Peru’s Post-Earthquake Prospects

The horrendous devastation of the recent earthquake in Peru could only have been exacerbated by government incompetence. That’s my conclusion after reading Ian Vazquez’s account in today’s Wall Street Journal. In some parts of the country, government provision of basic services, such as clean water and education, is so bad that residents are simply giving up on the state to provide, and turning to the private sector instead. (Subscription required for Journal link.)

One million of Lima’s eight million citizens have no access to clean water.

The water monopoly — which loses some 40% of its water through leaky pipes or in ways otherwise unaccounted for — is only one of Peru’s monuments to government incompetence. Peruvians were reminded of another last month when the communist-led teacher’s union went on strike, paralyzing schools and triggering violence across the country. The union was protesting a law requiring that teachers be tested and held accountable for competency. An evaluation earlier this year found that one-third of teachers are deficient in reading comprehension and that nearly half cannot do basic math…

Those hit hardest by the crises in education and water — poor Peruvians — are not reacting with complacency, however. They are demanding private solutions. Indeed, during my visits to one of the poorest parts of Villa El Salvador in the past two years, I learned why residents began marching on government offices to demand the privatization of Sedapal, Lima’s state-run water company. Community leaders and residents explained that they’d grown tired of being neglected by Sedapal. They have been joined by residents of other shanty towns surrounding Lima…

Lima’s marginalized poor are correct about the potential of the private sector to meet their water needs — they can see for themselves how private companies have made electricity, telephones and cable widely available in their neighborhoods. As José Manuel Saavedra, head of CITPeru, a local NGO, wryly notes, poor communities have Internet access, but no water…

By contrast, a water privatization in Guayaquil, in neighboring Ecuador, reduced the price of water by 90 percent for 275,000 poor people. And grassroots private enterprise can help education, too.

By chance, during my visits I learned that the rejection of state services has extended to education as well. One day, a woman in Villa El Salvador confirmed to me that the large building in the distance was a public school, and volunteered that she did not send her son there. Instead, he goes to a private school that charges a fee. “It hurts, but it’s well worth it,” she explained.

So does government still have a role to play in helping improve Peruvians’ daily lives? Yes, by legitimizing such private intiatives to give them protection under the law. The director of a private school intended to cater to poorer families whom Ian interviewed complained that the school’s lack of a property title hinders any plans to expand. (Peru’s own Hernando de Soto has famously laid out strategies for addressing this problem.)

Now, as Peru struggles to recover from a major earthquake, the government of President Alan Garcia would do well to learn the lessons from experiments like the Guayaquil water privatization to help those affected get back on their feet. Right now, it’s too early to tell which way the government will go, but there is reason for some cautious optimism.

As Bloomberg reports, the government is setting up an agency to provide around US$1,900 in credit to each homeless family. While the creation of any new government bureaucracy should always be met with wariness, at least the planned credit approach appears more promising than outright handouts. But whether these turn into another vehicle for patronage and corruption remains to be seen, and througout Latin America governments’ records in politicizing assistance isn’t good.

Moreover, the emergency aid now pouring in should remain focused on precisely that — the emergency at hand — and not be followed by development aid. Emergency aid can do much to relieve immediate short-term suffering, but development aid, by its open-ended nature, turns recipient governments’ incentives upside down — in effect rewarding governments for economic underperformance.

Finally, in the area of emergency assistance, which Peru does need now, private enterprises are already stepping up. As firefighter Diego Caravedo told Bloomberg, “Private companies and Masonic lodges are sending aid directly to rural areas which the government has yet to inspect.” That’s a development Peru’s government, along with its people, should welcome and not hinder.

President Garcia says he’s learned a lot from the mistakes he made during his disastrous first term during 1985-1990. After a good start promoting trade with the U.S. and distancing himself from Venezuela’s clown-prince dictator, he now faces his toughest test. Here’s wishing him, and the people of Peru, luck.