Hot off the press this morning, the Minister of the Interior in Fujimori's cabinet at the time of the dissolution of Congress and the Judiciary in April 1992 has been sentenced to ten years in prison for having participated in and backed what is referred to in Peru as the "autogolpe" (self-coup). Nine other members of the cabinet from that time have been given four year suspended sentences for having been secondary accomplices.
Fujimori himself cannot be tried for this crime as the terms of his extradition from Chile only allow him to be charged for specific offenses, two related to alleged human rights violations and five related to alleged corruption. Fujimori's trial on these charges is to start on 10th December.
Tuesday 27 November 2007
Friday 23 November 2007
Lima Reconnaissance Trip in May
In May 2007 I hitched a ride with Tom Sanderson, Director of Five Talents UK (FT UK), Craig Cole, Executive Director of Five Talents International (FTI), Helga Buck and Kelli Ross of FTI and David Fletcher, board member of FT UK, to Lima. For them it was an opportunity to visit the project they are funding in one of the southern poor districts of Lima called San Juan de Miraflores. For me it was an opportunity to meet the people I was, at that stage potentially, to work with come July. During the trip David filmed our encounters with clients as well as an interview with the Executive Director of ECLOF Peru, Carlos Venturo, one of the most upstanding citizens of the world you are liable to meet. This is the fruit of those labours.
Thursday 22 November 2007
A Primer on Recent Peruvian History
In amongst the microfinance discussion, it would be remiss of me not to mention the political dimension here in Peru. As Jeffrey Sachs repeatedly says in his rather good book The End of Poverty, you cannot think about altering the economic situation of a country without giving ample thought to all the factors which affect it: political, geographical, historical, infrastructural, personal.
The president of Peru is currently Alan Garcia and this is his second go at running the country. He was previously in charge between 1985 and 1990 and left office with hyperinflation causing economic havoc and Sendero Luminoso (Shining Path) and the MRTA (Tupac Amaru Revolutionary Movement) causing havoc of a different kind. Strong evidence for not electing a 36 year old to head the government it might be suggested. With the country needing some strong direction Alberto Fujimori, a half Peruvian half Japanese politician whose birthplace is disputed (he claims Lima, others claim Japan and it's of importance because only people born in Peru are allowed to run for president) beat writer Mario Vargas Llosa in an unexpected victory in 1990. Interestingly five years later Fujimori beat Javier Perez de Cuellar, former United Nations Secretary General in the 1995 elections.
Fujimori turned out to be quite the authoritarian during his two terms. He succeeded in bringing the economy under control and eventually in crushing Sendero Luminoso and the MRTA. On the other hand, because Vargas Llosa's party retained control of Congress after the 1990 election and since Fujimori was finding it hard to get anything done during his first term, he simply dismissed the entire Congress and judiciary in 1992. ("If only...", Bill Clinton must have been saying a few years later when he faced the same problem.) At the end of his second term, Fujimori tried to circumvent the 1993 constitutional two-term limit which he himself had introduced and ran in and won the 2000 election against Alejandro Toledo. The ruse only lasted until evidence of political bribery eventually forced Fujimori to resign the presidency from the safety of Tokyo.
Worse than the political machinations however were the extra-judicial torture and murders. In 1993 Fujimori became close to an army Captain by the name of Vladimiro Montesinos who alerted Fujimori that certain elements of the army were planning a coup. Montesinos later became the head of Fujimori's security apparatus and was responsible for fighting the terrorists as well as for the political espionage and bribery. The findings of the CVR (Truth and Reconciliation Committee) after the downfall of the Communist terrorist groups found that up to 70,000 people were killed during the fighting. Most of these were innocents in the battles between government forces and the terrorists and their blood was not only on the hands of the terrorists. The tactics used in bringing the terrorists to their knees as well as the bribery landed Montesinos with a lengthy prison sentence with Fujimori similarly awaiting trial on human rights abuses. He was extradited from Chile in September 2007 and the trial is scheduled to start in December.
