Economic Liberalization, Distribution and Poverty

Economic Liberalization, Distribution and Poverty

Latin America in the 1990s

Edited by Rob Vos, Lance Taylor and Ricardo Paes de Barros

Since the late 1980s, almost all Latin American countries have undergone a series of far-reaching economic reforms, particularly in the areas of financial and capital account liberalization and trade. This book provides a comparative and analytical framework for assessing the impact of these reforms upon 16 countries in Latin America and the Caribbean, including: Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, and Peru.

Chapter 10: Peru: stabilization, liberalization and inequality

Juan José Díaz, Jaime Saavedra and Máximo Torero

Subjects: development studies, development economics, economics and finance, development economics


1 Juan José Díaz, Jaime Saavedra and Máximo Torero 10.1 INTRODUCTION The 1990s started with the implementation of structural reforms that fundamentally changed the functioning of the Peruvian economy. The economic reorientation consisted of increasing the role of the market so as to make relative prices the main resource allocation mechanism. The reforms aimed at establishing a relative price structure that reflected the relative scarcity and abundance of goods and services. The government started a series of reforms geared toward reducing government intervention and eliminating governmentinduced market distortions. The initial reforms comprised the liberalization of foreign trade, a tax reform, public sector restructuring and eliminating state monopolies in trade of fuels and some food products. Some reforms targeted market flexibilization and a beginning was made with the liberalization of the labour market. The financial system and the current account of the balance of payments were liberalized and deregulated. There was also an aggressive privatization of public enterprises. At the beginning, the reform process encountered little political resistance because of the chaotic economic situation at the end of the 1980s. Hyperinflation caused a dramatic reduction of real incomes and informal employment expanded during the economic turmoil. Fiscal and external imbalances were generated under highly interventionist government policies. GDP fell by almost 20 per cent in real terms and inflation exceeded 7,000 per cent in 1988–90. In July 1990 a drastic stabilization programme was implemented to fix these imbalances. This initiated the reform process. One...

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