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Former Peruvian minister says Car Wash shows industrial policy failed

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Piero Ghezzi, former Peruvian minister

 

Former Peruvian production minister Piero Guezzi acknowledges that scandals in the region indicate that industrial policy needs to be changed.

While Brazil has developed an industrial policy largely based on subsidies, other Latin American countries such as Mexico, Colombia, Chile and Peru have taken the opposite extreme in trying to avoid sectoral concessions, but the success was not achieved by either side.

“The relationship between government and business can not be very far, so as not to lack communication, or very close, so that there is corruption,” says Guezzi.

According to the economist Guezzi, the main challenge of our time is productivity and, to raise it, there are two types of policies: the most horizontal, which seek to strengthen human capital, innovation; and the old industrial policy, widely disseminated in Brazil, that compensates a sector with subsidy or tax exemption due to inefficiencies in infrastructure or regulation.

In an interview collected by Flavia Lima, published by Folha de S.Paulo, the former Peruvian minister develops his thoughts on the obstacles and threats that affect the industrial policy of the South American continent.

In his opinion, most Latin American countries adopted standard policies more connected to the so-called Washington Consensus [rules formulated in the 1990s by economists from institutions such as IMF], which says that all policies have to be horizontal and that policies industrialists do not have to play an important role.

Brazil adopted the reverse way. There is no other institution like the BNDES in Latin America. The capacity of the Brazilian State is stronger than anywhere else in the region, including Chile. And Brazil uses these outdated industrial policies more prominently.

It is difficult to believe that the most benign external conditions will be sustained and we will have another super commodities cycle. The fiscal situation is tighter, productivity is stagnant. The road to development seemed simple: follow what the Asian countries were doing. But we need to find our own way.

Mexico is less an exporter of commodities than South America. In Chile, mining is stronger. Brazil has a more sophisticated base industry, although less competitive. There is no magic recipe. It is necessary to move beyond ideology. In the debate between horizontal and vertical policies it is necessary to understand that they are complementary.

Answering the question: Do you see yourself as unorthodox? Ghezzi responded – “I look like someone trying not to be ideological, but pragmatic, if you are preaching ideology, you are doing bad economics.”