The Economist: Poverty amid progress
A revolution in South America's fastest-growing economy is not reaching everyone.
BLOCKS of flats or offices are under construction on nearly every street. New hotels and restaurants sprout on every corner, while shopping centres multiply in what were once shantytowns. Across the city, thoroughfares have been torn up to make way for new bus lanes and terminals. Such is the anarchic volume of traffic that just crossing the street has become a time-consuming and perilous exercise. Lima, Peru's capital of 8m people, is shedding its former air of provincial lassitude and turning into a bustling metropolis.
The city is the visible face of a boom that has made Peru South America's fastest-growing economy (see chart). That performance owes much to record prices for mineral exports. But newer export products, from designer cotton T-shirts to mangoes and artichokes, are also flourishing. As well as trade, private investment, growing at 20% a year, and domestic consumption are driving the economy forward at an accelerating pace (in the year to February, GDP grew by 9.2%).
Thanks to high world prices for food and fuel, inflation has spiked to 5.5%, having been low for years. Nevertheless, the growth looks to be built on solid foundations. The national savings rate has risen to 24% of GDP, high by regional standards, and the government last year posted a fiscal surplus of 3% of GDP. A free-trade agreement with the United States is about to come into effect. In recognition of such achievements, Peru's debt was awarded an investment-grade credit rating last month by Fitch, a ratings agency.
Yet there are paradoxes at the heart of the boom. Despite the growth, poverty has fallen only slowly. And many Peruvians are disgruntled. The president, Alan García, was once a radical populist who presided over hyperinflation and debt default in a first term in office in the 1980s. He returned to office in 2006 a reformed character. But his people give him little credit for the strong economy. He is one of the least popular presidents in Latin America, with an approval rating of just 26% in a poll taken in the main cities in April by Ipsos-Apoyo, a pollster.
There are several reasons for the relatively slow fall in poverty. Although the number of formal-sector jobs is expanding at 9% a year, many Peruvians still labour in the informal sector of unregistered businesses, where productivity is low. Wages for the unskilled have been slow to rise. ...