Neoliberal trajectories have been nonlinear in Latin America. Under the expectation of increasing political and economic inclusiveness, most countries in the region turned left during the 2000's in what is known as the 'pink tide.'1 In Peru, left-wing nationalist Ollanta Humala won the presidency in 2011 after narrowly losing in 2006. But, despite his radical reformist economic agenda, his government "continued and deepened a political and economic regime that has been in place in

Peru since 1990—one that has prioritized market capitalism and free trade." 2

To understand why the Humala administration chose continuity over reform, this essay will draw insights from capture theory to explain how power elites played a major role implementing and preserving the current Peruvian economic system. The introduction will contextualize the increasingly relevant role of the multinational corporation in shaping economic policies during the 1990s, focusing on the realization of the so-called neoliberal reforms in Latin America. Subsequently, the economic theory of capture will be reviewed before analyzing Peru's neoliberal trajectory since the 1990's and the case of Humala's government in 2011. Lastly, this essay concludes that, contrary to market fears when he was first elected, the neoliberal system was strengthened during Humala's presidency due to political and regulatory capture exercised by the powerful business elite.

Neoliberalism and Multinational Corporation

By the end of the 1980s, Latin America was experiencing a period of deep economic crises that left the region in need of economic reforms to attract foreign capital from the international financial markets.3 Simultaneously, political and economic structural changes in the international system intensified competition between developing countries for world market shares of both foreign direct investment and financial capitals, "forcing states to bargain with foreign firms to locate their operations within their territories, and with national firms not to leave home".4 Consequently, multinational corporations and powerful elites significantly gained political influence to shape economic policies according to their material interests.  

The neoliberal economic system was implemented in Latin America in the 1990s when countries began to seek foreign capital to finance their debt. Following the recommended policy reforms of the 'Washington Consensus,' national governments enacted policies aimed at privatizing markets, opening to trade, maintaining fiscal and monetary discipline, executing market-friendly tax and labor reforms, and reducing barriers to entry for foreign direct investment and financial capitals.5 However, neoliberal trajectories differed between Latin American countries, as some countries saw more radical reversals than others. It can be challenged that outcomes were influenced by the interaction between political actors and power elites. In Venezuela, Hugo Chávez's '21st century socialism' antagonized private corporations and designed an economic agenda based on expropriations, nationalization, and massive public spending. In Brazil, however, socialist leader Lula Da Silva heavily increased social welfare for the working class, while preserving the neoliberal system to secure support from the bourgeoisie and economic elites.6 Conversely, Peru followed its own trend, and the next sections will explain how powerful elites deeply linked to the private sector ensured that its neoliberal trajectory was rather linear.

Who Rules and Who Decides?

Capture theory covers how interest groups aim to control institutions by influencing the decision-making process. A literature review on this theory distinguishes political influence, where special interests affect state interventions in general, from regulatory capture, where businesses manipulate the state agencies designed to regulate them.7
Capture theory outlines the mechanisms under which political influence is employed. Laffont and Tirole elaborated an agency-theoretic framework that identifies five means of influence: monetary bribes, an expectation of future employment by the agency's staff in the regulated firms, friendly personal relationships between government officials and industry partners, restraint from business leaders to publicly criticize the agency's management, and campaign financing and lobbying.8 Moreover, in an analysis of regulatory capture of the international financial system before the global financial crisis of 2007-2009, Andrew Baker examines four mechanisms that paved the way for deregulation and the eventual collapse of financial markets: lobbying, political salience, revolving doors, and intellectual capture, most of which overlap with Laffont and Tirole's framework.9 These instruments for exercising political influence can be used by a plethora of interest groups, though the main restriction is that they commonly require a degree of power and vast economic resources as the business elites match the description of in Peru.

Peru's Neoliberal Trajectory: Origins and Outcomes

Neoliberal reforms were implemented in Peru during the 1990s by then-president — and eventually dictator — Alberto Fujimori. He rose to power as an unknown populist outsider who opposed the establishment's liberal preferences and appealed to the masses, promising to alleviate the grievances derived from hyperinflation and the terrorist attacks of the Shining Path. Shortly after becoming president, it became clear to Fujimori that in order to receive external economic assistance from the US to stabilize the economy, he needed to integrate Peru into the world economy.10 To implement his reformist agenda, Fujimori established his own ties with the business elite, the IMF, and the military. Leaders of the business sector were always guaranteed influential seats in his cabinet, while the country's economic policies were guided by Hernando de Soto, a prominent Peruvian economist that acted as liaison between Fujimori and the IMF.  

