Exploitation And Marketing In The Era Of Guano

Exploitation and marketing in the era of guano

With the income obtained from the exploitation of the guano, the main objective of the Peruvian State was to build new infrastructure such as the railroad. With this, it was intended to improve the connections between the regions within the country and prepare it for economic development. But the railroads did not achieve the established objective, due to the great fragmentation of the Peruvian domestic market and as we will see, to the fact that the State specialized only in the exploitation of guano and as a consequence, the productivity of many other sectors equal or more important.

From that moment on, the Peruvian government decided that it could get great benefits with the exploitation of this product. Peru specialized only in the production of guano and forgot other sectors and products with which he could also have obtained great benefits. But what did the Peruvian government see in the exploitation of the guano? Mainly product price setting. That is, there was no other place in the world that was dedicated to the exploitation of guano and therefore, the Peruvian State decided the price of said product. In addition, it was a resource that was in large quantities and a minimum investment was needed to carry out its exploitation, basically labor that was responsible for extraction and loading the product in the ships.

During the era of the Guano, the Government of Peru used different forms of exploitation and marketing of the product.

In the beginning, the exploitation was carried out through the lease of Guaneros deposits, which were rented for a certain time and an annual payment to the State. Between 1842 and 1847, it was marketed through the direct sale of the product to foreign and local companies. The Peruvian government was in charge of setting the price of the ton of the guano and was somewhat percent of that price and benefit. During 1847 and until 1869, exploitation and marketing occurred with the so -called consignment system. It was an agreement between the Peruvian State and a group of entrepreneurs (local or foreign) to whom they were given a place so that the natural resource could exploit for a certain time. The consignee or entrepreneur was in charge of organizing the process of exploitation, export and sale of the product. The agreement consisted of the fact that the expenses were deducted and the net product was divided between the treasury and the consignees. This system would end up making the Peruvian government debtor of businessmen, since these advanced the benefits that had not yet been obtained, as loans and with very high interest, to the Peruvian State.

The anger and the final break with the consignees would arrive in 1869, when the State sold without prior notice to the consignees, two million tons of guano to the French firm Dreyfus and brothers. The Dreyfus house offered a contract with better conditions, such as covering the external debt of five million soles that Peru had. The discontent with the businessmen was so serious that they took the case before the Judiciary. Even so, the Peruvian State did not annul its contract with the French firm. The disappointment came, when they realized that the conditions established in the contract were not being fulfilled, which culminated with the default of Peru’s debt and in 1875 the contract with the firm Dreyfus was completely annulled. This meant the end of the Guanera expansion.

The question that most studies are raised on the exploitation of guano is whether it was a blessing or rather a curse for Peru to find this natural resource. As stated above, the price setting, the fact that the guano was in large quantities and that a minimum investment was necessary, were all advantages for the country. But what about disadvantages? Peru was indebted due to the loans that he could never return;The bad conditions in which the workers were, which were initially the slaves responsible for the extraction of guano, until the abolition of slavery. From there, around 1850, Asian immigration began that ended up working in subhuman conditions and this created discomfort, complaints and revolts. Finally, and the worst for the country was that the guano runs out.

We can say that having natural resources such as Guano, for Peru it was a curse. But not a curse for having it, but rather because of how its exploitation and marketing was managed. That is, the institutions of the moment did not know how to manage the product so that they offered them the greatest long -term benefits, instead of a short term as it happened. It must be added, that the appearance of artificial fertilizers helped in the diverse fall of guano production, since now I had another product with which to compete. The guano, more expensive, had to transport from Peru to Europe and this made more expenses. On the other hand, artificial fertilizers could be manufactured in the same country and therefore, transport expenses were lower. The Guano became the main source of development of the country in the short term. The income obtained from the exploitation and marketing of the guano, allowed to mitigate, although not to pay completely, the debts that were dragged from independence. "Fugaz Bonanza" could be the perfect name to define this period of Peruvian history.

During the 1930s and 1940s, the Peruvian economy and together, that of Latin America, was marked by the sequelae of the great depression and later, by the economic result of World War II. During this period, Peruvian exports fell into chop. For example, sugar export decreased by 22%. The dependence on basic products to which Latin American countries were subject, was an essential feature in the insertion of the region within international economic markets. With the arrival of World War I and the beginning of the great depression, the expansion of these products and the rise of exports, they came to an end. The syncope suffered by the markets, led to the countries of Latin America to a new stage of development, named by Bértola and Ocampo (2013) as a "industrialization directed by the State".

