AMERICA ECONOMIA
America Economi­a is Latin America's leading business magazine, founded in 1986 by Elias Selman and Nils Strandberg. Headquartered in Santiago, Chile, it features a region-wide monthly edition and regularly updated articles online, as well as country-specific editions in Chile, Brazil, Ecuador and Mexico.
Future
Sol Park

Latin America's Copycat Startups: Thieving Or Innovation?

Across the region, entrepreneurs have been hailed for taking innovative ideas inspired elsewhere and applying them nationally or regionally. But the business and ethical dynamics involved are not so simple.

SANTIAGO — When Chazki, a Peruvian courier startup, entered the market in 2015, its founders described it as "the Uber of logistics." It made sense. The firm initially recruited freelance collaborators, not to carry passengers, but deliver purchased items in their "last mile."

The Uber tag stuck though, as tags have done with other regional startups: Mercado Libre was "Argentina's eBay," Nubank the "Revolut of Brazil," and Rappi was the WeChat of Colombia. Indeed, many Latin American firms are termed copycat startups for replicating successful business models conceived in developed hubs like the Silicon Valley.

This isn't new in the business world. Popular Latin American e-trading platforms like Linio and Dafiti were created by the German incubator Rocket Internet, which replicates successful digital startups for developing markets and often ends up selling them to the original developers.

Some see this as crass thieving (a charge thrown at Rocket Internet in 2012), but not everyone. Is the retailing giant Falabella just a copy of Macy's, asks Federico Antoni, a co-founder of the Mexican venture capital firm ALLVP? Is Mexico's Banorte a knock off Wells Fargo?

"The important thing is not what inspired the founders of Cornershop (a Chilean version of the U.S. delivery app Instacart) or Nubank, but how they adapted to the market and became a giant company," he says.

In the case of Chazki, founder Gonzalo Begazo himself described it as the Uber of logistics, but also pointed out in an interview that it had developed its own technology and practices to meet the needs of Peruvian customers.

It's not because you did things well in one country that you can go next door and do exactly the same.

Today the firm allows clients to send and receive packages in a day or sooner, and to track them. This is new in a region where customers might wait weeks, if not months, for an online purchase to arrive. The firm has partnered with Falabella in Chile, Peru and Colombia, and its customers include Mercado Libre, Walmart, Amazon and Nestlé. Its sales increased 600% in 2020, and the target for 2021 is to increase sales from $10 million to $35 million.

Latin flavor

Chazki's country manager in Chile, Felipe Rivas-Struque, worked with firms based outside the region like Rappi, Cabify and PedidosYa, and says the "natural mistake would be to want to bring the way they do things outside to the region." Part of Chazki's success, he says, is that "we're Latinos and work for Latinos."

In fact, local markets will likely prevent a "cut and paste" solution as their needs will force entrepreneurs to "tropicalize" their product. As Claudio Barahona, managing partner of the Chilean venture capital firm Alaya Capital, explains: "Consumer cultures and habits" and the purchasing power of customers differ sharply between the United States, Chile and other regional countries.

Alaya's portfolio includes Rocketpin, an Uber-type firm that provides services for customers (like checking a site or getting a document signed). Barahona says that in the United States, people may work with such firms to supplement their revenues. In Latin America, in contrast, it's their job. That completely changes the business model and how users view its services and workers.

Rivas-Struque points to differences between Latin American states. Paying in cash for example, remains a sensible option in Peru, but less so in Chile, where banking services are pervasive. The right strategy for expansion, he says, "is not to be complacent."

"It's not because you did things well in one country that you can go next door and do exactly the same, because it won't work as well," Rivas-Struque explains. "That's why local market knowledge is so important, as are local good practices and 100% local implementation."

Delivery app Rappi was described as the WeChat of Colombia — Photo: Sebastian Barros/NurPhoto via ZUMA Press

Andrés Sarrazola is the founder of Ayenda, a reservations platform for small hotels, often termed a copy of Oyo, the Indian version that grouped small hotels under a brand that brought them business and assured quality for guests. Sarrazola says Ayenda's model arose from conversations with newcomers in the hotel business, and attributes its success to "our being Latin Americans."

Ayenda has a team of 50 people visiting independent hotels to persuade them to join the project. "They have coffee and spend time creating a relationship that goes beyond just a number," he explains. "Foreign executives could not relate to local partners this way."

Copycats compete efficiently with original brands, not just by expanding geographically but through more services attuned to local needs. Mercado Libre, which took its inspiration from eBay, did this, and its services now include digital payments, advertising and property sales and rentals. The firm emerged in the 1990s.

"eBay launched into Latin America in that period and could never compete," says Federico Antoni. "Today, Mercado Libre is not just very different but much bigger."

We can't underestimate the impact a copycat can have on people's lives.

Ayenda's Sarrazola says local versions may not be the first with an idea, "but what we can do is to be the best."

"I" for innovation

Fernanda Cahen, a professor at the private FEI University in Sao Paulo, says the innovation of copycats from Brazil or Latin America should be assessed in the local context, not in comparison with advanced economies. She cites different types of innovation. First, scientific, which transforms objects and creates disruptive products — like the iPhone — and requires big investments. These generally happen in advanced economies.

Then there are "frugal" innovations, derived from local needs, Caheln explains. This leads firms to even transform a high-tech product to meet local needs for people with less money. "It's not an iPhone, but a good enough," she says.

The third type is what copycats do: innovating with and adapting software or business models. Cahen says that in a "young ecosystem, with a difficult institutional environment, if a technological firm, even one that copies, can grow and develop into a big firm, it's impressive."

Such firms are particularly attractive to investors. "We like startups that are resolving some of the region's big problems. We don't ask if it's a copycat or not," says ALLVP's Antoni.

With Ayenda hotels, Sarrazola says the firm linked numerous, small hotels with a digital reservation system that brought them business. Few had this before.

"We made hundreds of thousands of guests loyal customers of our chain, which benefits our hotel partners as they start receiving a large volume of clients," he explains. Ayenda now has more than 300 hotels in Colombia, Peru and Mexico, and grew 150% in 2020, in spite of the pandemic.

Claudio Barahona points out that copycat startups can have a "vital" impact locally. Nubank, for example, "isn't a digital bank just to be cool, but solves the problem of access to finance for millions of people in Latin America," he explains. "We can't underestimate the impact a copycat can have on people's lives."

