There is a founding story Pablo Bustamante tells about his own family, and it sets the tone for everything that follows.
Before entering Peru, Francisco Pizarro’s expedition was on the verge of turning back to Panama. Pizarro drew his sword, cut a line in the ground, and told his men that whoever wanted the gold of Peru and the future should cross it. Thirteen men did. One of them founded Arequipa, and he was Bustamante’s ancestor.
“It’s a tradition that says always cross the line, don’t fall behind. Regret doing something — not not doing something.”
Bustamante is from Arequipa, born, as he puts it, surrounded by three volcanoes. Elena Panaritis met him during her own first years in Peru, when she was a young economist on the first World Bank mission to the country in nearly a decade. The Bank had halted operations. So had the IMF. Peru had defaulted on its sovereign debt.
This episode is about what happened next — and specifically about the part of it that no macroeconomic program contained.
How a country loses its civil service
Bustamante’s account of Peru’s collapse does not start with debt. It starts with vocation.
Before the 1968 Velasco military revolution, he argues, Peru worked reasonably well. It was poor and had few prospects, but it had public teachers, doctors, and nurses, and it was decent and predictable. That revolution broke the arrangement, and out of the mid-1970s came a hyperinflation that ran for a quarter of a century, culminating under Alan García in inflation of 7,500% in a single year.
Then he explains the actual damage, which is not the number.
Subject a public servant on a fixed income to 40% inflation for a year, and they lose immense purchasing power. Do it for three or four years, and they are bankrupt. So Peru’s civil servants started doing other things — selling empanadas, baking bread, driving taxis, babysitting.
“They disaffiliated themselves from their vocation, from their profession. Public offices ceased to have any vocational meaning, because the person was already desperate, looking for a way to support his family.”
That is the origin, in his telling, of the militant teachers’ union that framed itself around class struggle: a way to make teachers’ poverty visible and negotiate with the state. The same thing happened to the police, the doctors, the nurses.
By the time García’s government ended in 1990, the state collected 3.8% of GDP in revenue. More than 60% of the population was poor. Peru’s largest company billed $600 million a year, at a time when an Ecuadorian company billed two or three times that.
Bustamante had a Canadian visa in 1987. He was 35. Then Mario Vargas Llosa launched his campaign to recover Peru, and Bustamante gave up the visa and joined Libertad instead.
Making a country predictable again
The 1990s reforms are usually described as market liberalization. Bustamante describes them as something narrower and more interesting: an exercise in predictability.
The 1993 Constitution gave the central bank autonomy, creating a monetary anchor people could invest against. It set rules governing investment by Peruvians and foreigners alike. It offered stability contracts.
Why did contracts matter so much? Because credibility, once lost, does not return on its own. Bustamante’s illustration is precise and slightly brutal:
Around 1992, Britain devalued the pound by 15%, and investors read it as reform — time to invest. Brazil devalued by 15%, and investors read it as the onset of disaster and left.
“Our history condemned us to being people who did not generate trust.”
Same action, opposite interpretation, because the interpretations were about history rather than economics. The anchors and guarantees written into the new constitution were the only way to buy a different reading.
The clause that made land unusable
Panaritis brings the conversation to the piece she was working on, and it is the hinge of the episode.
Land and labor are the foundational assets of any economy — later evolving into technological capital and ideas. But Peruvian law treated land as indivisible and inalienable, formally owned by the male head of a family.
Reality bore no resemblance to this. Land had been cut into pieces and occupied by enormous numbers of people — and much of that occupation had happened with the state’s own participation, through the expropriations that began under Velasco.
So the country had a legal framework describing land nobody actually held, and millions of people holding land the framework could not see.
Panaritis’s response was a pilot. She raised more than half a million dollars from the Japanese government — outside the World Bank’s budget — for a one-year project to demonstrate what applying property rights would do: registered titles, for security, across 150,000 plots. Each plot had two or three families living on it.
The pilot ended. The World Bank declined to turn it into a project. It was 1993, inflation was not yet beaten, and the government did not feel ready.
The idea did not die there, because the private sector picked it up.
$500, a title, and a revolving loan
Bustamante’s move is the most quietly radical thing in the episode.
With the state imploded, Peruvians had invented their own jobs and acquired property through informal land invasions. As inflation fell in the early 1990s, he saw an opening: for thirty years there had been no consumer credit in Peru at all, except for corporations. Stores offered six or eight months of credit at around 200% a year. Informal lenders — who still operate — charge closer to 500%.
He founded Orion in 1992 and started with consumer credit for appliances. But families did not only need televisions. They needed to educate their children and to consolidate their property.