This is likely to be an unwelcome distraction for the Garcia administration as Fujimori still commands considerable public support. I was recently in the centre of Lima and saw a huge banner hanging from a hotel exclaiming "Fujimori Libertad". This time around Garcia is attempting to cast himself as the economically responsible type and is attracting foreign investment to the country as well as looking to get a Free Trade Agreement signed with the U.S. which is likely to be passed by the U.S. Senate in December, having already passed the House of Representatives. It is likely to sail through the upper house of the U.S. Congress as it did the lower house because from the U.S. point of view Peru is an important ally against the "red tide" of Chavez (Venezuela), Ortega (Nicaragua), Correa (Ecuador) and Morales (Bolivia).
For the good of the country, Alan Garcia needs to be careful to attract investment to all areas of the country and not just around the big cities and the mineral and gas deposits. A little bit of money can achieve big results in a country like Peru and a little bit of patronage can go a long way. When I was visiting Puno last month, on the shores of Lake Titicaca, I met with the head of one of the floating islands of Los Uros who told me at least three times that the solar panels they had attached to their houses providing them with electricity were provided by Fujimori. "And what has Garcia done for you?", I asked. "Nothing."
The danger is that Garcia's political base is along the coast north of Lima and in the centre of the country. Outside of those areas but particularly in the south Ollanta Humala, a man the U.S. would lump in with Chavez and the rest, is the popular politician. In the first round of the most recent presidential election in 2006, Humala came top with 33%. Given that an outright majority is required to win the presidency, a second round was held in which Humala lost to Garcia who had lapped up the votes of the third placed finisher from the first round.
Peru has fantastic advantages relative to some other developing nations. Natural wealth (copper, other metals, natural gas), agriculture (top exporter of asparagus in the world, potatoes, maize, fish), access to the sea, an entrepreneurial workforce and significant tourism. Inflation has been below 4% since 1999 and GDP growth averaged 5.7% between 2002 and 2006. What Peru requires for development, to the advantage both of the poor and the country, is leadership which will, in addition to keeping the economy ticking over, ensure that the benefits of increasing wealth are distributed widely. That's not to say the leaders should tax the rich and kill the entrepreneurial spirit. More that the right combination of fiscal, monetary, trade, diplomatic and social conditions are needed to increase the general wealth of the country, which are best managed by a centrist party with an active and targeted social agenda rather than a more extreme party of one wing or the other with misplaced ideas of how to run an economy and a country.
The president of Peru is currently Alan Garcia and this is his second go at running the country. He was previously in charge between 1985 and 1990 and left office with hyperinflation causing economic havoc and Sendero Luminoso (Shining Path) and the MRTA (Tupac Amaru Revolutionary Movement) causing havoc of a different kind. Strong evidence for not electing a 36 year old to head the government it might be suggested. With the country needing some strong direction Alberto Fujimori, a half Peruvian half Japanese politician whose birthplace is disputed (he claims Lima, others claim Japan and it's of importance because only people born in Peru are allowed to run for president) beat writer Mario Vargas Llosa in an unexpected victory in 1990. Interestingly five years later Fujimori beat Javier Perez de Cuellar, former United Nations Secretary General in the 1995 elections.
Fujimori turned out to be quite the authoritarian during his two terms. He succeeded in bringing the economy under control and eventually in crushing Sendero Luminoso and the MRTA. On the other hand, because Vargas Llosa's party retained control of Congress after the 1990 election and since Fujimori was finding it hard to get anything done during his first term, he simply dismissed the entire Congress and judiciary in 1992. ("If only...", Bill Clinton must have been saying a few years later when he faced the same problem.) At the end of his second term, Fujimori tried to circumvent the 1993 constitutional two-term limit which he himself had introduced and ran in and won the 2000 election against Alejandro Toledo. The ruse only lasted until evidence of political bribery eventually forced Fujimori to resign the presidency from the safety of Tokyo.