Conservative investment attitudes in Latin America tend to favor copycats, as investing in a new firm is seen as risky or slow to yield returns. But this may be changing, with big regional firms more willing to invest in scientific or biotechnology firms.

In time, the copycat model may even lose steam. But by then, these same firms may be well placed to act as the region's technological innovators or investors in home-grown science and biotechnology, giving a further boost to the consumer markets they understood and served with intelligence.

Geopolitics
Carlos Escaffi

Peru: Will The Real José Pedro Castillo Please Stand Up?

A source of major concern for investors and the economic and political elite, Peru's freshly-inaugurated leftist president is now trying to make nice. What happens next, though, is anybody's guess.

-Analysis-

LIMA — Forty three days after the last votes were cast in Peru's presidential runoff, the country's electoral authority officially proclaimed as president-elect José Pedro Castillo Terrones, a socialist schoolteacher from Cajamarca in northern Peru. His inauguration, on July 28, coincides with the 200th anniversary of Peru's independence.

This was a narrow victory that had to ride a wave of challenges and calls to recount votes from Castillo's rival, Keiko Fujimori.

The 51-year-old Castillo is a Catholic and the spouse, for 21 years, to Lilia Paredes, also a teacher though evangelical. He has three children. In his youth, he was a member of the village "patrols' or rondas that kept the peace in the countryside and later resisted the violent Shining Path insurgency in the 1980s. He represents a break, in other words, from the country's ruling elite, established parties and dominant economic groups, and reached the presidency on the back of the votes of the Andean peasantry.

Castillo is giving representation to a sector of the population that has mostly been excluded from the country's socio-economic system.

Castillo is giving representation to a sector of the population that has mostly been excluded from the country's socio-economic system, and his discourse offers them hope of inclusion finally in a country that is often reluctant to give them visibility and recognition. His message centers around simple declarations such as "No more paupers in a rich country," statements directed at all those who have for decades felt sidelined and unseen, and that raise considerable social and welfare expectations.

While campaigning, the president-elect promised reforms to healthcare, education and farming, but also a million jobs a year. Above all, he has vowed to call a constituent assembly to write a new constitution within six months. The current one, he claims, unduly favors the free-market economy.

Castillo" in Peru's capital Lima on July 20 — Photo: EC/GDA/ZUMA

But Castillo also vowed, once his victory was confirmed, to reject "any bid to bring a model of hate. We shan't permit any imported model. This constitution remains in force until the people decide otherwise." Furthermore, he has promised juridical and economic stability for businesses, responding to the conservative Fujimori's calls not to "put up more obstacles' to the economy.

The president-elect promised reforms to healthcare, education and farming, but also a million jobs a year.

Castillo needs to be moderate, something it appears he has begun to understand. Part of that is the need to emit reassuring signals, both to rating agencies and to investors waiting to see what his final postures will be on a range of issues including investments, employment, COVID vaccinations and pandemic management. His earlier declarations in favor of nationalizations and state interventionism alarmed big, foreign investors. And yet, in June, he insisted: "We're not Chavistas or communists. Nobody has come to destabilize this country. We're workers, fighters and entrepreneurs."

Moderation must transcend words, and requires an understanding of what confidence-building entails. It also means working with parliament. The executive and legislative branches cannot continue to be at loggerheads as they have in the past five years, a period in which Peru had five presidents. Parliament will likely closely observe any bid to reform the constitutional principle of presidential incapacity or parliament's powers to sack the president, as it has in past years.

In short, the new president will have to forge pacts and build alliances to implement his promises on health, welfare and jobs, and to build his vision of national dignity and a Peru free of class and ethnic prejudices.

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Geopolitics
Luis Rubio

President AMLO's Misguided Nostalgia Creeps Toward Despotism

Mexico's socialist president is determined to restore a 'strong' presidency he believes will put things right in Mexico. To many, he is starting to look like another tropical dictator of sort.

-OpEd-

MEXICO CITY — Napoleon Bonaparte once declared that one must be petty to win power, but high-minded and generous in its exercise. Three years into his presidency, Mexico's Andrés Manuel López Obrador (AMLO) seems only to have grasped the "petty" part. He doesn't — or refuses to — understand the difference.

Instead of governing, which he has said is "so easy," he has devoted himself to dividing Mexicans while he forwards his own agenda. That essentially consists of sweeping away everything pertaining to the last 40 years. It is entirely understandable, as his project clashes head-on with the reform policies and gradual development of state institutions undertaken over four decades.

People protest against Mexican President Andrés Manuel Lopez Obrador in Mexico City — Photo: Jose Pazos Fabian/EFE/ ZUMA

What he wants is to build on his own vision of how this country should work. That means reviving his recollection of Mexican history, and as he remembers it, a society living a golden age in the 1970s, under an all-powerful presidency. In this mental caricature of our recent history, the president could impose his will, which meant the country worked, the economy grew and there was order. Those of us who remember the 1970s know that the decade's two presidents, Luis Echeverría and José López Portillo, were precisely the initiators of a period of economic instability that would soon run out of control.

The author of a book on the palace at Versailles once observed that King Louis XIV had built it, Louis XV enjoyed it, and Louis XVI paid for it. Mexico's history in the mid-20th century isn't so different. Stabilizing development allowed the economy to grow, Echeverría and López Portillo (who presided over the so-called "tragic 12 years') enjoyed its fruits and in the 1980s, Mexicans had to pay for their leaders' frivolity and (personal, political and financial) recklessness.

He isn't just peddling nostalgia, but an extravagant dream that may become a nightmare.

The 1980s were a convulsive period. There was an economic crisis and almost hyper-inflation, excessive debt, tremendous anger and distrust, and repeated attempts to restore a semblance of order and stability in all aspects of national life. Various attempts to return to the period of stabilizing growth failed, until the country finally realized this was no longer possible. This was because the world, and Mexico, had changed; and that led the country into a period of political and economic reforms. These were partial and unequal, but without a doubt restored a measure of political and economic order in the country. Their costs however included loss of control over parts of the country and rising crime.

A key part of those reforms was to build institutions (including a new Supreme Court, an electoral body and an independent rights commission) meant to instill confidence among the public, businesses and other sectors of society. The new institutions were not all equally effective, but had a shared logic: to confer certainty, and act as checks to an all-powerful executive branch. The aim (at least) was to move toward a modern economy and democratic society.