So he went looking, and found the property registry Panaritis’s pilot had helped build: roughly 150,000 records, and not a single bank using it.
The registry had been left to sit. He struck an agreement, supplied it with computers and resources, and invested in growing it to around 350,000 records. Then he designed a loan product for the self-employed and the informal, called Carpa: an annual revolving loan for self-construction.
The offer to a citizen was simple. $500 to expand your house — and we get you the title in the property registry, which improves both the security and the value of what you already occupy. One-year term, renewable.
The product outlived Orion, continuing at other banks. And it kept the registry alive.
Bustamante’s conclusion, delivered to a room of economists, is the one that stuck:
“There is proof that this is economics. The market takes care of it on its own. The market went to the registrar and found out how to work more with these people.”
Panaritis’s reflection is more rueful. Property registration, she notes, was simply an assumption in her training — economists are taught that these things exist. It took a younger person willing to ask naive questions to notice that they did not.
It then took roughly seven years of lobbying her own colleagues before the World Bank made it a project, alongside the creation of Cofopri. Her explanation for the friction is unsentimental: some people do not want registries, because they do not accept that possessors have a right at all.
Are informal workers actually unproductive?
The best analytical passage is Bustamante’s challenge to a statistic everyone repeats.
The informal sector is described as having very low productivity. He asks what happens when you total up what informal operators actually pay: bribes to municipal police, fees for municipal paperwork, payments to fixers, plus financing costs of 200% to 500% a year.
Carry that load and still build significant assets — which is what Peruvians did — and the conclusion inverts. They are extraordinarily productive. The costs are simply not counted as costs, because they are not legal ones.
Those perverse credit circuits, as he puts it, “somehow steal part of the productivity” of the Peruvian.
The same instinct shows up in how his teams solved problems. To extend credit to corner shops with no financial statements, the inspector would walk in and count the cans of Gloria milk on the shelves. That count was the proxy for cash flow, and the credit was granted on it.
His team also structured the first loan portfolios in Peru sold on to other institutions — securitization structures built before the process existed in the country at all. Many of those young collaborators went on to populate the financial system.
“It was a decade of creativity, innovation, needs that had to be met. Very interesting, very beautiful.”
A laboratory where a single pill is for sale
Asked what makes Peru distinctive, Bustamante’s answer is about supply meeting need at any scale.
In Peru you can have lunch for one and a half soles from a handcart, or for $100 in a restaurant. You can travel for one sol in a mototaxi or $100 in a limousine. In Chile you cannot buy a single cigarette — you buy the pack. In Peru you can buy one cigarette, or a single pill at the pharmacy.
“Here, what’s needed is offered. If people need to buy a cigarette or a pill, there are people who will do it.”
He calls it a laboratory: a country full of opportunity where you can invent ideas and projects and pursue them.
Panaritis frames the phenomenon as the strength of the ordinary citizen to create their own work, generate property, and accumulate wealth — something she argues has not been matched in Colombia or Chile. But she adds the correction that runs through the whole series: the market works once you have the institutions.
Institutional reform belongs to everyone
The closing exchange is about ownership of a different kind.
Panaritis describes the argument of her book: institutional reforms are reforms of the people. Who takes credit for clean air? For clean water? Everyone who voted for them.
“An institutional reform is a democracy of everyone. So everybody is owner of that.”
The macroeconomic work — fixing hyperinflation, fixing debt — is the base. But a country that has fixed only that is still strained and bottlenecked by legal and bureaucratic rigidity. Property rights reform is what opened Peru up to far more people.
And it required persistence measured in decades. Bustamante, from Arequipa, and Panaritis, Greek by birth and self-described camouflage Latin American, settle on the same description for it: more Spartan than Athenian.
Takeaways
- Hyperinflation destroys institutions by destroying vocations. Underpaid civil servants moonlight, then stop being civil servants in any meaningful sense.
- Credibility is historical, not technical. The identical devaluation reads as reform in one country and catastrophe in another.
- Law can describe land nobody holds while millions hold land the law cannot see. That gap is informality.
- Registries are worthless until someone uses them. A bank lending against titles is what turned Peru’s registry from an archive into an asset.
- The “low productivity” of informal work is an accounting illusion once bribes, fixers, and 500% interest are counted as the costs they are.
- Reform needs a private-sector counterpart. The pilot stalled at the World Bank; a lender with a $500 product carried it forward.
Reality Check with Elena challenges perceptions and introduces untold stories that shape realities on the ground. Watch Episode 4.
