Lost In Peru

While everybody is focused on the Middle East, right below us Latin America is turning Communist one country at a time. Rich in Natural Resources, these defacto dictators will have the ability to stay in power for decades while they accumulate personal wealth that Castro could only dream of.

From IBD:
Posted 4/11/2006

Latin America: It looks like Peru's election will bring a new leftist strongman to the region. That's sad, given how much progress Peru has made in recent years.

There's still tallying to do. But if trends continue, the winner will be far-left Ollanta Humala, followed by Peru's disastrous ex-president, Alan Garcia. The unpromising pair will face off for a final round in May. Hard to say which would be worse.

Humala's a verified human-rights violator who tortured peasants as an army officer in the 1990s. He's also an admirer of dictators, like Peru's last one, Juan Velasco, remembered in the U.S. for holding U.S. tuna boats hostage. More serious still, he's in the pocket of Venezuela's Hugo Chavez, who's made no secret of his desire for a new ally. He plans to follow Chavez's model for consolidation of power.

Humala has loads of crazy ideas; the worst is his plan to nationalize Peru's mineral resources by breaking contracts, and then use the cash to finance pork-barrel spending for a new welfare class.

Peru's copper and other mineral exports have helped spark at least 40 straight months of economic growth, around 5% since 2001. Hundreds of millions of dollars of foreign investment have been attracted, much of it fleeing the confiscating hand of the leftist government in Bolivia. With foreign investors about to be declared the enemy, Peru is about to see how fast investment can exit. Peru's markets — stocks, bonds and currency — already are tanking on the prospect.

Garcia is a former Peruvian president who already destroyed Peru's economy once. As president from 1985 to 1990, he brought in 7,000% hyperinflation and defaulted on Peru's national debt. His mismanagement also brought Peru a near-death experience, with the murderous Shining Path Maoist guerrillas nearly taking over.

What's saddest is that third candidate Lourdes Flores, who probably won't make the runoff, was a genuine free marketer with a realistic plan to create opportunities and cut regulations for small businesses to empower the poor. A believer in free trade, she sought to make Peru a credible rival to the Asian tigers of the Far East.
Her Cabinet chief was to be the great economist Hernando de Soto, whose world-class work has shown how property rights can become the basis for access to capital and the rule of law. That team would have made Peru a shining star on the world stage.

The problem with Humala and Garcia is that they actually believe Peru's wealth lies in its natural resources. What they fail to grasp is that the real treasure lies in the development of its people. Not as state dependents, but as value creators.

That's never going to happen with land confiscation, contract breaking and welfare programs. With years of such leadership ahead, Peru will be the loser.