Former U.S. President Jimmy Carter and former Mexican president José López Portillo toast during a luncheon hosted by the President of Mexico in 1979 — Photo: Public Domain

The problem for Mexico is that the presidential vision is sharply at odds with realities and public expectations in the 21st century. Many ordinary folk voted for AMLO, either believing in him or out of disgust at the state of things. Yet he isn't just peddling a nostalgic foray into the past, but an extravagant dream that may become a nightmare. This may well be why the presidential party took a drubbing in recent, regional and legislative elections.

As the Chinese journalist Deng Yuwen has observed, the essence of democracy is to restrict the power of the state, while an unfettered concentration of powers is the ultimate cause of social problems. President AMLO is starting to get a taste of both.

Geopolitics
Natalia Vera and Héctor Cancino

EVs Start Moving Latin American Cities To Sustainability

Electric vehicles are a novelty with promise in Latin America and are already expanding in several of its city bus fleets.

SANTIAGO — It's a distance of 1,150 kilometers, a 12-hour car journey, between Temuco in southern Chile and La Serena in the north. Now, you can drive this distance with an electric car, thanks to a network of charging points placed throughout the 1,400-kilometer length of Chile by Copec Voltex, a firm providing electromobility solutions.

The head of the firm's B2C (business-to-consumer) Commercial Projects Director, Alan Morgan Rojas, says Copec realized electromobility was "coming to stay," hence its decision to enter into recharging infrastructures, "which has a fundamental role. The question this scenario prompts is which comes first, electric cars or charging infrastructure? Without charging points at service stations connecting the country, automobile brands would find it difficult to risk bringing them out if they couldn't even leave Santiago, for example."

Morgan says that with electric cars arriving on the market, charging solutions at home and in public spaces will follow, expanding to different sectors like industry and public transport. "There are many programs like Mi taxi eléctrico, which we'll join and include a home charging solution for drivers. Programs like this encourage the arrival of more electric vehicles, which will mean wider public access. One of the restrictions today is precisely their high price."

Electromobility has started and it won't stop

Tamara Berríos, country manager in Chile for BYD, a Chinese electric carmaker, believes fleets of electric buses will trigger the expansion of e-vehicles in Latin America. "Electromobility has started and it won't stop. It has started in mass public transportation and should naturally flow toward expanding in more cities that are taking an interest, copying the model of cities like Santiago, Bogotá and Medellín, which can already absorb an electric fleet. The next step has to be taxis. We've made all the progress with public transport because buses are not sold individually but in fleets, which is key. It is important to go for markets with a large volume of mass public transport. That way you can absorb a small percentage of that volume, which still gives you an attractive number allowing competitive prices."

BYD currently has 400 buses in Bogotá, 50 in Medellín, 20 in Guayaquil, 15 in Mendoza in Argentina, 30 in Montevideo and 30 in Brazil. It has 435 of its e-buses operating with the Santiago bus system. Other firms eyeing the e-bus market include the world's big carmakers, Tesla, Hyundai, BMW, Nissan and Toyota.

Luis Felipe Clavel, e-vehicles business development chief at Nissan, says, "electric vehicles are happening now, and we're living this across the region. We're so convinced of it we were the first brand to produce and develop electric vehicles on a mass scale in 2010. That was our Nissan Leaf, which we market in eight Latin American countries." He said the firm is working with firms in related tech sectors, like charging infrastructure, to "help introduce e-mobility."

BYD electric vehicles that will be used to encourage the transition from fossil-fuel taxis in Santiago, Chile — Photo: Xinhua/ ZUMA Press

He cited pricing as key to the market's expansion. He said that when the price of a lithium battery, calculated as kWh (kilowatts per hour), drops below U.S. $100/kWh, demand for e-vehicles should rise. The price was around $2,500/kWh in 2010, when Nissan launched its first e-vehicle, and "today we're around $400," says Clavel, adding, "we're seeing a downward trend and hopefully between 2025 and 2030 the $100 barrier will be crossed, which will make this technology more accessible to consumers. We hope the retail boom will happen around those dates."

In 2020, in spite of the coronavirus pandemic, e-vehicle sales grew by 40.9% year-on-year, constituting 4% of all vehicle sales, according to the data analysis firm GlobalData. Indeed, other firms believe growth could be fast enough to prompt a shortage of batteries by 2030.

The three executives from BYD, Nissan and Copec Voltex spoke to América Economía at an E-mobility and Transport module in our online Energy Conference. They agreed Chile was currently ahead of the region in fomenting an e-mobility market. Berríos of BYD said initiatives begun in 2017 were now bearing fruit. "In Chile today we have six Chinese bus brands that are 100% electric, which arrived after us and have given the market a push in lowering prices. Some competing with us in this market are also competitors in Colombia, Mexico, Argentina and Peru, which are countries slowly creating fleets. BYD is the brand with most e-buses across the Americas."

E-mobility has come to stay in Latin America

The firm, she says, wants to expand into trucks and all long-haul vehicles that will benefit from cutting operation and maintenance costs.

Alan Morgan of Copec Voltex cited the need to expand regulations in this youthful sector, and welcomed Chile's new regulations on installing charging points at home for e-vehicles. The government also needed to find financing mechanisms for sectors like taxis, which he said would help boost demand.

For Nissan's Luis Clavel, Latin America had one advantage over Europe, in the prevalence of parkings in most if not all residential buildings. Unlike Europe's older buildings, many of which have no car parking, he said, these could host charging points allowing people to charge their car and drive out every morning. He said charging infrastructure inside cities was a priority over facilities between cities.

E-mobility has thus come to stay in Latin America. Retail prices and availability of charging facilities will now decide how far and fast it will progress across the continent.

Society
Daniela Arce

From Europe To Latin America, Business Schools Are Going Green

Institutions tasked with training the next generation of business leaders are realizing that sustainability matters, and making significant adjustments to their curriculae.

SANTIAGO — The ESCP Business School, based in Paris but with campuses across Europe, recently opened a sustainability department. The goal is to shift away from traditional courses on corporate responsibility and instead train students and staff to understand and innovate along sustainability lines, a concept that is of growing interest to the business world.

Roxana Olaru, head of admissions and sustainability at ESCP Madrid, says the school has been working with sustainability for at least four years, "through consultancy projects and the creation of various, specialized masters courses." All MBA programs, she said, now have a sustainability module.

