Follies of Emerging Markets

On June 3, The Economist magazine published an article about Peru’s new plan to export natural gas. While I am glad to learn that Peru is becoming an exporter of natural gas, I am sorry to say that it’s nonetheless likely that nationalistic, retrograde economic and political policies will continue to hold the country back from developing a more progressive and booming economy. In South America, territorial disputes, mistrust, and old rivalries run deeply at the core of the political culture. Regrettably, regardless of the particular national context, all political parties in South America are deeply invested in the old and ridiculous nationalism of “defending the interest of the nation” by not increasing trade and diplomatic relations with neighboring “enemy” countries.

God forbid that either Peru or Bolivia, for example, should sell natural gas to Chile, a country that needs it and that can afford to pay good money for it. Why? Because both countries have outstanding territorial claims against Chile, and these act as impediments to increased trade between the countries. Peru and its consortium exporting partners could—and should—make significant profits by exporting to readily accessible markets such as Chile’s, instead of waiting for Mexico’s plant to be able to receive the natural gas or by exporting to Europe, which is far more expensive to do. The business mentality is not given sufficient consideration in these instances. Can a country with discriminatory economic policies become an emerging economy and, thereby, become a potential political and economic leader in the region?

Peru lost the War of the Pacific more than hundred years ago, and it signed the Tacna-Arica compromise in 1929. However, Peru never stopped claiming ownership of the lost territories, and the naive dream of getting them back is still very much alive in Peruvian society. Especially during election campaigns, the political parties appeal to this nationalist sentiment to distract attention from governmental incompetence or to curry favor with voters. It is a strategy that never seems to fail to distract the people from the imperative of economic development.

The prioritization of nationalistic sentiment over sensible economic development in Peru is an example of a broad tendency that operates within most, if not all, countries in South America. I wonder whether Peru or Bolivia has ever considered allowing the people of the so-called lost territories to decide for themselves which country they want to be part of? Undoubtedly, the answer would be Chile!

Furthermore, it is difficult to understand why Peruvian nationalistic sentiment against Chile is strong enough to obscure the obvious economic and diplomatic importance of selling natural gas to a country that is itself heavily invested in almost all sectors of the Peruvian economy. Even the biggest Peruvian airline, Lan Peru, is essentially Chilean; it is a spin-off the Chilean national airline, Lan Chile. How pathetic is that?

So, estimados peruanos, do you seriously believe that Arica will ever be returned to you? And even if it were, how would your economy improve then? Stop the nonsense; let go of the retrograde nationalism that is obstructing your economic growth. Think of it this way: do you believe that you could successfully run a grocery store if you refuse to sell your products to a significant number of the people who want to buy them? If your answer is yes, then your store is destined to fail and, eventually, to go out of business.