When Peruvian President Dina Boluarte was sworn in on Dec. 7 as her country’s sixth leader in the past four years, virtually all news reports pointed out that Peru is one of the world’s most unstable countries — and a total mess.
But, in fact, it isn’t.
As strange as it may sound, Peru may be one of Latin America’s most stable nations: It has a staunchly independent Central Bank, led by the same no-nonsense economist for the past 16 years, and a relatively solid economy.
Peru has one of the lowest inflation rates in Latin America, and the region’s biggest foreign reserves in relation to its economy. Peruvian heads of state come and go, but the economy has been humming along for the past three decades.
Julio Velarde, 70, the chairman of Peru’s Central Bank, has remained in his job without much drama. He has served, uninterrupted, since 2006, and had previously been a member of the bank’s board in the 1990s, and in the early 2000s.
Velarde has survived both right-wing and leftist presidents. He was last appointed to a new five-year term that expires in 2026 by former left-wing president Pedro Castillo, who took office last year after running on a Marxist party platform.
Castillo was sacked by Congress Dec. 7 after he tried to carry out a coup by announcing the dissolution of the parliament shortly before legislators were to vote on his ouster on corruption charges. Boluarte, also a leftist who was elected on the Marxist Perú Libre party platform but left the party in January, is the third vice president who has become president over the past four years.
Despite Peru’s political turmoil, the economy is expected to grow by 3% this year, about the region’s average. It is projected to grow by 2.9% next year, which would be more than Latin America’s expected average growth.
Peru’s annual inflation will be 8.2% this year, compared with nearly 100% in Argentina, and 160% in Venezuela. While several countries in the region have had hyper-inflationary periods, Peru’s inflation has remained in single digits since 1997.
Perú’s foreign-currency reserves are at $74 billion, among the highest in South America, and the highest in the region in relation to the size of its economy.
When I called him a day after Boluarte’s inauguration and asked him whether he fears being fired every time a new president takes office, Velarde responded, matter of factly, “not really.”
“There have never been important conflicts with the executive power, nor threats to the autonomy of the Central Bank,” Velarde told me. “The Central Bank’s autonomy is well guaranteed in Perú.”
Ironically, Peru’s Central Bank has been safer from presidential attacks than the U.S. Federal Reserve, whose former chairman, Jerome Powell, was repeatedly criticized in public in 2018 by then-President Trump, Peruvian economists note.
As for the secrets of Perú’s relative economic stability, in addition to the Central Bank’s independence, Velarde told me that the country’s floating exchange rate, under which Peruvians have long been allowed to save in U.S. dollars, has helped maintain economic stability.
Unlike in most Latin American countries, Peruvians can legally change their local currency for U.S. dollars or euros, and deposit their savings in foreign currency in Peruvian banks. That has helped reduce, although not stop, capital flight.
“The possibility of having your savings in other currencies in your country’s financial system lessens the pressures for capital flight,” Velarde told me.
Obviously, Peru would be doing significantly better if it didn’t have its chaotic political system, in which more than a dozen parties are constantly warring and conspiring to topple the president du jour. Peru’s presidential candidates often win the first-round elections with less than 20% of the vote and can’t build political coalitions once in power.
Still, it’s amazing how much Peru has grown in recent decades despite its political turmoil. The next time you read that Peru is the most unstable country in Latin America, take it with a grain of salt.
Yes, its politics are a mess, but the country has more economic stability than many of its neighbors. Its secret is having a fiercely independent Central Bank.
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