Another business school, Madrid's IE University, is boosting by 25% the hours devoted to social and environmental initiatives for students and staff and in its labs and workshops. And four yeras ago, ESADE, also in Madrid, created an Observatory of Sustainable Development Objectives as part of its Chair of Leaderships to evaluate how Spanish businesses were implementing the government's Agenda 2030 on decarbonization.

With sustainability's increasing relevance to all business sectors, it should come as no surprise that it's also an area of greater focus in business schools. Many have taken steps to enact one or more of the UN's 17 Sustainable Development goals, and some are even asking whether or not they contribute something specifically positive to society.

Results from a 2020 poll by the consulting firm Deloitte showed that despite the pandemic, millennials continue to prioritize environmental sustainability, socio-cultural diversity and inclusion, and expect corporations to do the same.

Businesses schools have gotten the memo, it appears, and are thus placing more emphasis on environmental, social and governance issues.

"The simple but fundamental reason is that these are places where people who will occupy leadership positions in all areas of society are trained," says María José Murcia, an assistant professor at the IAE Business School in Argentina. "These are the people who will be responsible for generating and creating conditions for global sustainability."

In addition to events and workshops such as the recent "sustainability week" at ESADE Madrid, "these issues must be woven into the fabric of curricula," says Marcos Sepulveda, head of LLYC, a corporate relations firm in Chile. "Universities must act as agents of change because pupils learn, incorporate knowledge and get to know experiences for application in the near future."

A new set of priorities

Business schools are adapting to the new scenario both in response to increased awareness among citizens and because firms understand the current economic model may soon threaten competitiveness and talent recruitment. And they're taking concrete steps, through one-off programs and curricular changes.

In 2019, the HEC business school Paris, one of eight partners in the Creative Destruction Lab, a nonprofit body that runs a science and technology-based program for firms, announced a new consultancy program, CDL Climate, aimed at 25 startups working on solutions to climate change. In Madrid, ESCP has a sustainable jobs fair, scheduled for October 2021.

In terms of teaching, there is the bachelor's program in transformational business and social impact at IE in Madrid, or ESADE's Sustainable Management and Agenda 2030, for executives. Other courses are being equipped with environmental or sustainability modules.

Paloma Baena, a senior executive at Chile's LLYC, says sustainability will not so much determine the success as "the survival" of firms in the future.

Proud and green at ESADE

"We can speak of a change in social attitudes," she says. "Firms ultimately live off what they can produce, and thus sell and offer as a service. And consumers are increasingly looking for other types of products or products that respect the environment, the people who make them and safety measures."

Investors, Baena explains, are also starting to hold corporations to account over sustainability.

Regional innovation

In Latin America, in the meantime, schools and universities in Colombia, Peru and Chile are gradually including environmental and social themes into studies. "Sustainability is becoming vital to the survival of firms," says Horacio Arredondo, a vice-dean of postgraduate studies at Chile's UAI business school. "But still, this wave of changes is essentially led by developed countries and economies."

Peru's Pacífico business school includes ethics and social responsibility courses in all its masters programs, which also address some basic notions of corporate governance. The UAI has launched an entire Corporate Governance Center, indicating the importance it gives it in raising the value of organizations, and a masters course in sustainable business. The school has also organized events and talks open to students and the public, like the New Agenda and Managing the Crisis.

Colombia's Universidad del Norte is moving ahead as well after making a sustainability declaration known as the DuNord Ecofriendly manifesto. Goals include the efficient use of power and water. And courses now include sustainability modules, says Camilo A. Mejía, head of the business school's Innovation and Sustainable Development Centre.

The university has likewise begun outreach and volunteer programs to involve students with the community and its specific problems. "There are also research initiatives applied to sustainability issues, not just in course subjects but also as an MBA graduation option," Mejía explains.

Ideas
Carlos Escaffi*

In Chile, Between Healthy Change And Outright Chaos

The social explosion of 2019, a referendum the following year, and last month's 'mega election' have pushed the country in a whole new direction. But is there any method to the madness?

-OpEd-

Chile recently held what was described here as a "mega election." On May 15 and 16, voters not only chose new governors, mayors and district councilors, but also the assembly members who will have the historic task of drafting the country's new constitution.

The election follows last year's referendum, in October, on whether to forge a new constitution and thus scrap the existing one (which dates back to 1980, when Chile was still in a dictatorship under Augusto Pinochet). The vote was overwhelming: 78% of people backed the creation of a new constitution, and 79% decided it should be written by a fully elected Constituent Assembly.

That's part of context, as is the social explosion that took place in late 2019, a year before the plebiscite. And the lesson drawn from all this is that people are blatantly rejecting the current system, the political establishment and all our familiar people and practices, including the very model of politics to which we've ascribed for decades.

People have sought to explain the mega-election results with sophisms and excuses. They say that nobody could see this coming. Others — people here and there who managed to retain a mayorship or a few city council seats — respond with an absurd complacency. Either way, we are not considering the problem at its roots. There is no real or specific expression of contrition.

A voting center in Santiago, on the first day of elections in Chile, May 15, 2021 — Photo: Matias Basualdo

From my modest point of view, there are signs that we are in a political transition not just here in Chile, but at the regional level, and that the recent vote was a crude expression of social protest. Never mind if it is deep or considered: The point is that change is imminent. In aggregate terms, the current voter cares little about what's really going on in the background.

Social and online trends have imposed themselves. I repeat, there is no background, just a poverty of ideas and real debate. The point was to change things, that and nothing more. Another great conclusion is that the consequences of all this will only emerge in time. Let's just hope we don't slide down the slope of populist payouts and a ballooning public sector with more governors, officials and hangers-on.

Looking at the bulk of the 155 constituent assembly members, I fear that the text they will design will come from the heart, not the mind. The problem is that a passionate, possibly overbearing text — one that will then have to be ratified, again through a referendum — is no good. Its scope and shelf-life will be limited.

Finally, it is clear to me that this is the hour, in Chile, of the millennials. We should not be surprised that a 30-year-old economist, Irací Hassler, should have become Santiago's first communist mayor. Nor that Macarena Ripamonti, a 29-year-old lawyer with the Democratic Revolution party, would be elected mayor of Viña del Mar, on the coast.

It may be harsh to say, but our conventional politicians must take responsibility for recent events, and even retire. Especially those who had no vision or responsibility with education!

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Geopolitics
Redacción AméricaEconomía

Peru Election: Democracy At Risk, Pick Your Poison For President

Peru's two presidential candidates are far from reassuring in their democratic commitments, but in a country that fought a civil war with Maoists, the communist-style Pedro Castillo may be the bigger threat.