Worse than the political machinations however were the extra-judicial torture and murders. In 1993 Fujimori became close to an army Captain by the name of Vladimiro Montesinos who alerted Fujimori that certain elements of the army were planning a coup. Montesinos later became the head of Fujimori's security apparatus and was responsible for fighting the terrorists as well as for the political espionage and bribery. The findings of the CVR (Truth and Reconciliation Committee) after the downfall of the Communist terrorist groups found that up to 70,000 people were killed during the fighting. Most of these were innocents in the battles between government forces and the terrorists and their blood was not only on the hands of the terrorists. The tactics used in bringing the terrorists to their knees as well as the bribery landed Montesinos with a lengthy prison sentence with Fujimori similarly awaiting trial on human rights abuses. He was extradited from Chile in September 2007 and the trial is scheduled to start in December.
This is likely to be an unwelcome distraction for the Garcia administration as Fujimori still commands considerable public support. I was recently in the centre of Lima and saw a huge banner hanging from a hotel exclaiming "Fujimori Libertad". This time around Garcia is attempting to cast himself as the economically responsible type and is attracting foreign investment to the country as well as looking to get a Free Trade Agreement signed with the U.S. which is likely to be passed by the U.S. Senate in December, having already passed the House of Representatives. It is likely to sail through the upper house of the U.S. Congress as it did the lower house because from the U.S. point of view Peru is an important ally against the "red tide" of Chavez (Venezuela), Ortega (Nicaragua), Correa (Ecuador) and Morales (Bolivia).
For the good of the country, Alan Garcia needs to be careful to attract investment to all areas of the country and not just around the big cities and the mineral and gas deposits. A little bit of money can achieve big results in a country like Peru and a little bit of patronage can go a long way. When I was visiting Puno last month, on the shores of Lake Titicaca, I met with the head of one of the floating islands of Los Uros who told me at least three times that the solar panels they had attached to their houses providing them with electricity were provided by Fujimori. "And what has Garcia done for you?", I asked. "Nothing."
The danger is that Garcia's political base is along the coast north of Lima and in the centre of the country. Outside of those areas but particularly in the south Ollanta Humala, a man the U.S. would lump in with Chavez and the rest, is the popular politician. In the first round of the most recent presidential election in 2006, Humala came top with 33%. Given that an outright majority is required to win the presidency, a second round was held in which Humala lost to Garcia who had lapped up the votes of the third placed finisher from the first round.
Peru has fantastic advantages relative to some other developing nations. Natural wealth (copper, other metals, natural gas), agriculture (top exporter of asparagus in the world, potatoes, maize, fish), access to the sea, an entrepreneurial workforce and significant tourism. Inflation has been below 4% since 1999 and GDP growth averaged 5.7% between 2002 and 2006. What Peru requires for development, to the advantage both of the poor and the country, is leadership which will, in addition to keeping the economy ticking over, ensure that the benefits of increasing wealth are distributed widely. That's not to say the leaders should tax the rich and kill the entrepreneurial spirit. More that the right combination of fiscal, monetary, trade, diplomatic and social conditions are needed to increase the general wealth of the country, which are best managed by a centrist party with an active and targeted social agenda rather than a more extreme party of one wing or the other with misplaced ideas of how to run an economy and a country.
Monday 12 November 2007
The Word of the Day: Opportunity
It's impressive how much introspection, if not outright criticism, is going on in microfinance. Not long before I left London, and well after I'd submitted my resignation to Goldman Sachs, I went along to a meeting of the Microfinance Club UK held at the Barclays building in Canary Wharf. The talk was entitled "What's Wrong With Microfinance?" If I was in need of a reality check for my off-to-save-the-world ambitions, here it was in flashing neon lights.
Two gentlemen, who had coincidentally just published a book with the same title, stood forth and pontificated on their views that microfinance is really microcredit, with loans being dispensed but with few other financial services being offered. It promotes debt and often excludes the poorest whom microfinance nominally seeks to help the most. Microfinance isn't the basis for a sound economy. Women (to whom the majority of microloans go) don't create businesses, they work for themselves. [This one drew bemused laughter from the assembled.] Self-employment is just a euphemism for survival. There's too much cash pouring into the arena chasing too few real opportunities for investment. A large section of the population being unbanked doesn't mean there's unmet demand. And so it went. A GS colleague who had similarly just left our esteemed employer to join Five Talents, she on a full time basis, was sitting next to me at the meeting. Was it too late to change our minds, we joked?
