Saturday, September 8, 2012

The wonders of Peru

[First post in a long, long time!]

So I recently came back from Peru - my first trip to a Latin American country. Let me briefly tip the amazing people (super, super friendly, honest), the beautiful old cities, and the stunning mountains. But having done that, I should quickly come back to my area of value added: economics and random observations.

1. One of the first things you notice is that tourists (I think those in the country under 60 or 90 days) don't pay VAT. You get a silly little piece of paper at immigration to show at hotels (apparently it is a pain to replace if you lose it). I imagine that this was introduced by some genius to help boost tourism but I am skeptical of this measure. Although the government seems to be doing very well thank you very much with budget surpluses of around 1-2% of GDP in good economic times, this won't last forever. Excepting comparatively rich tourists from taxes is not a good way of returning surpluses to the population, if that is what they want to do. It would, after all, seem strange to offer every tourist a hand full of dollar bills (or soles) on entering the country - but that is effectively what they are doing. Far better to reduce national debt, lower taxes for Peruvians, increase spending on infrastructure, health or education. VAT is a tax that should be paid in the place where the good is consumed - hence the reason you can often claim it back at airports. But in Peru, tourists are consuming hotel services and should not therefore be except from VAT. I am skeptical about the extent to which it can work to attract tourists too. True, it reduces the price of a hotel room by 19% (well, probably in fact the tourist gets only a certain % of this and the hotel gets the rest with the shares being determined by elasticities) but when you decide where to go, you look in books or on the internet to get an idea of the prices. It is not always clear to me that the non-VAT prices were given. An incentive that no one knows about cannot really work. If ever the Peruvian government has revenue collection issues, this should be the first tax exception to go!

2. A quick check of the latest IMF Article IV tells me that the unemployment rate is about 8%, although I have no idea if this is a realistic number or not. One thing I do know is that almost everywhere I were, shops and restaurants were advertising for sales staff, kitchen help. This was most prevalent in Lima. Perhaps Lima is booming in a way the rest of the country is not. Or perhaps it is actually difficult to find unemployed people who actually have the basic skills to do simple jobs. It reminded me of a friend in Lesotho who always needed to recruit waiters and waitresses and people to work on skills. Hundreds of applications but almost impossible to find someone who had the soft skills required. Who would turn up on time, get on with customers and other staff, notice customers exist, not keep walking across the room and forgetting what on earth they were there for while a customer is waiting half an hour before realising the waitress had completely forgotten after just 30 seconds she had ever taken an order at all. If this is the case, perhaps some basic education could be a good way to spend some of those tourist VAT dollars. The tourist industry is down at the moment from what hotel staff and cab drivers said.

3. Peru 'gets' democracy. During elections people paint big signs on walls in support of candidates or parties. Sometimes neighbours clearly supported different candidates during the last election (e.g Ollanta vs Keiko last year). This is amazing and wonderful. Try walking into a solid Republican area wearing an Obama t-shirt, or a solidly Democrat area waving an elephant flag. Even more amazing, these signs are still up. You can differ from your neighbour and those supporting losers have no fear. I think that Peru probably 'gets' democracy waaay better that a lot of recently 'democratic' countries following the Arab Spring. Democracy is not about the rule of the majority. Or not just. It is about protecting minorities and their beliefs. That they happily elect racial minorities is also a great sign.

4. There are copy shops. Lots and lots and lots of copy shops. Either everyone in the country has an obsession about making photocopies of everything. And I mean a real obsession. Or it is a bureaucracy heavy country. The little piece of immigration paper and the VAT exceptions suggest the latter. But who knows? maybe everyone gets genuinely excited about making photocopies.

5. Cusco is subsidised by the rest of the country. Cusco (the base for Machu Picchu) is super expensive. The rest of the country is pretty cheap. If tourists travel around Peru, they spend a lot of money in Cusco but they know that they can spend less elsewhere. That is great for people around Cusco. But it also means that, in terms of tourism, the rest of the country is subsidising the Cusco region.

