Daniel Gross offers an interesting look at Peru, a country that’s weathering the recession fairly well thanks to sound policy:
In the latter half of 2008, being a poor, export-dependent, commodity-producing country set you up for a vicious downturn. But Peru has weathered the storm, in large part because President Alan García, an old leftist turned center-leftist, and the Peruvian central bank have proved adept at a set of capabilities notably lacking in the United States in recent years: sound fiscal and financial management. Fearful of a return of hyperinflation amid rapid growth, Peru’s central bank raised interest rates throughout 2008. Instead of spending the foreign currency that piled up on its books ($32 billion at the end of 2008), the government saved it. In 2008, Peru ran a $3.3 billion budget surplus.
And so, when troubles came, it was able to respond in textbook fashion. In December 2008, García announced a stimulus program, promising to boost government spending by $3.2 billion, and to take up to $10 billion in further measures. The total of $13 billion in promised stimulus doesn’t sound like much, but that’s equal to about 10 percent of Peru’s GDP. (By contrast, the big stimulus package Congress passed in February was about 5 percent of U.S. GDP.) The central bank’s 2008 vigilance against inflation left it with plenty of room to cut rates. So far this year, it has reduced the benchmark lending rate from 6.5 percent to 2 percent.
Peru’s economy took a hit in the first half of 2009 but never stopped growing. This even though commodity-exporters tend to get hammered by recessions even when they d>o everything right, and even though stimulus efforts tend to be less effective in small countries (more “leakage” of funds outside your borders) than in large ones. Recall that the United States could have been in a position to do this were it not for the fact that George W. Bush was a very bad president and a shockingly large number of bad members of congress from both parties chose to embrace his terrible ideas about public policy.
Had we left taxes where they were when Bush was inaugurated and refrained from invading Iraq, we would have been running substantial budget surpluses and done a good deal to pay down the national debt. Thus, when a big recession hit we would have been in a position to do a stimulus program that was much larger than the American Reinvestment and Recovery Act (meeting liberal objections to ARRA) while also keeping our debt-to-GDP ratio lower than it is (meeting conservative objections to ARRA). Millions of currently unemployed people could, instead, be employed.