During the administration's first years, hundreds of Washington Consensus decree laws were issued aiming at "transforming Peru into an open economy in which large corporations could take advantage of its natural resources and domestic market."11 Almost all state-owned companies were swiftly privatized, reducing the economic role of the public sector in areas where it had historically maintained a strong presence, such as the pension system and education. In a clear manifestation of capture through revolving doors, these economic reforms were executed while Carlos Boloña acted as finance minister. After privatizing the pension system, he went on to become CEO of AFP Horizonte, a private pension fund, and afterwards Executive Director of a large private university whose owner was later vice-president during Alejandro Toledo's government in 2001.

The last step in Fujimori's path towards institutionalizing neoliberalism was drafting a new Constitution. He did so by orchestrating a self-coup d'état with support of the military and the business elites, that allowed him to unilaterally dissolve the Parliament and convoke a Constitutional Assembly. The 1993 Constitution limited the state to a subsidiary role, while giving businesses freedom and flexibility to operate in the economy. 

Neoliberalism's Golden Decade

With Fujimori's new constitutional design, which recognized and guaranteed the Central Bank's autonomy, inflation and the exchange rate stabilized. Following this, Fujimori pursued an export-based commercial policy to open Peru to trade. Through Biglaiser and DeRouen's analysis of neoliberal policies implemented in Latin America during the 1990s, they argue that inflation control and trade reform have the greatest impact on improving sovereign bond ratings, which in turn facilitate access to foreign financing.12 As a result, the shape of the Peruvian economy took a radical turn.  

Peru's first bilateral free trade agreement (FTA) was with the United States, which the two governments signed in 2006. Sixteen other FTAs followed, including agreements with China, the European Union, and the recent Comprehensive and Progressive Trans-Pacific Partnership. Between 2001 and 2019, Peruvian exports of goods and services went from $8.6 billion to a record $55 billion (current USD), while GDP rose from $50 billion to $200 billion. During this period, only a few dared opposing the economic model started by Fujimori and fortified by his successor Alejandro Toledo. Former military officer Ollanta Humala was one of these people. He ran for president as one of the most radical representatives of Latin America's pink tide, but being closely aligned to Chávez's authoritarianism was costly, as he narrowly lost the 2006 election in the second round against former president Alan Garcia, who represented another case of capture. Contrary to his highly interventionist first government in 1985, the Garcia administration from 2006 to 2011 enacted a completely market-friendly neoliberal agenda but was later plagued by several accusations of bribery linked to the Brazilian multinational Odebrecht. In 2019, Garcia killed himself when the police and a public prosecutor arrived at his house to arrest him under corruption allegations.

Capturing 'The Great Transformation'

Humala's government plan for the 2011 election was called 'La Gran Transformación' (the Great Transformation). He advocated for the nationalization of strategic industries, including energy and mining, fiercely opposed the FTA with the US, and proposed a renegotiation of all FTAs. On the campaign trail, he constantly proposed to raise taxes for multinational corporations and implement protectionist policies for labor unions. Most importantly, the Great Transformation claimed that a new Constitution needed to be drafted so that Peru could finally reverse Fujimori's neoliberal system. However, Humala's government was not a turning point in Peru's neoliberal trajectory. After advancing to the second round of the 2011 election, he signed a narrower and less ambitious government plan called 'Hoja de Ruta' (Roadmap) that abandoned key proposals, such as the renegotiation of trade agreements and the new Constitution.

During his mandate, the Humala Administration maintained fiscal and monetary discipline, encouraged private investments in extractive industries, and suppressed social protests against mining projects.13 Explanations to Humala's preference towards continuity will be drawn using the main capture mechanisms identified by Laffont and Tirole and Baker, and their applications to the Peruvian case as noted by Durand and Crabtree and Durand.14

Campaign Financing and the 'Lava Jato' Case

Undisclosed private donations have been a common feature of the Peruvian elections during the 2000s. Powerful business sector leaders such as Dionisio Romero, owner of Credicorp Group and Peru's largest bank, BCP, have admitted to heavily investing in multiple campaigns during the 2011 election to ensure the stability of the economic model.15 Moreover, capture by financing in Latin America dangerously overlaps with bribery and money laundering. The most recent example is the 'Lava Jato' (Car Wash) case, which revealed a corruption web led by the Brazilian construction multinational Odebrecht that spread across the region. In Peru alone, the company confessed to paying more than $29 million in bribes to public servants, politicians, and businessmen.16 Humala was among those investigated and spent nine months in prison, along with First Lady Nadine Heredia. Odebrecht's capture was extended via key appointments in regulatory agencies, who favored the company when the Peruvian government signed private-public partnership agreements for large infrastructure projects, involving also top executives of the Peruvian construction giant Graña y Montero.17 

