter the crisis in 1975, such a strategy could have brought growth towards equilibrium rather than inflation and recession with balance only in the external accounts. Unless Peru reorients its growth strategy in a way that preserves balance between the sectors that demand and supply foreign exchange, the present situation will cyclically recur.
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