“Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Last week in my adopted home town of Arequipa, Peru, there was a 24 hour strike by transport workers. You probably didn’t hear much about it, but all the same it happened. The modus operandi of strikers was a tried and tested one; roadblocks cut main roads inside cities as well as all major routes between towns and cities. No buses, no taxis, no interprovincial travel, schools closed for the day (with the side-effect of one happy daughter). The whole of the southern region of Peru was for all intents and purposes paralyzed. This strike action is set to be repeated with a 48 hour strike slated for July 11th and 12th, which might make a couple of headlines as Arequipa and the neighbouring Puno region form a critical part of the expanding and highly lucrative Peruvian tourist industry. With the August high season just around the corner, further strikes fuelled by local grievances could eventually affect the national GDP and may dampen enthusiasm amongst tourists for Peru in years to come. Nobody wants to spend 3 nights of a 14 night tour stuck in the same place, possibly missing out on their booked visit to Machu Picchu or Lake Titicaca.
Ostensibly, the reason for last week’s strike was the sudden hike in the price of fuel. World barrel prices combined with certain Peruvian governmental policies (that can wait for another day for a fuller explanation) made prices jump an average of 15% in one day at the beginning of June. Looking round town this morning, the lowest price I saw for 84 octane fuel (the most popular seller) was S/.11.20 (with the exchange rate currently at U$1=S/.3.16, that’s U$3.54 per US gallon). And although Peru is a net importer of petroleum, the near 50% rise in pump prices in recent years doesn’t seem to show itself in the inflation figures published by Peru’s official statistics department, the INEI.
Source: INEI Peru
However behind the headline reason for the strike is something far more disconcerting. In innumerable conversations with locals of all walks of life, this analyst has heard variations of “I’m worse off now than 5 years ago” these last few months. Again, anecdotals can be supplied. Yesterday, chicken was 10% more per kilo than just a week ago in the local market. The reason; “feed prices”. Mangos this year (which are magnificent by the way) cost 60% more per kilo, as “China bought them all”. Bus fares have just gone up from S/.0.60 to S/.0.70 (“fuel costs”, one hardly needs point out). While paying U$0.30 for a long ride into the centre of town may still seem cheap to the reader, a 16.7% hike such as this makes a big difference to household budgets that often have both adult members travelling into and out of town every working day. All in all, Peruvian inflation figures are as (un)reliable as those in Argentina, and seem to balance the price of beer (down 10% since Brahma introduced much needed competition into the sector) with milk (up 10% in the same period. Source: my wife, so don’t argue). Of the two, I know which one is more fundamental to the wellbeing of society.
It’s not all bad, of course. For example, those invested in the Lima bourse have had a wonderful 18 months financially, but local investors are almost to a person the comfortable ABC1s, that small percentage controlling a disproportionately large amount of the wealth (a Latin American classic, no?). During the Toledo mandate, economic policy was called “el goteo” (translate as “the drip”, but read as our old friend “trickledown economics”). Since Alan Garcia took over, the word “goteo” might have disappeared from the political dictionary but economic policy has basically remained unaltered.
Source: INEI Peru
Exports, of course, have been the key to the well-publicized economic success story. There’s little need to ram down the throats of an RGE Monitor audience detailed figures explaining the rise of metals commodity prices over the last 5 years, but suffice to say that according to latest World Bank figures, 58% of Peruvian exports are made up of mining products.
So despite the clear and undisputed economic boom going on in today’s Peru, the complaint from average working Peruvians is that the rich are richer and the poor are poorer. Not a new message by any means, but what may be changing is the populace’s patience.
Another strike action (that has even made a few English-speaking headlines) started this weekend. Workers at Southern Copper (PCU) have gone on indefinite strike to demand a U$4.70 per day increase. PCU has offered them U$1 per day. The strike (declared “illegal” by the government, for what it’s worth) has shut down operations at the two main pits and coastal smelter complex.
At a pinch, the strike at PCU can be taken as a microcosm for the macro situation as a whole. Without going into micro-analytic details and speaking of the sector in general terms, mining companies are making a lot of money thanks to the commodities price boom, but even though they have benefited from wage rises in recent times workers feel they deserve a larger slice of pie.
But how much truth is there behind workers’ claims? The following chart would seem to back up the case that trickledown is not raising the general standard of living.
Since 2004, average salaries in Peru have basically remained static. If we go back further, from the year 2000 to date, average monthly wages have risen from around S/.2300 to S/.2600, a rise of approximately 13% which has only managed to discount same period inflation. Put simply, ordinary people are not getting richer. It would seem that official government statistics back up those anecdotals.
Source: INEI Perú
So where has all the money gone? If average salaries have not outstripped inflation and led to a better standard of living for the average Peruvian, the wealth that has undoubtedly been created inside the state recently must be hiding somewhere else.
At least part of the answer is “it’s gone abroad”. In the final chart, we see remittances of profits by international companies in Peru compared to overseas investment in the area. My thanks to Jürgen Schuldt, economics professor, Vice Rector of Universitad del Pacífico Lima and all-round good egg for this chart. The red line represents remittances while the blue line represents foreign investment in the same period, the scale being in millions of US dollars.
When compared to annual exports in the previous chart, we see that over 30% of all export revenues collected by Peru in 2006 went abroad as net profits for the multinational companies involved in their production.
I submit there is juxtaposition between the glowing economic reviews enjoyed by Peru in 2007 and the reality of life in the country. While the world queues up to praise Peruvian macro, its own people are turning their backs on the government they elected only last year. When a population is told year after year that their country is growing at a record-beating pace that bears little relation to their own personal financial stagnation, those that proclaim would do well to remember what sometimes happened to messengers in ancient Sparta. Meanwhile those that praise Peru today could quickly change tune if the majority moved towards more the more populist policies currently found in other parts of Latin America.
In June 2006, the more establishment policies proposed by Alan Garcia beat out the more reactionary nationalist candidacy of Ollanta Humala. Contrary to most people’s impression the election was quite a close run thing, Garcia winning the runoff by 53% to 47%. 12 months on opinion polls show that Garcia’s honeymoon period is well and truly over, with presidential approval ratings down from as high as 75% to today’s 42% and dropping. With the grassroots discontent of watching pump prices rocket the same week as hearing the government plan to pre-pay Paris Club debt, cries of “Why can’t they subsidize fuel instead of paying off the rich bankers?” are common, and all the technical debate amongst economists merely obfuscates and irritates. Patience is beginning to wear thin where it matters most.
Nationalist, populist policies and leaders do not just spring from nowhere. If the present economic expansion benefits only the small minority and does not bring tangible benefits to the general population, only the ignorant amongst today’s winners in Peru would be able to throw up their hands and wail tomorrow if the country decided to elect a new figure on a different platform. Democracy is alive and well in Peru, and those in power today would do well to remember that fact.