The industrialization led by the State, stressed for its important dependence on internal markets, high protectionism and fall, in Latin America, in participation within international trade. Likewise, the so -called direct foreign investments (FDI) were restricted, in some countries, especially in the Natural Resources and Infrastructure sectors. Another peculiarity of this moment was the increase in the participation of companies owned by the state.

But this industrialization system would soon receive its first criticisms. In some cases, they criticized the too protectionist and high tariff structure, in other cases, they criticized excessive state intervention in the economy. With the establishment, reforms were expected in the social order, but the only thing that was done was the construction of new infrastructure, associated with currency and investor requirements. Latin America was out of world markets and that began to notice. Thus, in 1960, the state -directed industrialization system came to an end. It began then, a reintegration reconstruction process in the international capital market and later, in 1970, Latin American countries had increased their external financing to carry out this reconstruction. For this reason, the main concern of the countries in the region was to try to place resources from national banks, transformed into international, and that generally did it in the form of credits placed at variable interest rates that were modified with the Libor rate (Bértola andOcampo, 2010). This system allowed the participation of small banks, which operated with high risk. Thus, due to a series of irregularities that occurred in mid -1970, in some international banks, debtor countries entered what will be called "lost decade". This decade had its highest moment in 1980, when a large majority of Latin American countries could not deal with the interests of the loans they had requested and the external debt of these countries exceeded their purchasing power.

As can be seen, the fact of placing resources within the international capital market, led to the increase in external financing. But such financing was accompanied by large commercial and fiscal deficits. We must add that the situation and resources that each country had to manage this financing were key factors in the development of crises. In addition, the decision at the end of 1979 by the United States Federal Reserve Board, to increase interest rates to stop the inflation that its country was suffering, caused the turning point and a negative effect on the deficit in account in accountcurrent of most Latin America countries, causing the crisis in these countries to be even worse.

Indeed, countries in development process have a series of deficiencies, mainly the lack of infrastructure. In order to replace these shortcomings, they sought help in external financing. In this way, many Latin American countries, including Peru, became capital plaintiffs. External financing was used to create new infrastructure, as expected to be done. Infrastructure, which were supposedly going to allow the country to develop. But it was not taken into account whether or socially or not they would be profitable works or not. Finally, it turned out that they were not entirely profitable, Peru’s fiscal deficit became uncontrollable and the country, again, was indebted. But what happens between a country asks for credit and the fiscal deficit becomes uncontrollable? As will be explained later, during this period of crisis, Peru suffered great changes within the government and in a short time many presidents passed through power, each of which, as will also be seen later, wanted to apply the economic policies that they believedmore appropriate to improve the country’s situation. This high volatility within the government was not helpful to recover the country’s situation.

To put in how Peru was during this period, we will review a rapid chronology with the most relevant moments of that period. In early 1980, GDP per capita was 2. $ 569. Peru already accumulated a debt of 473 billion dollars. In addition, to worsen the situation, Peru requested loans from the International Monetary Fund, from nowcountry where it was very risky investing. This ended that many of the investors would leave the country. Another negative factor for economic recovery, was the appearance of the insurgent group Luminoso, which caused great revolts and many dead, among the Peruvian population.

In 1983, GDP per capita fell to 2.244 $. You have to take into account but that this GDP may not be real, since the gap between poor and rich was quite high. At this time, there were also a series of natural disasters that did not help, on the contrary, they generated more and more expense for the State. It should be added that inflation of basic consumption products increased to 52%. Inflation that, luckily, in the late 80’s.

Once the 1900s have been entered, we observe how GDP per capita continues to decrease until we reach $ 1908. And despite the fact that the inflation of the basic consumption products continued to decrease, the living conditions of the Peruvians were also worse. Among the middle and end of the 90 ′, we see how little by little, the situation of Peru is improving. The GDP per capita had increased to $ 2344, inflation decreased up to 4% and thanks to the incorporation of Peru in the Brady Plan in 1997, economic recovery seemed to reality.