-Analysis-

LIMA — On Sunday, Peru will choose its next president in the second round election runoff. Approximately two-thirds of voters have been forced to decide which of the two candidates constitutes the lesser evil, the arch-conservative Keiko Fujimori, or the schoolteacher with communist sympathies, Pedro Castillo.

Together they barely garnered 32% of votes in the first round. Pedro Castillo, head of the Perú Libre (Free Peru) party, had 19%, while Fujimori, daughter of the former, and currently jailed, president Alberto Fujimori, had barely 13%.

This paucity of votes reveals problems that have become structural in Peru: fragmentation, the gap between voters and the traditional parties, a crisis of governance and scandals that have led to four presidents over five years.

Peru's Congress, elected in that first round, contains 10 parties, and Castillo's Perú Libre has just 37 of 130 seats. For some years now, the legislature has been nothing but a grouping of parties that are formed and dissolved in line with shifting, personalized interests. That has made governing incredibly difficult.

Parliament has abused its powers to charge and oust ministers and presidents, waging a zero-sum game with the executive branch. Admittedly, the presidents barely helped as they themselves were personalities bereft of party support.

Neither candidate will strengthen democracy.

So democracy in Peru is in a bind. And that, we believe, is the most important criterion for evaluating the rival candidates. Unfortunately, neither has a clean, democratic slate.

Castillo represents a party that declares itself Marxist-Leninist and was formed around a personality who had to drop out of this race, having been convicted on corruption charges. That was Vladimir Cerrón, the former governor of the Junín province.

Castillo will probably emulate Mexico's Andrés Manuel López Obrador leadership style, using made-to-measure referendums to serve their own interests. One recently elected Perú Libre legislator, Guillermo Bermejo, vowed that once elected, they won't leave power. Castillo did not reprimand him. On press freedoms, the party espouses "the legacy of Lenin and Fidel," or Cuba's late dictator, affirming that "Marxism does not advocate press freedom but a press committed to its people's education and cohesion."

There are also charges and suspicions — some based on a recent inquiry by the newspaper El Comercio — that some party members have ties to the political arm of the half-defunct Shining Path, the Maoist guerrillas that fought the state in past years. Castillo emphatically denies such links. His economic program remains vague, but with a strong tendency toward nationalizations. Castillo's democratic credentials are thus weak, and unnerving.

Keiko Fujimori at an election rally in May 2021 — Photo: Denis Mayhua/dpa via ZUMA Press

Fujimori's are barely better. As daughter of the dictator Alberto Fujimori whom she has vowed to pardon if elected, she has had a highly charged political career. She has been adept at destabilizing governments using her party's clout. Today, she has promised a strong government, which is of particular concern coming from her. Nor are voters appeased by her ongoing prosecution over corruption.

Neither candidate will strengthen democracy, and both have espoused the populist narrative. Their social and economic recipes, while poles apart, promise public handouts, which usually serve to concentrate power. Most Peruvians share our concerns. Indeed, the candidates have been forced to swear an oath to respect democracy and human rights.

As Peru's preeminent novelist Mario Vargas Llosa has said, it's a choice between two ills, and we agree with him when he cites Castillo as the worst of the two, with a program that poses a direct threat to Peru's democratic institutions. He has threatened to dissolve parliament, restrict press freedoms and govern in the "name of the people" through referenda.

At least Fujimori has been active inside the institutions for decades. She has done it badly of course, as a consummate disrupter. But that was her field of action, and she stayed there. She will need the support of other parties to govern, and those that give it must clearly demand that she respect the institutions.

There is no reason for optimism in either case. Whichever candidate wins, the system's fragility will continue. He may attack the institutions, she may become a right-wing demagogue, and parliament will continue to undermine the executive. What Peru needs is a political renaissance to yield a modern, competitive and responsible political system. Neither Fujimori nor Castillo represent that, but the candidate of Free Peru is the bigger threat.

Geopolitics
Gonzalo Torrico*

China's Future Gateway To Latin America Is A Mega-Port In Peru

Despite local opposition, Chinese investors are pumping billions into the Chancay project, a massive port complex north of Lima that will boost trade between China and Latin America as a whole.

-Analysis-

LIMA — China's most important trading terminal with South America is being built 75 kilometers to the north of Lima, the Peruvian capital. Known as the Chancay port complex, it has an initial investment of $1.3 billion and will turn this fishing and farming town into a regional hub that could redefine shipping lines in the entire southern Pacific.

The port can count on the use of 800 hectares of adjacent land where the operating consortium will develop a logistical and industrial complex, with total investment costs expected to rise to $3 billion. Since 2019, the project's main stakeholder is the Chinese state firm Cosco Shipping Ports (60%), with Volcan, a mining subsidiary of Glencore of Switzerland, holding a 40% stake.

Cosco is a partner in 52 port projects worldwide. But in the Americas, Chancay is the first being built with Chinese capital. The complex is expected to be fully functional by 2024, helping consolidate China's influence in South America, and in Peru especially.

Is another commodities "supercycle" on the horizon?

In the last decade, this country has become the regional crux of China's economic and geopolitical interests. So far, Chinese firms have invested more than $30 billion in Peru, a figure exceeded only by money spent in Brazil. The principal sector is mining, which has absorbed more than half all these investments and has proven to be an excellent source for the mineral materials China needs to keep its industrial sector humming.

One of those materials is copper, which Peru produces in great supply. It is the world's second leading exporter of the metal, and exports two thirds of its total production to China, which controls two of Peru's main copper fields: Las Bambas (through MMG) and Toromocho (with Chinalco).

The two countries signed a Free Trade Treaty in 2010, which has reshaped Peru's trade balance. Since 2014, China has been its main trading partner, followed by the United States. In the past five years, Peru sent $58 billion worth of exports to China, compared to $33 billion to the United States. And in the coming years, given China's decisive mining interests, the gap could grow even more assuming, as some observers anticipate, that another commodities "supercycle" is on the horizon.

China is also pursuing a global integration strategy here through its Belt and Road Initiative, which promotes global infrastructures that favor its trade. Amid rivalries with the United States, it has signed agreements with 138 countries in spite of warnings from Washington that states risk becoming becoming over-indebted to China.