6. Perhaps linked to 4 is the 'type' of tourists in different parts of the country. There are virtually no Americans anywhere except Cusco and the coast. The rest of the country is filled with French (especially), Brits, Italians, Spanish, other Latin Americans. No North Americans. Then you arrive in Cusco, and there are more Americans than anything else. Probably tourist networks work in the same way as migrant networks (you go where your friends go and people like you go - word of mouth) but it may also be because Peru is a big country and Americans don't get much holiday. So they go to the most important site. It seems there are even plans to build a special airport for Machu Picchu.

7. People selling things to tourists don't hassle you. If you say no, they wander away. I don't know if this is cultural, behavioural, or if it is because it makes best economic sense: there are so many tourists that make easy sales, why waste time on a tough sale.

8. TheFood. Is. Totally. Amazing. They say they have been doing 'fusion food' for 500 years. And it shows. Already half of the food you eat comes from Peru. You can see 2000 year old pottery of chickens. Yes, chicken is from Peru. Along with potatoes, tomatoes, and loads of other things. A thousand years before the Incas, agriculture was highly developed and cooking sophisticated and varied. Whether you eat cheap and simple or at restaurants with famous chefs, it is fantastic. I heard one expression: Eat like an Inca; pay like a peasant. Go there and eat it. Arequipa is the gastronomic capital.

9. The Spanish conquest was different to British colonialism. The church seemed to have a lot more authority. The British seemed to want to bring the three C's: Civilisation, Commerce, Christianity. But the Christians largely trailed behind the soldiers and traders. The army might be used to support commerce or open up trade routes/smash monopolies etc but not to spread Christianity. I saw a few things that suggested that the Spanish church often used the army for their own purposes and in many cases the army seemed to be subordinate to the church. A rather different model to the British one. Fascinating. Need to read more about it though to understand better - this is just an observation from a few things I noticed. The church used some interesting techniques convert the locals too - art that associates Pachamama (mother earth deity figure) with the Virgin Mary, Last Supper paintings with cuy (big juicy guinea pig that I meant to try and never did)...

10. The Incas were highly sophisticated war-mongering people who thought they had a divine right to rule the earth, bring 'civilisation' to other people, and destroyed many other civilisations in the process. They were also great builders. With so much in common they should probably have got along rather better with the 16th century Spanish. 

11. There are some super super interesting pre-Inca civilisation. The Moche are marvelous with great cities and amazing agricultural skills. They only have rain once every 10-20 years when el Niño comes but had fantastic irrigation culture. Wonderfully, when the priests couldn't stop the rain, they had a revolution from which arose the Chimù culture that included a city of somewhere between 60,000 and 250,000 people (the guide around the city gave this estimate higher than I saw elsewhere but maybe I didn't understand everything he was including in his number due to my rough-but rapidly improving!- Spanish). Worshiping a different god apparently did the trick. (Ahem.)

12. Some Latin American civilisations were great astronomers. Fascinatingly, they didn't look at the stars in the Milky Way but at the black spaces within it, and took meaning from this. Check it out here. Cool, huh?

13. The Incas were great builders - some of the stonework is simply amazing. Large parts of Cusco (an Inca city - not territory they conquered from other civilisations) are basically still Inca. In Santa Catalina, the Spanish seemed to just remove the Inca's women and replace them with nuns, and it remains thus to this day. The building was so amazing in some places, such as the Temple of the Sun, that the Spanish simply could not destroy it all so bits are destroyed and rebuilt as a church, the rest remains. Even as you wander the streets of Cusco, half of the buildings are clearly Inca built on the ground floor and maybe upwards. Not all of the stonework is as impressive as in the more sacred or royal buildings but clearly a lot of effort went into those. I wonder what the opportunity cost of such perfection was. Did it hold back scientific development in other areas? They built roads and (despite what I have read in some places), wheels would surely have been useful. As would a more advanced and permanent writing system. Maybe with better technology, I would have been using Pimsleur to learn Quechua instead of Spanish...

Overall, GO TO PERU. It is an amazing and wonderful country. You will love it! You need at least 2 weeks to do it even vaguely properly because it is MUCH bigger than you think because of the curvature of the earth. The buses are amazing (super comfortable overnight ones you can easily sleep on) and the people are amazing.


  1. I was there last year, what a gem of a country, they have everything!!!! Great article.

    1. Thank you! That's really kind of you. Glad you found it interesting, and fell in love with the country too.