The Anatomy of an Economic Failure: Peru 1968-78

Daniel M. Schydlowsky and Juan J. Wicht

No 262902, Center for Latin American Development Studies Discussion Papers from Boston University

Abstract: Peru is undergoing its current crisis as a result of having vigorously adopted a development strategy (import substituting 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 their adoption of exchange and import control served to aggravate the inherent tendencies and overborrowing 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 were 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.

Keywords: Industrial Organization; International Development (search for similar items in EconPapers)
Pages: 118
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Persistent link: https://EconPapers.repec.org/RePEc:ags:cladsp:262902

DOI: 10.22004/ag.econ.262902

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