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Peru Protection and Promotion of Industry
Along with the intention of resolving internal class
conflict, the Velasco government determined to lessen
Peru's
dependency on the outside world. The two most important
components of the strategy were a drive to promote rapid
industrialization and an attack on the role of foreign
firms. In
contrast to the industrialization strategies of most other
Latin
American countries, the intention of the Velasco regime
was to
industrialize without welcoming foreign investment.
The preceding Belaúnde administration had started Peru
on the
path of protection to promote industry, and in this
respect the
Velasco government reinforced rather than reversed the
existing
strategy. Beyond the usual recourse to high tariffs,
Velasco's
government adopted the Industrial Community Law of 1970
that gave
any industrialist on the register of manufacturers the
right to
demand prohibition of any imports competing with his
products. No
questions of exceptionally high costs of production, poor
product
quality, or monopolistic positions fostered by excluding
import
competition were allowed to get in the way. Before the
succeeding
government of General Francisco Morales Bermúdez Cerrutti
(1975-
80) began to clean up the battery of protective exclusions
in
1978, the average tariff rate reached 66 percent,
accompanied by
quantitative restrictions on 2,890 specific tariff
positions.
In addition to the protective measures, the Velasco
government promoted industrial investment by granting
major tax
exemptions, as well as tariff exemptions on imports used
by
manufacturers in production. The fiscal benefits given
industrialists through these measures equaled 92 percent
of total
internal financing of industrial investment in the years
1971
through 1975.
Investment rose strongly in response to these measures,
as
well as to the concurrent rise in aggregate demand. But
the tax
exemptions also contributed to a rising public-sector
deficit and
thereby to the beginning of serious inflationary pressure.
In
addition, the exemptions from tariffs given to
industrialists on
their own imports of equipment and supplies led to a
strong rise
in the ratio of imports to production for the industrial
sector.
Data as of September 1992
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