Toledo-Trabajo is a slogan left over from last year's election campaign that is still widely evident on walls in towns and villages. It was a promise of work for voters who chose Alejandro Toledo, now Peru's head of state. Toledo won 52 percent of the popular vote in the second round of elections last June, with populist former president Alan Garcia coming in a very close second. Garcia continues to campaign aggressively against the Toledo government, opposing privatization of state assets and sending jitters through the private business community.
But on March 5, all Peru's political parties agreed to enter a national dialog with the government. (See box )
The government, managed by Prime Minister Roberto Dañino, is clear about how it plans to fulfill election promises: not through public largess and increased spending.
"We believe the only way you can have a head-on fight with poverty is by creating jobs. And the only way we can create jobs is by promoting private investment," he said in a recent interview.
"So we are trying to create an environment that is conducive to private investment, both national and foreign. To do that, we are spelling out very clear monetary, tax, customs and labor policies."
The key to attracting investments, Dañino believes, is not through offering tax incentives and the like, but stability and the rule of law.
Although in office little more than half a year, the new administration has had some success, bringing a four-year recession to an end and beginning a slow process of growth.
In 2002, Peru is estimated by the Inter-American Development Bank to increase its Gross Domestic Product of $54 billion by 4 percent. Inflation was -0.1 percent last year.
This is quite remarkable when you consider the economic stagnation throughout Latin America and the chaotic situation Peru has just left behind.
"The economic program is working despite very adverse conditions," Dañino said. "We come from four years of recession, an autocracy and unprecedented corruption. On top of that, we have September 11, which limited capital inflows, both foreign direct investment and financing for Latin America; we have raw material prices at their record lows in history, in real terms; and the neighborhood has not been at its best."
Peru's exports are primarily raw materials, with mining (copper, zinc, silver and gold) a key industry. It is also the world's largest exporter of fish meal.
Oil and gas production are increasing and a consortium led by Houston-based Hunt Oil is studying the export of liquefied natural gas to California to fuel electricity generation plants there. Peru itself currently enjoys a 50 percent surplus of electricity capacity.
Tourism, despite the attraction of world-class Machu Picchu and the Amazon rain forests, is still only a small industry, attracting about half a million visitors a year.
Adding increased apparel sales to the United States under an expanded Andean Trade Preferences Act is expected to add some $600 million a year to the current $7 billion in exports, estimates Samuel Gleiser, president of the Lima Chamber of Commerce.
But the government hopes to diversify its exports by improving its competitiveness across the board.
Using the World Economic Forum's eight criteria for assessing competitiveness, the government and private sector have linked up to improve efficiency and productivity in the economy, hoping to greatly improve Peru's WEF competitiveness ranking, currently 57 in the world.
"We want to bring Peru to a much better ranking," Dañino said, noting that, "the commercial flow of the world is mostly technology and services, and then value-added products, but not raw materials."
Dañino is at pains to show that the Toledo administration is not exclusively concerned with economic development. He described the government's policy as being "two rails of a railroad," one rail being economic development, the other social development.
Some 13 million Peruvians, 54 percent of the 25 million-strong population, live below the poverty line of $3 a day, while four million of these live on less than one dollar a day.
Toledo's programs on the social side of the tracks have attracted some international attention and support.
A consultative group meeting of industrialized nations in Madrid last October offered $1.8 billion to support health and education programs in Peru. The government had expected to raise no more than $400 million.
The millions of poor people are susceptible to populist propaganda, and the Toledo government is doing its best to stimulate job creation through investment to take ammunition from opposition politicians. Hence, tourism and agriculture, two labor-intensive industries, are favored for development.
Lima's streets are full of creative small entrepreneurs, selling everything from soft drinks to music CDs and books, or putting on juggling displays at stop lights to earn some change. There are few beggars.
Official statistics show urban unemployment to be around 7.5 percent, but underemployment 43 percent. With 25 percent of the population illiterate, it will take a lot of education and training to close these gaps.
For investors, though, Peru offers an excellent work force.
"They are great people: easy to train, loyal and never sick," exclaimed Filip Boyen, the head of Orient Express Hotels in Peru, which has three luxury properties in Peru (in Lima, Cuzco and Machu Picchu), as well as a privatized rail service.
Most international corporations in Peru are run well by local people, often with no foreign personnel at all, testifying to the high caliber of professionals in the country.
And several members of the current government returned from significant positions abroad to help develop their country. For example, both President Toledo and Minister of Transport Luis Chang had careers at the World Bank before returning to Peru.
With some of the richest mineral reserves in the world, with wonderful archeological sites, with perhaps the richest biodiversity of any nation on earth (in the Andes/Amazon basin), and, most important, with capable, hard-working people, Peru is set to develop well if given the necessary investments and trade opportunities.
"I think Peru has enormous potential," Dañino says.