Cognitive Capture

The ideological consensus in Peru is that economic policy must be technocratic, disciplined, and conservative. The best example is the institutional autonomy preserved by the central bank, Julio Velarde, an Ivy League graduate and former World Bank economist, has been reappointed as the President of the Board of Directors by every president since 2006. Two of the main advocates of this economic orthodoxy are the Instituto Peruano de Economia (IPE), a powerful think tank that advocates for free market policies, and the Grupo El Comercio, owner of more than 70% of local printed press and of two of the main news channels. El Comercio, the most influential political newspaper in Peru, frequently published interviews to Roberto Abusada, IPE's president, and other business leaders that warned Humala about the perils of economic policy uncertainty in capital markets and foreign investment. Days before Humala took office, Abusada and 60 other economists signed a letter in El Comercio stating that the "government's priorities needed to be maintaining the macroeconomic stability and market-friendly provisions while reducing administrative bureaucracy that impeded more private investment."18 These pressures proved to be effective, as Humala appointed Luis Miguel Castilla as Minister of Finance, a World Bank economist who had previously been vice-minister during García's administration. Castilla was also the president's main advisor and was eventually replaced by Alonso Segura, another World Bank economist and former BCP manager, towards the end of Humala's government.

Industry Lobbying

Instead of implementing environmental protection opposing extractive industries as he promised, Humala promoted giant mining projects such as Conga and Tia María. These projects have a long history of rejection among the local communities for environmental concerns, having led to violent conflicts with the state's force authorities.19 The main association of mining corporations, the SNMPE (Sociedad Nacional De Mineria Y Petroleo Y Energia), has exercised its influence to promote these projects and reduce administrative barriers to accelerate the development of private investment in extractive industries.20 One of the main cases in which lobbying materialized was with the law 30230, which later got promoted by then minister Alonso Segura, who had a clear case of revolving doors. In its 70 articles, the law condoned tributary debts of corporations, reduced timeframes for approving environmental impact studies while imposing sanctions to public servants who did not comply, and facilitated the concession of lands under property of indigenous communities to extractive corporations.

From a Neoliberal Haven to a New Left Turn

If neoliberalism survived Humala mainly by capture, the election of his successor Pedro Pablo Kuczynski in 2016, an investment banker and former finance minister during Toledo's government, was thought to be the system's definitive triumph. His initial cabinet was comprised almost entirely of business leaders and his economic platform rested on reducing public sector inefficiencies, the main discourse promoted by Abusada's IPE. However, after Kuczynski's resignation over corruption accusations in 2018, Peru experienced a series of political crises that led it to the second round of the 2021 election with two choices: Pedro Castillo, a unionist outsider running with a radical left party, and Keiko Fujimori, daughter of Alberto Fujimori and promoter of neoliberal continuity. The country was torn by the radicalization derived from the reform-continuity cleavage, in turn exacerbated by the severe economic consequences of the Covid-19 pandemic. In a new capture attempt, the private sector poured millions in a campaign to "stop communism" and even the main law firms donated their services to Fujimori's campaign to investigate fraud allegations after the elections.21 But their efforts proved fruitless; Castillo was proclaimed president and the government is now slipping away from the hands of the private sector.

The instability that followed the 2021 elections proves that neoliberal stability is far from guaranteed, and strategies of capture are not enough to mitigate social demands of economic reform. Tensions reached new heights last December when Castillo tried to orchestrate a self-coup by unilaterally dissolving the opposition-led Congress. But with support of the armed forces, Congress ignored Castillo's act of tyranny and impeached him. Ousting Castillo can certainly be seen as a justified defense of democracy, but it did not solve Peru's structural political problems. Neither did it succeed in bringing political stability to the country. President Dina Boluarte, Castillo's former vice-president, is now in power providing yet another example of political capture. Her intention is to rule supported by a feeble agreement with the opposition and the business elites, all the while mobilizations across the country are demanding her immediate resignation, new general elections and the drafting of a new Constitution. At the time of writing, more than 60 people have died as a consequence of both violent protests and severe repression.  

Still, Boluarte refuses to resign. As a concession to protestors, she has asked Congress to reform the Constitution to allow for new elections in 2024 instead of 2026, claiming that before holding new general elections, Peru requires constitutional reforms to "have a more respectable Congress and improve the legitimacy of the political class." Constitutional and political reforms can potentially improve governability, legitimacy and political representation, but the dysfunctional Peruvian political system stymies consensus on which reforms those might be. Business leaders who support Boluarte for the sake of economic stability seem to be missing that protestors are motivated by economic grievances and the constantly neglected demand for inclusion. Certainly, the events of the last decades should suggest to business elites that they would be better off demanding more compliance and transparency in private-public partnerships to battle corruption and pressure the government to tackle the lingering threat of poverty and economic vulnerability. Otherwise, an eventual collapse of the neoliberal system will produce an undesirable outcome for everyone.

About the Author

Rafael Aste is a MAIA candidate '23 specialized in policy analysis and the political economy of the developing world. He advises private and public decision-makers on sociopolitical contexts, economic trends and policy issues, focusing on Latin America and Western Europe. Rafael holds a bachelor's degree in political science and public administration from the Universidad Autonoma de Madrid.


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