Peru is burning a hole in its pocket

A girl I know is out shopping for a new TV with her mom right this very moment. The mother recently “came into a bit of money” as they say and she’s been keen to splurge on some nice things for herself and her family. Fair enough, particularly because the mom happens to be a retired schoolteacher who in years past certainly didn’t have all the luxuries I’ve enjoyed throughout my life.

In macro context the picture is a bit more complicated. Consumer spending and consumer credit in Peru are growing rapidly even while the economy as a whole has been slowing. If you think that might be a risky combination, I suspect you belong to a dwindling group of people who possess what was once known as common sense.

Peru’s economy and foreign currency inflows are heavily dependent on mining but there are relatively few “slam dunk” mining projects in the near future pipeline. Forget what the stuffed suits in Lima might say, I’ve talked to quite a few out-of-work mining engineers here in Cusco who are moonlighting as taxi drivers until they get called up for their next project and from what I hear, the pipeline is not particularly hot.

There’s probably a defensible argument to be made that if there is a bubble, we’re still in the early stages. If you feel like you can time these sorts of things and can stomach the risk, there’s still time for money to be made if you invest in the right places and get out at the right time.

However, I’m not interested in investing or buying stuff. I have 3 kids that for the moment are still growing up in Peru and I’m interested in the things that affect a deeper quality of life, the stuff that really matters beyond consumer goods. I’d like to see nicer parks, better hospitals, better schools, safer roads. I’d like to breathe cleaner air and have less potholes too. I wish there were much better residential neighborhoods, zoning, urban planning. A lick of paint wouldn’t hurt 95% of homes in Cusco. Speaking of homes, I wish there existed an acceptable system of recording titles and ownership in Peru so fools like me who pay taxes can actually take out a mortgage. I wish there were a sound financial system so people who carry around wads of cash are held accountable for the way they made those riches and if legitimately earned, pay a small slice of taxes so that all of the foregoing is actually possible, presuming there were a non-corrupt and competent public sector.

It’s a shame that all of the macro economic growth that Peru has enjoyed in the past 2 decades has only generated consumption and done little or nothing to affect true quality of life. Surely this isn’t a unique Peru problem but now that the economy is slowing down it will be interesting to see how the powers that be choose to address the challenge, more trickle down economics or make the hard decision to pursue real reform in the public sector, judiciary, the financial system, education, etc?

4 thoughts on “Peru is burning a hole in its pocket

    • Thanks Lyle! Hope you guys are doing well. BTW we were recently in Huarocondo to try out the new “road” from Huarocondo to Ollantaytambo. One of the locals selling lechon in the town square convinced me to try it out, he said the road was in good shape and that the “don’t take this road” signs were only there because the road department folks had forgotten to take them down. We didn’t have any big problems but I’m not planning to take that “road” again for a few years maybe, until the sides of the mountains stabilize 😉

      • We are doing well thanks. We used to take the road all the time when they were working on it, and you do have to keep an eye up when traveling during the rainy season. Take care.

  1. I just encountered your blog and it is so amazingly interesting to read your perspective as an ex-pat living in Peru. I grew up in Peru and am now living in the United States. Loved blog post, I fully agree. I hope you will continue writing

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