Next, the economic policies that the presidents who were in the government during this period of debt crisis were developed. First, we found Fernando Belaúnde that ruled twice: a first period between 1963 and 1968, and a second period between 1980 and 1985. During his first government, Belaúnde had as its main objective, liberalize companies and create a basically oriented economy to exploitation. In his second period of government, he tried to liberalize companies and the economy again. But in none of its governments he got its liberal policy to recover the economy, since in the end, wealth only reached the rich and not the most disadvantaged population to begin, completely eliminated the tariffs imposed by the previous presidents and the result thatHe obtained was that at first, the Peruvian population had to pay a much higher price than normal consumption products. As a result of its opening policy, between 1990 and 2000, exports increased 85%. It was a slow recovery, but that in the long term generated growth for the country.

One of the main priorities of the government established in 1990 was for Peru to reintegrate into the international financial community again. The first step that was carried out to achieve the reintegration of the country was the approval of an economic program by the IMF and that with the creation of a support group jointly led by the United States and Japan, the Peru of those of those could be provided with Peru of thoseinternational financial resources necessary for the International Monetary Fund Program to be met. The United States and Japan contributed a total of 350 million dollars and 400 million dollars, respectively, to settle Peruvian external debt. In addition, the improvement of the price of the products that Peru exported to other countries, such as potatoes or sugar, also made more options to recover. It should also be noted, the intervention of the Paris Club. A club The main function of which was the renegotiation of the external debts of the countries with payment difficulty. Thanks to the Paris Club, Peru managed to restructure and reprogram the payments of its debt.

It is also important to highlight, the role he played for Peru, which would be incorporated in 1997 in the Brady Plan. It is a debt payment procedure from a series of bonds, which allow creditors to collect debts of difficult recovery and also facilitates long -term payment countries, since surcharges are not added byinterests. At that time, Peru’s national debt revolved around 6.000 and 7.000 million dollars. Among the solutions that were carried out for Peruvian economic recovery, include, including different formulas: payments in the so -called Brady bonds, the repurchase of debt papers and, the exchange of debt by privatization.

After analyzing the Peru debt crisis period, it can be observed that there is great difficulty in government, of ability to economic deficits. As we have seen, the fact that there were so many changes in the presidents who were to power and that each one applied a policy other than that of the previous one, towards the economic recovery of Peru was impossible. Even so, it is important to highlight the fact that both Belaúnde and Fujimori had practically the same ideas and also apply, almost the same measures and policies, one could bring the country to recovery, while the other does not. This may be because during the governments of Belaúnde, the appropriate conditions were not given to apply these measures or that simply did not know how to apply them in a timely manner to be effective. On the other hand, with Fujimori, we can say that the conditions were favorable to the application of more liberal economic policies. Thanks to economic recovery, Peru was able to integrate again in the international economic market;Between 1998 and 2000, he spent 350.000.000 $ less on loans from the International Monetary Fund. Thus, it is clear that the main trigger, although not the only one, of the debt crisis was the fiscal problem, specifically the excessive expense generated by the abundance of external financing.

As a general summary, during the past decades, not only in Peru, but also in Latin America in general, the debt grew explosively. The governments of the countries of South America, without any restriction in terms of budgets, spent more than they could afford. They thought they could improve the economic conditions of their countries asking for international loans, but at the time when the conditions of international countries changed, Latin American countries were submerged in a difficult crisis to overcome.

Therefore, all these data previously explained, clearly indicate that Peru was not an isolated case or in the period of expansion of exports or, during the debt crisis, regarding the rest of Latin America countries. As Bértola and Ocampo (2010) indicate, the increase in crisis and debt due to instability was a problem that affected Latin America in general. The negative factors produced by the changes in the economies of international countries, the poor management of external financing, the drop in the price of the products exported by Latin America and risky policies, led to these countries to a very hard and long crisisduration. Although the debt crisis was different in each country, we can point out that there were similarities or at least the factors that led these countries to the crisis were similar.

Like Peru, the rest of Latin American countries, gradually exceeding this period at the end of 1900 and early 2000, becoming the international capital market. In short, the application of liberal and opening policies to external markets, still have effects today in some countries in the region.