The False Prosperity It was a term coined by the Peruvian historian Jorge Basadre Grohmann to name the so-called Era del Guano. For the author, the benefits obtained by the Peruvian state from the sale of this product were translated into an apparent and unreal prosperity.
Peru's fragile economy in the first decades of the 19th century found a solution when European countries and the United States began to buy guano, a powerful fertilizer. This product was very abundant in the country, especially on its islands.
Starting in the 1950s, Peru made great profits from guano imports. Its exploitation and commercialization was in the hands of private companies, first through the consignee system and, later, with a direct contract with foreign companies..
However, and hence the fallacious term applied by Basadre, the benefits did not affect a general improvement of the State. Between corruption, investment in non-productive areas and the lack of foresight to seek an economic alternative, the Falaz Prosperity stage ended in a bankruptcy of the country.
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The struggles for independence and the confrontations between the caudillos had caused the Peruvian economy between 1821 and 1845 to go through very bad times.
In addition, the lack of political stability and its defaults in the payment of the debt caused that the external credits stopped arriving. Only merchants were willing to make loans, with almost usurious conditions.
Although in Peru the properties of guano (manure from seabirds, seals or bats) were known since pre-Hispanic times, it was not until the 19th century when it became a star product in exports.
Europe, after carrying out scientific analyzes of this type of fertilizer, became interested in its purchase. The British Thomas Way, a member of the Royal Agricultural Society of London, recommended it as a compost and calculated its price at 32 pounds per tonne
In the country there were large deposits of this product, especially in the coastal islands. Interested in taking economic advantage, the State partnered with private, national and foreign companies.
The first private investment in the exploitation of guano was that of the Peruvian merchant Francisco Quirós. This, in 1841, obtained the exploitation rights in exchange for a fairly low amount: 10,000 pesos per year for 6 years.
Soon the English demand made the state realize that it could get much more. Thus, he canceled the contract in 1842 and began to negotiate with national and foreign businessmen. In this case, the modality was direct sales..
Among the beneficiaries of these contracts in the following five years were Quirós himself or the British company Gibbs.
The European powers and the United States had entered a period of industrialization. This, although industrial production increased, also led to a reduction in agricultural holdings.
The population, which was increasing, emigrated en masse from the countryside to the city, subtracting labor from agriculture and livestock. This caused famines and led governments to seek ways to make farm fields yield more..
The False Prosperity, a name used by the historian Basadre Grohmann to refer to the era of guano, was characterized, according to the author, by the unrealism of the supposed economic growth generated by the sale of that product.
Certainly, the State brought in large amounts of money, but the use of it did not serve to improve the situation of the majority of the population..
Most experts divide this period into two stages. The first, when the guano was exploited through a system of consignees (1840 - 1866) and, the second, when the Dreyfus Contract was signed..
This mode of exploitation of guano from the islands was carried out by giving concessions to individuals so that they could trade the product abroad. In return, they were required to pay a commission.
It was a commercial agreement between the Peruvian State and the French company Casa Dreyfus & Hnos. The company promised to buy two million tons of guano and to cover the country's foreign debt. In return, it obtained the exclusivity of its sale in most of the world.
The main problem that arose during the Fallacious Prosperity was the misuse of the income obtained. To begin with, historians point out that 20% was dedicated to paying debts, both external and internal. This point includes the payment of the Consolidation of the internal debt during the Echenique government, which caused a great scandal.
Another 54% was spent expanding the administration, increasing the civil and military bureaucracy. To this must be added another 20% dedicated to building railways, many of them unproductive.
Finally, 7% was destined to replace the income that, until its repeal, came from the indigenous tribute. The State should have also compensated the owners of the slaves when they were freed..
For many historians, corruption was one of the main negative characteristics of this period. The consignees, during their stage, inflated costs and underestimated sales to take advantage of the State.
Later, House Dreyfus paid bribes and extortion to win the contract. Likewise, he also resorted to these methods to build the railways, despite the fact that very few reported benefits for society.
As noted, Peru earned huge revenues from the sale of guano. However, these benefits were not invested appropriately to boost the country's development..
Peru went through a period of apparent bonanza due to the income from guano. Precisely, the term False Prosperity emphasizes that, in reality, it was only appearance and not a real improvement.
Until 1879, the year the war with Chile began, Peru had exported between 11 and 12 million tons of guano. The profits obtained are estimated at about 750 million pesos. The State kept 60% of those profits.
In percentages, in the 1846-1847 biennium, guano represented 5% of the total income of the State. For the period 1869-1875, the percentage had risen to 80%.
All this income did not bring any benefit to the popular classes. According to some experts, it only meant creating a rich country within a poor country.
Those who did benefit were the landowners of the coast, as they received funds through the application of the Internal Debt Consolidation Law and the compensation for freeing the slaves..
In general lines, the wealth produced by guano favored the development of a centralist Lima and Creole State, strengthening the State apparatuses..
The old colonial metropolis, Spain, was going through a serious economic crisis. To try to alleviate it, he tried to conquer the Peruvian territories rich in guano.
Thus, a Spanish expedition occupied the Chincha Islands in 1864. At the national level, this provoked a coup against President Juan Antonio Pezet, in addition to the declaration of war on Spain..
Peru, after the battle of Callao, managed to defeat the Spanish expedition, which withdrew from the Peruvian coast.
The construction of the railroad was the main destination of the money received by the Dreyfus contract. Of the 90 kilometers of railroad that the country had, it was switched to a network ten times greater in just a decade.
However, the cost of the works was higher than estimated. The government saw that Dreyfus' money did not cover the entire project, so it requested two loans from the House of Dreyfus itself. In total, it was about 135 million soles.
Despite the construction of this infrastructure, the result was disastrous for the national economy. The railway was not as profitable as the authorities had hoped and, once it became operational, it did not cover the costs.
In the end, the debt grew out of control, to the point of bankruptcy..
Having based the economy on a single product meant that when, around 1870, the guano reserves were almost exhausted, the entire country collapsed. At that time, it had the largest external debt in all of Latin America on the London market.
In 1872, Dreyfus began to pay the state less and, in 1875, he left the business altogether. Peru ran out of income, increasing its crisis dramatically.
In addition, the payment of the loans requested to build the railway was equivalent, practically, to all the monthly payments that Dreyfus paid, so it was impossible to cut the debt.
The Peruvian government tried unsuccessfully to find another company to replace Casa Dreyfus. Given that, the only option was to declare bankruptcy, something that Peru did in 1876.
The great crisis affected the entire population, since the budget was not enough to pay for the minimum services, including education and health.
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