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Presidency of Juan Velasco 1: Transformation to a Planned Economy

1968-1975

| Much like his nation’s neighbor, Bolivia, Juan Velasco defied common prevailing ideas among not only economic theorists, but Latin American military dictators. Instead leaning towards the far left. It was argued by Velasco, and the more left wing members of the Revolutionary Government, that the only way to truly unify Peru, and move past the indigenous-Mestizo divide which permeated throughout the nation was to do away with capitalism in Peru.

To create his new revolutionary, nationalist, and socialist society, Velasco would institute a mass nationalization plan. Under this plan all of Peru’s nascent industry, all mines, fisheries, telecommunications, power production, consumer goods were all united into a single government owned conglomerates.

The economic effect of these policies was as expected, crippling. Private initiative evaporated overnight, and businessmen who resisted were liquidated by brutal repression given out by Vladimiro Montesinos, the oft suspected true power behind the President.

As the Peruvian economy trudged on, suffering from a massive drop in trade, rising oil prices, and exclusion from Western avenues of investment. Even opening trade and recognition to the Soviet Union, and the People’s Republic of China, did little to alleviate the losses being incurred by the state. Velasco would increase these economic issues by doubling down in import substitution industrialization, and tightening controls on trade, and exported

Despite his reforms, the Peruvian economy grew unremarkably, averaging 3.2% real GDP growth during the 7 years he held power. Even so, inflation, unemployment, and food shortages pervaded the Peruvian system. These economic crises would be instrumental in the eventual collapse of the Velasco regime.