December 12, 2006
By Stephen Johnson
At a time when an anti-U.S. leader like Venezuela's Hugo Chavez
is doing everything to drive a wedge between Latin America and the
United States, you would think American lawmakers would be eager to
confirm free-trade agreements with allies such as Peru. But with
trade pacts facing an uphill climb on Capitol Hill these days, what
should be a shoo-in is looking iffy.
What a shame, especially considering that Peru's new president
Alan Garcia -- once a raging populist -- has come to favor open
markets and trade opportunities. During his first term from 1985 to
1990, Garcia's social spending nearly bankrupted the treasury,
inflation raged at 7,000 percent, and guerrilla groups ransacked
the countryside. His second term, which began on July 28, has
nowhere to go but up.
So far, it seems headed that way. Predecessor Alejandro Toledo
left office with the country at peace and an economy growing at 5
percent annually. Despite Garcia's narrow win over
ultra-nationalist Ollanta Humala -- who wanted to close borders and
make Peru dependent on Venezuelan aid -- the president seems to
have gained public support for his idea of plugging the country
into the global marketplace.
On the campaign stump, Garcia expressed skepticism of the
proposed U.S.-Peru Trade Promotion Agreement. His party opposed it,
and the pact seemed unpopular with voters. Now in office, he has
made trade a central issue and hired renowned economist and author
Hernando de Soto (The Mystery of Capital) to put it to work. Both
say trade must lift up the poor, calling the idea "internal free
trade" or "free trade for the poor."
A majority of Peruvians think the government may be on to
something. But the turnaround was no easy feat. By themselves,
trade openings mostly benefit existing industries that are able to
increase output. While trade negotiators tout growth in gross
domestic product (GDP) that comes from dropping tariffs, the
effects of removing trade barriers can be almost unnoticeable to
More sales opportunities won't help new enterprises deal with
cumbersome licensing requirements, weak property rights, and a
culture where personal connections matter more than reliable legal
systems. That's where de Soto's plans come in. He insists that even
the poorest entrepreneurs should have access to the same legal
privileges as the country's elite. That can happen only if laws and
institutions work equally for everybody.
Recent history shows how important this is. Despite substantial
GDP growth produced by the North American Free Trade Agreement,
Mexico's living standards haven't kept pace with economic growth.
Its congress, dominated by old-time political elites, largely
resisted reforms proposed by former President Vicente Fox to make
it easier for everyone to own an enterprise or enter into
During his first stint as Peru's president, Alan Garcia thought
government should be a sugar-daddy -- providing for everyone's
welfare. Now he seems to be accepting its role as a regulator to
ensure a level playing field for both rich and poor. On Oct. 10, he
was in Washington meeting with U.S. President George Bush to
explain plans to spread trade gains more evenly. The same day, the
Inter-American Development Bank said it would back Peru with
Garcia was only 35 when first elected -- more idealist than
pragmatist. He still suffers judgment lapses, having just
acknowledged a child born out of wedlock. Yet signs of an economic
awakening were evident when he ran unsuccessfully for president in
2001, arguing in favor of attracting foreign investment. In his
2003 book, Globalization with Social Justice, he tried to reconcile
open markets with the socialism of his APRA party.
While Garcia may be an unlikely ally in expanding free markets
in the western hemisphere, the United States should not squander
the quadruple opportunity that a U.S.-Peru pact presents:
What's more, both President Garcia and Hernando de Soto have
identified what's missing in most discourse about free trade -- how
it should benefit all citizens, especially the poor. Postponing or
denying approval of a U.S.-Peru FTA would be a geo-political
blunder, convincing neighbors that the United States has turned
insular. And it would punish Peru for doing the right thing --
trying to open its markets.
is senior policy analyst for Latin America in the Davis Institute
for International Studies at The Heritage Foundation.
First Appeared in the Washington Post's Think Tank Town
At a time when an anti-U.S. leader like Venezuela's Hugo Chavez is doing everything to drive a wedge between Latin America and the United States, you would think American lawmakers would be eager to confirm free-trade agreements with allies such as Peru.
Senior Policy Analyst
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