With the US and China: Why is the Peruvian economy strong despite its political crises?

Combination of photographs in which the president of the United States, Joe Biden, appears from left to right; the president of Peru, Dina Boluarte, and the president of China, Xi Jinping, during the APEC summit, in Lima, Peru, on November 14, 2024.

Peru's economy maintains strong performance on a global scale, according to analysts, investors and officials, who attribute Peru's success to pragmatism in its economic policy, which has allowed it to overcome the multiple political crises of recent decades.

Peru celebrated equally this week its alliance with the United States, that donated 65 million dollars, including 9 Black Hawk helicopters to combat drug trafficking, or the donation of an American train to connect vulnerable communities in remote areas, such as its links with China, under which they have just inaugurated a megaport that wants to be the Singapore of the region.

According to experts and officials interviewed, Peru's economic model – open and pragmatic – has been the key for a country that, although it has great challenges in politics and security, has achieved economic stability based on one maxim: what works, works; what doesn't work is simply thrown away.

“In Peru we are a rare, uncommon case, where despite the political situation that is not the best, the economic situation does not fall, we are a benchmark. The Peruvian currency, which is the Sol, remains solid, it has not moved over almost 20 years,” he told the Voice of America Berit Knudsen, geopolitics expert based in Lima.

This week, for example, the International Monetary Fund (IMF) praised Peru after consumer prices fell in October for the second consecutive month and annual inflation stood at 2.01%. “This is, without a doubt, a significant achievement,” Kristalina Georgieva, head of the IMF, said this week.

By 2024, the government expects an expansion of 3.1%, after noting a 0.6% recession last year due to social protests, adverse climate effects and lower investment.

Also read: Six presidents in 7 years: Why can't Peru get out of its political crisis?

Various sources consulted in the context of the Asia-Pacific Economic Cooperation Forum (APEC 2024)which brought together this week in Lima The leaders of the 21 most important economies in the world, with a focus on promoting free trade, agreed that the Andean nation continues to support economic alliances – regardless of other people's battles – as long as they result in benefits for Peruvians.

“Our goal is to become the Singapore of Latin America,” said this week the Minister of Transport and Communications of Peru, Raúl Pérez Reyes, referring to the Chancay megaport, located 80 kilometers north of Lima, built by the Chinese state-owned Cosco. Shipping and that promises to shorten maritime routes to Asia for both Peruvian and Brazilian products.

US emphasizes “long-standing partnership” with Peru

Natalia Molano, Spanish spokesperson for the State Department, explained to the VOA some of the areas in which the United States government “is taking advantage” to highlight the ties it maintains with Peru.

“We are reflecting on this long-term partnership that we have so strong with Peru,” said Molano, stating that there are five main areas in which they work bilaterally.

The three most important, said the spokesperson, are security to counter the challenges of transnational organized crime, peaceful space exploration and sustainable infrastructure.

The State Department spokesperson also stated that Washington “is very confident” in its relations in the hemisphere. “We have more than twenty federal agencies as representatives and they all work in parallel to advance in multiple areas. Cooperative work has happened every day for many years.”

Peru on the sidelines of the US-China economic dispute and Trump's victory

As the second largest exporter of copper in the world, Peru is part of the list of countries in the region that China has its eye on also for pragmatic reasons linked to economic resources available on this side of the world such as corn, copper, soybeans, meat beef and lithium, a metal that China covets to manufacture batteries.

“There are no good guys or bad guys here, there are interests here,” Mario de las Casas, corporate affairs manager for Cosco Shipping, said this week.

One of the most anticipated things about the APEC forum is the meeting this Saturday in Lima of US President Joe Biden and his Chinese counterpart Xi Jinpingfor a day that according to analysts could be tense as they try to reduce disagreements on issues such as cybercrime, trade, Taiwan and Russia in the face of the second non-consecutive term of the elected Republican president, Donald Trump, which will begin on January 20.

The meeting between Biden and Xi Jinping occurs amid outrage in the White House over the recent hacking of telephone communications of US government and presidential campaign officials, linked to China, and concerned about growing pressure from Beijing. on Taiwan and Chinese support for Russia.

Beijing, for its part, faults Biden for trade measures, including a plan to restrict US investment in artificial intelligence, quantum computing and Chinese semiconductors and restrictions on the export of high-end computer chips.

Trump has promised to adopt blanket 60% tariffs on US imports of Chinese goods as part of a package of trade measures under his “America First” policy.

But even with that background scenario and despite the fact that officials in Washington have publicly warned several times that Chinese investment in the region has conditions and have affirmed that the United States is a more reliable partner, Peru has reaffirmed its commitment.

“We want to show that we have a solid economy and legal stability (…) Demonstrate that Peru is a country that is emerging, with a stable economy and that can be a place where foreign investments can come to develop their capital,” he told the Voice of America the Minister of the Interior of Peru, Juan José Santiváñez.

Regarding an eventual change in Trump's policy based on his promise of “America first”, analysts consulted dismissed for the moment possible impacts on Peru's economic interests.

“Joe Biden is on his way out, but one of the fundamental points, we even have it within the Peruvian Constitution, is that contracts and agreements are respected and it is part of democracy. Therefore, President Trump is somehow going to have to honor any agreement that Biden reaches with President Dina Boluarte,” Knudsen told the VOA.

Peru-Brazil cooperation with an eye on China

Peru could be key to repositioning Latin America as an important global trading bloc, according to experts.

This, when Peru's commitment also involves the alliance with Brazil, the country with the highest Gross Domestic Product in Latin America and the Caribbean and the largest market in the region.

As a result of this vision, it is planned that an eventual train could link the two countries so that more Brazilian soybeans are transported by land to Peru and then headed to China, with whom Brazil has seen trade skyrocket in recent years.

The Peruvian government is also promoting a possible $10 billion coastal rail project.

“The geopolitical effects of Chancay will depend on the policies that Peru and the region assume in the face of this enormous challenge. And the question is whether their states have reflected together regarding the role that, as Latin America or part of it, they want to play in the 21st century,” recently estimated Daniel Parodi, a political analyst based at the University of Lima, in Peru.