For its location, Peru is an important point on this New Silk Route. With its long swatch of Pacific coastline, it lies directly across from Asia, and can also become a link to Brazil and the Atlantic. In April 2019, the two states signed a memorandum of understanding for more investments within the Belt and Road Initiative.

Chancay is undoubtedly of great importance to China's global strategy to win itself markets. Indeed, Cosco Shipping Ports entered the port consortium two weeks after the said memorandum, paying $225 million to Volcan.

Other Belt and Road projects in Peru include the Amazonian Waterway, given to the Chinese state firm Sinohydro, which halted the project before numerous environmental objections, and the Transcontinental Railway, which would link Brazil's Santos port with Bayóvar in northern Peru.

All that glitters ...

Chancay's proximity to the port of Callao, which handles 71% of the country's shipped imports, would both reduce congestion there and develop economic activity outside Lima. Cosco estimates its initial investment would create 1,500 direct and 7,500 indirect jobs, and generate 300 new businesses locally.

In the first phase, the port would ship 6 million tons a year, though in response to local concerns, Volcan says Chancay would not ship out minerals — despite the fact that it's mining subsidiary and that China is the world's main copper buyer. The firm says it will instead redistribute goods arriving from Asia, and make Peru more competitive against Pacific rivals like Colombia and Chile.

Protest in Las Bambas, a mining zone in Peru — Photo: GDA/ZUMA

Nevertheless, people in and around Chancay are concerned by its impact on the local economy, which depends on far more than mining along. There is also farming and fishing, and civil society groups have questioned the project's construction standards and possible, environmental and social impact.

They say the complex will be inside the city of Chancay, and that explosions to reshape the bay have already damaged numerous residential buildings. The project is also expected to affect a local wetland, while dredging of the bay to allow the entry of the biggest container ships will ultimately impact fishing and marine life.

Peru owes a large part of its economic growth to China's enormous demand for natural resources.

The consortium made 89 environmental observations in its last diagnostic report on the project's environmental effects, though checking that document, non-governmental organizations observed omissions and mistaken methodologies to measure its effects. Still, Peru's environmental certification agency, SENACE, approved the project last December, overriding objections by civil society groups.

Peru owes a large part of its economic growth to China's enormous demand for natural resources. And yet, the latter's investments are leaving an indelible mark for many of the communities affected. These include social conflicts in mining zones like Morococha and Las Bambas, or native communities affected by the Amazonian Hydroway.

China is committed to more investments in Peru and its Belt and Road plans will intensify its activities. But the Peruvian state must insist on higher environmental standards, starting with the inclusion of an environmental chapter in current renegotiations of its Free Trade Treaty with China.

The two countries should commit to more than just economic interest. The also need to consider long-term sustainability and look to improve and protect the lives of people, especially with regards to the impact their projects have on local communities and the environment.

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Geopolitics
Diana Castro Salgado

Latin America Needs New Deal With China, For The Planet's Sake

Pummeled by the pandemic, the fragile economies of Latin America are desperate to recover. But is turning to China for loans and as a market for raw materials the best long-term solution?

-Analysis-

QUITO — The coronavirus pandemic has impacted humanity and all its forms of economic, social and political organization. This is not just a global health crisis, but the worst economic crisis since the Great Depression of the 1930s. And it's happening, furthermore, in one of the hottest years on record.

A year into the pandemic, Latin American countries are not just seeing more poverty, unemployment, insecurity, economic slowdowns and public spending gaps, but also some dire effects of climate change such as floods, droughts and deforestation, among others.

China is an important agent of this aggravated pollution, as its rapid growth over three decades has fueled demand for goods and services to meet its energy demands, provide food security and keep its industrial activity humming.

China's presence in Latin America has hastened environmental degradation.

China only has 7% of all arable lands and 6% of the world's water resources (ECLAC, 2017). Latin America, in contrast, has 24% of all forests and arable land, more than 30% of the world's water resources and extensive oil and mining resources (Isabel Studer, 2019).

Little wonder that China has had an increasingly marked presence in Latin America and the Caribbean, especially in the last decade. That presence has come about through four channels tied to the extraction of raw materials and related industries: trade (based on exchanging raw materials for manufactures), investments (concentrated on extractive sectors like oil, mining, coal and big farming), financing (mostly conditional on payment with oil or use of Chinese firms), and construction of mega-infrastructures (often in environmentally fragile and socially vulnerable territories).

All these activities have hastened environmental degradation through increased pollution and overuse of water resources, deforestation and expansion of farming lands, exhaustion of non-renewable resources, threats to the survival of local communities, and the renewed dependence of Latin American economies on primary or raw materials.

A part of Peru's Amazonian forest devastated by illegal gold mining — Photo : Olivier Donnars

In 2020, measures taken by world governments to curb the spread of COVID-19 gave the planet a breather as fuel use, movement and industrial activity, and their emissions, slowed down. The lull was temporary, however, as large economies like China's are now focused on recovering their pre-pandemic production levels.

Meanwhile, vulnerable Latin American economies trying to revive their economies and meet public spending needs are turning to China for loans, or to renegotiate existing ones. That has meant shelving criticism of environmental problems that have emerged in the pandemic. Examples include the balsa wood frenzy in Amazonian lands, fed by growing Chinese demand (Águilar, 2021), and the presence of Chinese fishing fleets with dragnets in the territorial waters of Chile, Peru, Ecuador and Argentina (GFW, 2020).

But this scenario is also an opportunity to consider the possibility of structural reforms so as to move on from the extractive and unsustainable model that governs Sino-Latin American relations. China's recovery and the renewed impulse given to the Belt and Road initiative will bring new financing packages, infrastructure projects and investments in coming years.

Regional countries are thus at a crossroads in their relations with China. They can keep extracting resources for China, which is the model that marks all aspects of their relations (trade, investment, loans and infracture) and incidentally curtails efforts to build inclusive and sustainable societies. Or they can revise the big economic and financial models that sustain their links and strive to reduce their climate footprints. At this juncture, when entire nations have clearly shown vulnerability to natural events, the second option seems more viable.

Protecting the environment means reflecting on areas like access to drinking water, electricity and food security.

The pandemic has also brought some big steps to defend the environment. In China's case, it made changes last year to its investment strategy with the publication of several, environmentally-minded financing and development guidelines. These include obligating all its banks to use classification mechanisms and filters for projects within the Belt and Road initiative. The aim is to make environmental sustainability a decision-taking criterion in financing projects, both in China and abroad (Sálazar, 2021).

