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Evolution of Peru’s Economy

1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

However, there were also macroeconomic CHART Nº 1. GDP per Capita (1994 Soles) imbalances resulting from the enforcement of 7,000 the import substitution model, mainly State 6,000 financing through local lending and the print5,000 ing of unbacked currency through the Central 4,000 Reserve Bank of Peru (BCRP) and through the 3,000 foreign debt level, which soared from $ 158 2,000 1,000 million in 1962 to $ 3,066 in 1975 to cover 0 the need for capital created by a model that ended up accelerating imports even further to the detriment of exports. This resulted in Source: Central Reserve Bank of Peru Prepared by the authors inflation processes, fiscal deficit and problems in the balance of payments. The import substitution model continued to be applied over the 1970s and 1980s, with cyclical and recurring crises. The application of a set of heterodox policies toward the second half of the 1980s ended up collapsing an import substitution model that had been exhausted many years before and had not moved toward a more open model in a context in which the world was already undergoing an economic globalization process that should have also been embraced by Peru. In the late 1980s, Peru was hit by its worst economic crisis ever, with an unprecedented hyperinflation process (with inflation standing at 7,649% in 1990), fiscal deficit of –6.2% of GDP, negative international reserves of $ 317 million (1988), a collapse in the production sector that translated into a fall in the physical volume of manufacturing output of more than 38% between 1987 and 1991, and the resulting social consequences, reflected in a fall in real salaries and wages, a reduction in social expenditure from 130.32 soles per capita in 1985 to 41.27 soles per capita in 1990 (measured in 1991 new soles),3 a rise in poverty from 43.1% to 53.6% between 1985 and 1991;4 and Peru being ostracized by the international financial community on account of it defaulting on its foreign debt obligations, which in 1990 stood at about US$20 billion. To sum up, based on the GDP per capita indicator, the almost 30 years of application of the import substitution model in Peru caused a fall from 4,095 soles (base 1994) in 1962 to 3,800 soles (base 1994) in 1990. This negative result materialized through the worst social, economic and financial crisis to hit Peru in the last 60 years.

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1.3. Market Development and Trade Liberalization Model: 1990–2006 The economic and social crisis in the late 1980s led to a serious evaluation of the closed economy and import substitution model, which had not produced the expected results. Furthermore, the 3

Informe de Coyuntura Primer Semestre 1992, Universidad del Pacífico, 1992 (Situation Report, First Semester 1992, Pacific University, 1992) 4 Niveles de Vida Perú, Subidas y Caídas (Standard of Living in Perú, Rises and Falls) ENNIV 1991, Instituto Cuanto, 1993

mobilizing aid for trade: focus on latin america and the caribbean: proceedings of the regional r...  

this report was prepared by the integration and trade sector (int) as a contribution to the regional meeting on mobilizing aid for trade: la...

mobilizing aid for trade: focus on latin america and the caribbean: proceedings of the regional r...  

this report was prepared by the integration and trade sector (int) as a contribution to the regional meeting on mobilizing aid for trade: la...

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