Peru's Toledo: "A Market Economy with a Human Face"


Whoever wins the Apr. 8 election in Peru faces the difficult task of rebuilding the political and legal institutions of a country laid low by the corruption of ousted President Alberto K. Fujimori (see "Bribes, Lies, and Videotape in Peru").The new President must also revitalize Peru's beleaguered economy, which is working at only about half its capacity. Well ahead in the polls is Alejandro Toledo, who led the campaign to force Fujimori out of office.

Branded a populist by his political opponents, Toledo says his priority will be to create jobs. But he also insists that he favors privatization and industry-friendly policies (see BW, 02/12/01, "This Time Around, Toledo Loves the Free Markets"). During his recent visit to the World Economic Forum in Davos, Toledo took time off to discuss his policies with European Economics Correspondent David Fairlamb. Here are edited excerpts from their conversation:

Q: Peru's economy is in deep recession. How do you plan to boost growth?

A: You're right. The economy is running at just 50% of capacity, the financial system is debilitated, and companies are heavily indebted as well as undercapitalized. Unemployment is painfully high. The most important thing we have to do is stimulate growth that will create jobs. We need growth of 7% a year over the next 10 years to get the country back on its feet and people back to work. To help do that, I will introduce tax incentives to encourage investment, especially in labor-intensive industries, such as tourism and agriculture. We will also continue privatizing state-owned industries. We will follow sound economic policies, but they will be expansionary ones.

Q: So, you believe in a market economy?

A: I believe in a market economy with a human face. I support private investment, both national and international. I believe that the role of government is to create the conditions for the private sector to flourish and spur modern and dynamic growth.

Q: What role will foreign investors play?

A: They will be crucial. I want to bring in at least $4.5 billion of foreign investment a year.

Q: What is your strategy for attracting that amount?

A: Peru during Fujimori's time was very corrupt, which put off lots of foreign investors. So a priority will be to stamp out corruption and ensure that we have a well-paid and independent judiciary that applies laws effectively and evenhandedly. The most important economic instrument is to have a strong, independent judicial system.

Q: You've talked about de-dollarizing the economy. How will you do that?

A: At present, 85% of credits in Peru are in dollars, which is not a healthy situation, because it means people do not trust the national currency and the economy behind it. In addition, being so dependent on the dollar makes us vulnerable to foreign exchange crises. To reduce the dollar's role, we plan to pursue sound economic policies that will strengthen trust in the national currency.

Q: Does that mean you'll want a very tight monetary policy?

A: I want a sound monetary policy but also one that takes social needs into account. The ultimate aim should not simply be to keep inflation low but to reduce poverty and create jobs.

Q: How are your relations with the new Bush Administration?

A: Good.

Q: What about Peru's trading relations with the U.S. Do you favor a free-trade agreement?

A: The NAFTA between Canada, the U.S., and Mexico has been very successful. I

believe that it is important for us to build similar relationships with our near neighbors. That's why I will increase our links with Mercosur and the Andean Pact. That is not inconsistent with an FTA with the U.S.

Q: What about trade with Europe?

A: We need access to European markets. It is a real problem for countries like Peru when economic blocks like Europe protect their agriculture and other industries. We need to export our agricultural products, and I'm calling on Europe to be more open. If elected, one of my priorities will be to try and persuade Europe and other countries to open their markets to our goods. We don't want charity from the developed world. We want equal treatment, we want access to markets, we want to be able to place our agricultural products and other exports there.

Q: You're described as a populist. Are you one?

A: No. I am putting forward sound policies for the good of the country. I have learned that you can eat democracy and freedom and that they create prosperity and jobs. Some people say we aren't ready for democracy and that we need strong government to encourage investment and foster economic growth. But the fact is that it is preferable to invest in a democracy rather than a dictatorship. So the utmost priority is to build sound democratic institutions. But saying that certainly doesn't mean I am populist.


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