We may add to these the rise of several civic and environmental groups in China that have opened a dialogue with banks and firms.

In Latin America, the Escazú Accord, which regulates people's right to access environmental information and seek environmental justice, recently entered into force as a long-awaited pact to fortify regional environmental governance. It is also an important framework for the development of ties with China.

There are also innovative proposals like debt exchange for natural habitats (biodiversity finance), which China, as one of the world's main creditors, can consider with Latin American states. They can provide it with attractive opportunities to assert itself in the fields of climate and environment, while relieving part of the debt burden weighing on regional states.

Protecting the environment has become essential, and it means reflecting on areas like access to drinking water, electricity and food security. These and other areas are key to assuring a sustainable economic recovery from the pandemic, in a world where more than half of all GDP depends on nature. (F4B, 2020).

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Ideas
Farid Kahhat

Maduro's Crimes Don't Make Juan Guaido President Of Venezuela

More than two years after the opposition leader proclaimed himself the country's 'legitimate' leader, the man he was hoping to oust — President Nicolas Maduro — is still very much in charge.

-OpEd-

It's reasonable, here in Latin America, that left-wing politicians — as a way to establish their democratic credibility — would be asked to distance themselves from Venezuela's dictatorial regime. It's notable, here in Peru, both those who have and have not done so.

But taking a critical stand against the regime of Nicolás Maduro shouldn't automatically entail recognizing the liberal opposition chief Juan Guaidó as the legitimate president of Venezuela — for two reasons.

The first was offered by Luis Lacalle, when he assumed the presidency of Uruguay a little over a year ago. Lacalle, a conservative, didn't hesitate to call Maduro a dictator. And yet, he continues to recognize him as president. As Lacalle stated, "We recognize Juan Guaidó as president of the National Assembly, which is the country's legitimate organ. But we cannot take the step of recognizing him as president when Maduro is effectively exercising as president."

Calling Maduro a dictator does not legally turn Guaidó into president.

The second reason why calling Maduro a dictator does not legally turn Guaidó into president is that the latter is longer covered by the source of legitimacy he invoked when he first declared himself the constitutional, acting president.

Guaidó"s claim to the presidency is pursuant to Article 233 of the 1999 Constitution (promulgated by Maduro's predecessor, Hugo Chávez). The article stipulates that the president may be removed from office in case of "total absence," with instances including "abandonment of office as declared by the National Assembly." That is precisely what happened when Guaidó was speaker of the Assembly. And in such a case, according to Article 233, presidential powers then go to the Assembly head — to Guaidó himself.

That, in a nutshell, is the argument followed by those states that recognize him as president. But even if Guaidó did take over as president in constitutional terms, the continuity of his mandate is to be questioned — again, for two reasons.

Juan Guaido speaking in Caracas on March 3 —Photo: Jesus Vargas/dpa/ZUMA

The first is that the same Article 233 stated that if the president's total absence occurred in the first four years of his or her constitutional term, general elections were to be held within the next 30 days. Guaidó was sworn into office on Jan. 23, 2019, which means there should have been a presidential election in February.

More than two years later, he continues to say that he will call elections as soon as Maduro's "usurpation ends." But that is not what the constitution states. It is also an implicit recognition that it's Maduro, not himself, who still exercises presidential powers (as Lacalle says).

The second reason for questioning Guaidó"s claim to power is that, as noted, he assumed the presidency because he was speaker of parliament. But the mandate of the National Assembly elected in 2015, which he presided, ended on Jan. 5, 2021. That's why EU declarations have since then ceased to refer to him as "interim president."

For such reasons, even the Trump administration, which recognized Guaidó as president, proposed last year what it called a Democratic Transition Framework. The document, published in March 2020, asked both leaders to step aside and allow a third person to head a transitional presidency and call elections. The EU-led International Contact Group has furthermore recognized Maduro as an interlocutor in talks on a transition to democracy.

All of this follows years in which the main opposition leaders and the United States sought in vain to topple the regime. What we're seeing, in other words, is a shift toward political realism, which has taken precedence, it now appears, over ideological convictions.

Ideas
Luis Rubio

Post-Trump, Mexico Won't Rush To Reconcile With Washington

Mexican President López Obrador has made it clear that he prefers keeping the United States at arm's length.

-OpEd-

MEXICO CITY — When divorce is not an option, the parties must get on as best they can. That's the logic that Mexico and the United States have long followed over their shared border. And it isn't, as a quick look around the globe reminds us, the worst of arrangements.

Still, everything suggests the Mexican government, under President Andrés Manuel López Obrador (AMLO), wants a different relationship. What's not clear is whether it realizes that stirring the pot could lead to some nasty surprises.

It is no secret that the border presents complexities. And it's not just because of the multiple, interrelated issues involved, but also due to the different ways the dividing line is perceived.

The poet Octavio Paz wrote that this border was "political and historical, not geographical," to which he added the enormous cultural contrasts between the two nations. In fact, Mexico's main trait in the 20th century was its systematic attempt to keep its distance from the colossus to the north. As late as the 1960s, the Mexican economy's most successful period, some politicians here harbored fears still of a possible invasion.

It is no secret that the border presents complexities.

In the 1980s, during a seemingly unending economic crisis made far worse by political decisions (like expropriating banks), Mexico decided to change tack. There was a double logic to its decision, which stemmed first off from a rejection, finally, of the notion that a country could prosper with an economy isolated from the world.

Already in the 1960s the Mexican economy was beginning to show disconcerting tendencies that were covered up, but never overcome, with new sources of oil. That allowed the country to postpone for at least another decade the inevitable revision of its stabilizing development model.

The other reason that pushed the government closer to the United States was its search for an anchor. The Mexican economy had shrunk and become impoverished in the 1980s due to poor decisions taken in the 1970s and to the enormous distrust government decisions had generated.

Biden participating in a virtual bilateral meeting with Lopez Obrador in March 2021 — Photo: Adam Schultz/White House/ZUMA Wire/ZUMAPRESS.com

Relations with the United States were meant to generate confidence, and attract savings and investments for the country's development. The two economies had moved closer by then, cross-border assembly plants (maquiladoras) were prospering.

In the meantime, though, security issues had become both more dynamic and contentious. Migration was growing as well. Within a decade, in other words, sources of possible conflict between the two states had multiplied.

Initiatives on both sides finally yielded a free-trade pact, which was an initial accord that preceded further trade negotiations but proved crucial in the decades that followed. In 1988, the two governments adopted two principles that have allowed them to solve problems and ease relations, opening unprecedented opportunities for interaction.

