|
Peru Nationalizations and State Firms
The industrialization drive was meant to be primarily a
Peruvian process not totally excluding foreign investors
but
definitely not welcoming them warmly. In that spirit, the
Velasco
regime immediately nationalized IPC in October 1968 and,
not long
after that, the largest copper mining company, while
taking over
other foreign firms more peacefully through buy-outs. The
government put into place new restrictions on foreign
investment
in Peru and led the way to a regional agreement, the
Andean Pact (see Glossary),
that featured some of the most extensive
controls
on foreign investment yet attempted in the developing
world.
The decision to nationalize the foreign oil firm was
immensely popular in Peru. It was seen as a legitimate
response
to many years of close collaboration between the company,
which
performed political favors, and a series of possibly selfinterested Peruvian presidents, who, in exchange,
preserved the
company's exclusive drilling rights. Nationalization was
perhaps
less a matter of an economic program than a reaction to a
public
grievance, a reaction bound to increase public support for
the
new government.
Subsequent nationalizations and purchases of foreign
firms
were more explicitly manifestations of the goals of
building up
state ownership and reducing foreign influence in Peru.
The
leaders of the military government subscribed firmly to
the ideas of
dependency analysis (see Glossary),
placing much of the blame
for problems of development on external influences through
trade and foreign investment. Foreign ownership of natural
resources in particular was seen as a way of taking away the country's
basic wealth on terms that allowed most of the gains to go
abroad. Ownership of the resources was expected to bring in
revenue to the government, and to the country, that would otherwise
have been lost.
In contrast to its abrupt nationalization of the IPC
and then
of the largest copper mining company, the government
turned
mainly to purchases through negotiation to acquire the
property
of the International Telephone and Telegraph Company (ITT)
and
foreign banks. Partly in response to United States
reactions to
the earlier nationalizations, and perhaps also partly in
response
to the realization that foreign investment might play a
positive
role in the industrialization drive, the government began
to take
a milder position toward foreign firms. But at the same
time, it
pursued a policy of creating new state-owned firms, in a
sense
competing for position against domestic private ownership,
as
well as against foreign ownership.
State ownership of firms was, of course, consistent
with the
nationalizations but reflected a different kind of policy
objective. Whereas the nationalizations were intended to
gain
greater Peruvian control over the country's resources and
to
reduce the scope of foreign influence, the proliferation
of
state-owned firms was meant to increase direct control by
the
government over the economy. State firms were seen as a
means to
implement government economic policies more directly than
possible when working through private firms, whether
domestic or
foreign-owned. The goal was not to eliminate the private
sector--
it was encouraged at the same time by tax favors and
protection--
but to create a strong public sector to lead the way
toward the
kind of economy favored by the state.
The new state firms created in this period established
a
significant share of public ownership in the modern sector
of the
economy. By 1975 they accounted for over half of mining
output
and a fifth of industrial output. One set of estimates
indicates
that enterprises under state ownership came to account for
a
higher share of value added than domestic private capital:
26
percent of GDP for the state firms, compared with 22
percent for
domestic private firms. The share produced by
foreign-owned firms
dropped to 8 percent from 21 percent prior to the Velasco
government's reforms.
Contrary to the expectation that the earnings of the
state
firms would provide an important source of public
financing for
development, these companies became almost immediately a
collective drain. In some measure, the drain was a result
of
decisions by the government to hold down their prices in
order to
lessen inflation or to subsidize consumers. In addition,
deficits
of the state-owned firms were aggravated by the spending
tendencies of the military officers placed in charge of
company
management and by inadequate attention to costs of
production.
The collective deficits of the state enterprises plus the
subsidies paid directly to them by the government reached
3
percent of GDP by 1975. State enterprises were not able to
finance more than about one-fourth of their investment
spending.
The government attempted to answer the investment
requirements of
the state firms by allowing them to borrow abroad for
imported
equipment and supplies. They did so on a large scale. The
external debt rose swiftly, for this and for other reasons
discussed below.
Nationalizations and the creation of new state firms
stopped
abruptly after Velasco lost power. In 1980 the Belaúnde
government announced a program to privatize most of the
state
firms, but it proved difficult to find private buyers, and
few of
the firms were actually sold. In the opposite direction,
the
subsequent García government, in addition to nationalizing
in
1985 the offshore oil production of the Belco Corporation,
a
United States company, tried in 1987 to extend state
ownership
over banks remaining in private hands. The attempted
banking
nationalization created a storm of protest and was
eventually
ruled to be illegal. The failures under both Belaúnde and
García
to change the balance left the state-enterprise sector
basically
intact until Fujimori implemented major changes.
Data as of September 1992
|
