The Economic Crisis in Peru and Its Impact on Health

The 1980s were a troubled decade for the Peruvian economy. After the return to democracy in 1980, the economy performed very reasonably during the first two years of the presidency of Fernando Belaunde (1980-85), with growth rates of 4.7 and 4.5 percent in per capita GDP in the years 1980 and 1981, respectively. By 1982 however, the combination of the world recession, led to a decline in the price of key Peruvian exports like copper and oil and the Mexican debt crisis all damaged growth prospects. Matters got worse in 1983 as the economic decline was compounded by the worst El Nino weather shock in a century, which led to heavy flooding along the northern coast and a serious drought in the southern highlands. The economy went into recession with a 3.0 percent contraction in per capita GDP in 1982, and then further a 13.9 percent contraction in 1983. The election of Alan Garcia to the presidency (1985-90) brought more economic turmoil to Peru.

Peru posted healthy growth rates in 1986 (7.8 percent) and 1987 (5.8 percent) but Garcia’s “heterodox” stabilization program, that relied on reduced foreign debt payments, a price freeze, and economic reactivation via wage increases, job creation programs, and increased investments in education and health, quickly proved to be unsustainable. In 1988, the country went into deep recession and hyperinflation. Per capita GDP fell by approximately 28 percent in the last three years of the Garcia presidency and the inflation rate reached an incredible 7,482 percent in 1990. Real wages collapsed, Estimates based on labor force surveys conducted annually in Lima suggest that wage income in 1990 was barely 15 percent of its 1987 level. The Fujimori government, which took office in 1990, opted for more orthodox economic remedies. Economic reforms included the elimination of controls on prices, interest rates, and foreign exchange transactions, the reduction of tariffs, labor market deregulation, and a far-reaching program of privatization. The new policies sharply brought down inflation to 74 percent in 1992, and to less than 12 percent by 1995. Price stabilization had an immediate effect on wages, which rose sharply in 1991. Growth increased after 1992, and Peru posted very high growth rates in the 1993-97 periods (10.6 percent in 1994 alone). Like the crisis, the recovery appears to have been far-reaching, affecting all regions and most households. Poverty fell significantly between 1991 and 1997 (World Bank 1999).

But economic performance between 1998 and 2001 was disappointing. Even worse, per capita GDP in 2001 was still below its 1970 level. The 1988-92 economic crises did not have an important negative impact on schooling outcomes. In a study it shows that school attendance rates were unchanged, the fraction of children who combined school with work dropped significantly, and children exposed to the crisis had completed a higher number of grades for their age than the comparable unexposed. This took place in spite of a dramatic reduction in public expenditures on education, and a decrease in the rate of return to schooling. But the fact that the 1988-92 crises did not have obvious negative effects on schooling does not necessarily implies that the same would hold for child health. Investments in schooling may be more sensitive to changes in the opportunity cost of children’s time that take place during economic crises—for example if the demand for education increases during recessions because of reduced employment opportunities for children. Therefore above are the few economic crisis faced by the country Peru.