The first was a shared vision on the neighborhood's future, including growing economic integration, rejection of jingoism or use of history to sow animosities, and expanding student and scholarly exchanges. The second principle was to resolve matters impeding the relationship without letting them infect other affairs. This was the principle of compartmentalization, which allowed them, until Donald Trump's arrival, to administer this complex relationship without too many headaches.

In 1988, the two governments adopted two principles to solve problems and ease relations.

The two principles have weakened but not disappeared in the last four years. First, presidents Trump and AMLO did not share the earlier vision of the future of this bilateral relationship. In fact, both preferred to return to the distance that preceded the 1980s. Second, by linking migration to Mexican exports, Trump effectively put a lid on compartmentalization.

President Joe Biden may recover the two principles, but everything suggests his intention is not shared on the Mexican side. And that's because, in his eagerness to recreate his idyllic world of the 1970s, President López Obrador wants to restore a relationship of "respect and sovereignty." That, he imagines, was the stuff of bilateral relations in that period.

The logic of his actions since Biden's election shows this interest in a more distanced, less exclusive relationship. He has courted China and Russia to that effect. I am convinced the Mexican government doesn't want a divorce, but a redefinition of relations. The question is, at what cost?

The current relationship is not only extraordinarily complex, requiring very particular management, but also deep-rooted and indispensable to both nations. Their economic interdependence is enormous and so great indeed that while Trump and AMLO may have preferred to blitz NAFTA, centripetal forces obliged them to ratify a renegotiated treaty.

The big question is, how to manage a relationship without a shared vision of its dynamics and future, and without the key to resolving differences, compartmentalization of issues? Dreaming of distance is easy, but in real life it has disappeared.

Geopolitics
Farid Kahhat

Making Sense Of The Radical Right's Rise In Latin America

Across the region, hard-line conservatives use residual fears of communism and uproar over changing cultural mores to drum up support.

-Analysis-

LIMA — With the presidential candidacy of Rafael López-Aliaga, Peru joins the list of Latin American countries with an ascendant "radical right," as defined in my book El Eterno Retorno, la derecha radical en el mundo contemporáneo ("The Eternal Return: the Radical Right in The Contemporary World").

In some countries the radical right has even managed to take power, and while it's tempting to see this as merely the regional expression of a worldwide trend — which emerged earlier in Europe and the United States —, certain circumstances differentiate the Latin American case.

The first distinctive trait, as it pertains to Latin America, is the political context. In Europe, the radical right gained momentum when the traditional left (social-democracy) had begun a process of decline. In France, the radical right has twice reached the second round of presidential elections, first in 2002, in a face-off with the traditional right, and again in 2017, against a more liberal candidate, current President Emmanuel Macron. In the United States, social democracy was a minority current, though buoyant, in the Democratic Party when Donald Trump won the presidency.

The first distinctive trait, as it pertains to Latin America, is the political context.

In our region, in contrast, the radical right has grown in the wake of an unprecedented period of electoral success by the left, and it's there that the explanation may lie. In the United Kingdom, the Brexit movement involved spontaneous cooperation between radical wings on both the right and the left. Similar elements come together in the Yellow Vests movement in France. But in Latin America, the radical right tends to dismiss the left as "cultural Marxism" and considers it an existential enemy with which conservatives could never deal or coexist.

A second contextual difference has to do with the challenge posed by the liberalization of social values. In South America, same-sex marriage is now recognized in countries such as Argentina, Brazil, Colombia, Ecuador and Uruguay. In contrast with the radical right in Europe (which includes prominent gays), the right in Latin America and the United States forge a non-negotiable political program rooted in their conservative values. This typically focuses on opposing abortion, gay marriage and any kind of consideration regarding gender.

This agenda guides its voting constituency (especially Evangelicals) even when these areas are not issues in particular elections. In 2016, the conservative social agenda was likely decisive in ensuring a referendum defeat for the peace deal that Colombia had signed with leftist FARC guerrillas. Certain Evangelicals even spelled out why they were calling on Christians to vote against the deal: namely as parts of it would allow "men, women, homosexuals, heterosexuals and people with diverse identities to participate under and enjoy equal conditions." In other words, the peace pact itself became less important than parts of it, which threatened a political agenda that was crucial to sectors of the radical right.

Colombian President Santos signing the peace accords with FARC leaders in 2016 — Photo: U.S. DoS

The case of the Colombian peace accord highlights another difference between the rising fortunes of the radical right in Latin America and its peers in the Western world: criminal and political violence. Latin America suffers from some of the world's highest homicide rates (which explains the recurrence of the "tough on crime" discourse at election times). The elevated level of violence — both criminal and political — in some countries has more than made up for the relative absence of cross-border conflicts in Latin America.

In the case of insurgency situations, most of the groups taking part were leftist. But they can be divided into forces, on the one hand, that that rose against dictatorships in keeping with international humanitarian law (like the Farabundo Martí National Liberation Front in El Salvador or the Sandinistas in Nicaragua), and those that fought elected governments, such as the FARC in Colombia and Shining Path in Peru. Nothing polarizes a society like war, and within wars, nothing is quite as divisive as terrorism.

Terrorist acts may explain why Colombia and Peru did not see the left grow as it did in most Latin American countries. In Peru, conservative sectors like to associate established left-wing parties with far-left terrorist groups (in spite of the Maoist Shining Path murdering numerous socialists in its war on the state), and may even accuse liberal elements of sympathizing with terrorism (as López-Aliaga has specifically done against President Francisco Sagasti).

Following this logic, there is another reason why Peru's right-wing radicals are blind to political nuances (and thus fuel irreconcilable social divisions). That is the trauma caused to the upper and upper-middle classes — who are the rump of López-Aliaga's voters — by the military regime, in the early 1970s, of General Juan Velasco, a leftist.

Nothing polarizes a society like war, and within wars, nothing is quite as divisive as terrorism.

Embracing socialism, the Velasco regime confiscated big properties, estates and businesses from both Peruvian and foreign interests, and challenged one of the pillars of the conservative worldview: the sanctity and defense of private property.

Decades later, in the context of the COVID-19 pandemic, economic interventions by the Peruvian government bring back lingering memories of those years— regardless of the fact that capitalist states like Britain were taking similar measures by obligating firms, for example, to switch production and make ventilators.