A failed labour reform exposes the limits of pragmatism
OLLANTA HUMALA is Latin America’s political weather vane. A former army officer, in 2006 he ran for Peru’s presidency (and lost) as a sympathiser of Hugo Chávez, his campaign financed in part by Venezuelan money. In 2011 he ran again, this time as a disciple of Brazil’s left-leaning but pragmatic former president, known as Lula, calling for “a great transformation”. To win a run-off election that year he moved further to the centre, promising to maintain the liberal economic policies that helped to give Peru the fastest growth rate of South America’s larger economies over the previous decade.
In office, that is what he has done, while recently drifting to a kind of mild populism of the centre-right—the default mode of Peruvian politics since the 1990s. His government has a schizophrenic quality. It has been marked by a superficial instability—he is on his sixth prime minister and sixth interior minister—and an undercurrent of intrigue.
The most recent scandal involves claims by opposition leaders and some of the president’s former supporters that they have been spied upon. The current interior minister, Daniel Urresti, is a retired army general who is being investigated on a charge of murdering a journalist during the war against the Shining Path terrorist group in the 1980s. Mr Urresti has helped to push up the president’s approval rating by behaving as a hyperactive police chief, forever seeking headlines even as crime worsens.
At the same time Mr Humala has appointed a core of capable technocrats to run socio-economic policies. His government is undertaking an overhaul of the country’s schools, and encouraging innovation and diversification of the economy. It is trying to free projects for new roads and metro lines from the red tape that binds them to the drawing board.
Such efforts are urgent and should go further. The end of the commodity boom has hit Peru hard. The economy grew by 2.4% last year, less than half the government’s forecast. Alonso Segura, the finance minister, insists growth will rebound to 4.8% in 2015. But there is no reason to believe the performance will be any better this year than last. The fall in the price of copper, Peru’s biggest export, will offset cheaper imports of oil products. Public investment will slow because newly elected regional governors and mayors are still figuring out how to do their jobs.
The finance ministry’s forecasts have lost credibility. It has misdiagnosed a permanent structural shock as a temporary lack of demand. It shovelled money at the economy last year, with tax cuts and extra bonuses for lower-paid public workers. This would have been better spent on attracting better teachers and administrators: a lack of proper finance is undermining the education reform and another aimed at professionalising the civil service. But Mr Humala has blocked this, because he fears criticism of wage rises for senior public servants, says one insider.
While Mr Humala accepts the need for structural reforms, his efforts have been timid. Two-thirds of Peruvians work in the informal sector, bereft of all labour protection. Fearing union opposition, the president vetoed the economic team’s plan to liberalise Peru’s extraordinarily rigid labour legislation. Instead in December Congress approved a measure encouraging employers to hire 18-24-year-olds under a slightly more flexible regime. Modest though it was, this law prompted marches by thousands of students. On January 26th Congress decided the law was not worth the fuss and repealed it.
In a country that has lost faith in its political leaders, Mr Humala’s approval rating of around 30% compares favourably with that of his predecessors at the same stage in their terms. In 2011 his coalition, called Gana Peru, won 47 of the 130 seats in Congress. But his legislators were elected on his Lula-esque platform; 13 have deserted him, either because of his rightward shift or over palace intrigues. He risks losing control over the legislature in the final 18 months of his government.
Sadly for Peru, that means it is unlikely to get the reforms it needs to cope with the tougher economic world it now faces. In today’s Latin America, it is hardly alone in that. Whatever his failings in tackling corruption, Mexico’s Enrique Peña Nieto, with his ambitious reforms of energy and telecoms, stands out as an exception. “It is not by chance that reforms are so difficult,” observed Fernando Henrique Cardoso, who as Brazil’s president in the 1990s enacted many. Reforms require conviction, communication and the mobilisation of the potential winners, usually a more diffuse group than the losers. On these counts Mr Humala is letting Peruvians down.