So is there any foundation to the accusations? Well three months of exposure to a small corner of microfinance in just one country does not an expert make. However having spoken to quite a few of ECLOF's clients and having perused much of the learned writing of microfinance insiders, both pro and anti, the answer, as ever, lies somewhere in the middle.
Richard Posner exclaims (on the excellent Becker-Posner Blog) that "the idea of borrowing one's way out of poverty is passing strange". Furthermore, he states, "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit". He has a point, but it's unfortunate that he chose to express it so starkly without considering the whole picture. Microfinance is, and should be, the provision of financial services to the poor. That is to say that as well as loans, savings and insurance products should be offered. Many institutions in the field focus on the debt and this is what is drawing much of the criticism. And it is valid. Consumer debt cannot solve the problem on its own.
The crucial goal is to provide opportunities. The poor are not just poor of cash, but generally poor of opportunity, mainly because of the view that providing opportunities to the poor is a money-losing (or at best profit-neutral) proposition. Which for some players it is bound to be mainly because they're not set up for this kind of high-cost, low-margin customer interaction (e.g. my former employer). However this is a profitable (but please, not too profitable) business if done right. Though the providers need to be constantly mindful that the goal is not simply to load up the poor with debt. Microfinance needs to be a means of assisting the poor with all of their financial needs. At times and for certain people the need will be to give them a place to keep their money other than under their mattresses. At different times and for other people the need will be for leverage to enable them to exploit a niche they see in the market. And for all of them the need should be to hold inexpensive insurance such that they aren't starting from scratch if an earthquake fells their home.
Two gentlemen, who had coincidentally just published a book with the same title, stood forth and pontificated on their views that microfinance is really microcredit, with loans being dispensed but with few other financial services being offered. It promotes debt and often excludes the poorest whom microfinance nominally seeks to help the most. Microfinance isn't the basis for a sound economy. Women (to whom the majority of microloans go) don't create businesses, they work for themselves. [This one drew bemused laughter from the assembled.] Self-employment is just a euphemism for survival. There's too much cash pouring into the arena chasing too few real opportunities for investment. A large section of the population being unbanked doesn't mean there's unmet demand. And so it went. A GS colleague who had similarly just left our esteemed employer to join Five Talents, she on a full time basis, was sitting next to me at the meeting. Was it too late to change our minds, we joked?
So is there any foundation to the accusations? Well three months of exposure to a small corner of microfinance in just one country does not an expert make. However having spoken to quite a few of ECLOF's clients and having perused much of the learned writing of microfinance insiders, both pro and anti, the answer, as ever, lies somewhere in the middle.
Richard Posner exclaims (on the excellent Becker-Posner Blog) that "the idea of borrowing one's way out of poverty is passing strange". Furthermore, he states, "I am unaware of any historical examples of nations that climbed out of poverty on the backs of small entrepreneurs financed by credit". He has a point, but it's unfortunate that he chose to express it so starkly without considering the whole picture. Microfinance is, and should be, the provision of financial services to the poor. That is to say that as well as loans, savings and insurance products should be offered. Many institutions in the field focus on the debt and this is what is drawing much of the criticism. And it is valid. Consumer debt cannot solve the problem on its own.
The crucial goal is to provide opportunities. The poor are not just poor of cash, but generally poor of opportunity, mainly because of the view that providing opportunities to the poor is a money-losing (or at best profit-neutral) proposition. Which for some players it is bound to be mainly because they're not set up for this kind of high-cost, low-margin customer interaction (e.g. my former employer). However this is a profitable (but please, not too profitable) business if done right. Though the providers need to be constantly mindful that the goal is not simply to load up the poor with debt. Microfinance needs to be a means of assisting the poor with all of their financial needs. At times and for certain people the need will be to give them a place to keep their money other than under their mattresses. At different times and for other people the need will be for leverage to enable them to exploit a niche they see in the market. And for all of them the need should be to hold inexpensive insurance such that they aren't starting from scratch if an earthquake fells their home.
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