FINANCIAL AND COMMERCIAL PROGRESS—MANUFACTURING INDUSTRIES
[Illustration: AN INDIAN WEAVING THE PONCHO.]
Few countries have been visited by such great extremes of fortune as
Peru, at one time reckoned among the richest in the world and at another
accounted so poor as to be bordering on bankruptcy. The history of
Peruvian finances is a record of alternate prodigality and economy, of
expensive experiments, abounding resourcefulness, and, through all its
phases, of unlimited faith and resolute optimism. When, with the
proclamation of independence, Peru threw off the yoke of Spain, its
revenues did not exceed two million dollars. In order to maintain the
struggle it was necessary to raise a loan, especially as a large share
of the national income was still under the control of the royalists.
This loan, which was made in London in 1822 for the sum of one million
two hundred thousand pounds sterling at six per cent interest (three
years’ interest was deducted from the principal, of which only a part
was handed over in cash, the rest being delivered in weapons and
ammunition of war), was supplemented three years later by a second loan
for a smaller amount at the same rate of interest. Added to this debt
were large sums in recognition of the assistance rendered by Chile and
Colombia in the war of Independence, all of which contributed to bring
the foreign debt of Peru up to about four million pounds sterling at the
very outset of the national career as a republic. The total value of the
exports at that time did not amount to two million pounds sterling, and
the custom house receipts were less than two hundred thousand pounds
sterling, the remainder of the revenue being chiefly derived from a
contribution levied in place of the tax which Spain had imposed on the
Indians.
Within fifteen years after the inauguration of the republic, the custom
house receipts had more than doubled, and a few years later the
production of guano began to yield such enormous returns that the
country appeared to be once more prepared to hold its own among the most
prosperous nations of the world. In 1850, the loans of 1822 and 1825
were cancelled by means of a new loan in London for three million eight
hundred thousand pounds sterling, and in the same year the internal debt
was consolidated in bonds bearing three per cent interest, to the amount
of a million pounds sterling. Including the debt to Chile and the
floating debt, Peru then owed only about six million pounds sterling,
while the revenue from guano alone was a million pounds sterling a year.
But, as has been shown elsewhere, the rapid acquisition of wealth from
the guano trade brought with it the temptation to reckless expenditure,
to which the unsettled politics of the country contributed in great
measure. The internal debt increased four million pounds sterling in
five years, and each succeeding estimate of the budget showed heavier
expenditures for the government service. At the same time, many
improvements were inaugurated which necessitated the outlay of large
sums.
During General Castilla’s administration, the Peruvian monetary
system,—which had become demoralized after the Peru-Bolivian
Confederation by the circulation, at par, of Bolivian silver money of a
lower standard than the national currency,—was reformed through the
conversion of all inferior Bolivian coins in exchange for those of Peru,
up to the amount of ten million dollars and the prohibition of any
future use of the depreciated coin. The new law established the decimal
system and the double standard of gold and silver, the silver sol, worth
a dollar, being recognized as the monetary unit; though the gold coinage
of that period lasted only a few years, being abolished in a later
administration. In order to carry out the currency reform, and to
consolidate the foreign debt, Peru borrowed, in 1862, in London, five
and a half million pounds sterling, at four and a half per cent interest
and eight per cent yearly amortization, the loan being issued at
ninety-three per cent. All the government revenues and also the receipts
from guano sales in England and Belgium were pledged as a guarantee of
this loan. The seizure of the Chincha Islands by Spanish men-of-war in
1864 made it obligatory for Peru to build a navy strong enough to drive
back the invaders, and, with this object in view, a new loan of ten
million pounds sterling was made in London. The ironclads _Huascar_ and
_Independencia_ were built with the proceeds, part of which were further
employed in the construction of the railway from Mollendo to Arequipa.
A few far-seeing statesmen early recognized the necessity for
establishing a more satisfactory economic régime than that which
governed Peru at this time, and, during the administration of the
Dictator Prado, his Finance Minister, Don Manuel Pardo, inaugurated a
new fiscal system. By means of taxation on certain luxuries and the
levying of an export duty of three per cent on the chief national
products, the government receipts were considerably increased, and it
was hoped that, as the system developed, it would create an important
revenue aside from that produced by guano, which, it was realized, was
an uncertain quantity and mortgaged almost to the limit of its financial
value. Unfortunately, the succeeding administration did not pursue the
same policy, and new loans were made, which brought the foreign debt up
to thirty-three million pounds sterling, the government being obliged to
pay for the use of this loan two million seven hundred thousand pounds
sterling annually. The entire yearly revenue from guano was not more
than two million pounds sterling, and the national credit went down
under the strain of the tremendous obligations imposed on it.
When President Manuel Pardo was called to the chief executive office in
1872, he made a heroic effort to improve the financial condition, which
was one of internal as well as external disorder. The budget of 1873 for
ordinary expenses had been raised to nearly twenty-two million sols (at
forty pence), and a heavy debt of more than that amount was found to be
owing by the custom house and other government offices for credits
recognized and ordered to be paid during the previous period of
prosperity. Nine million sols were still due on railroad construction,
and a suspension of this important work was threatened. Added to these
discouraging features of the situation was the rapid increase in the
production of nitrate, which was becoming a formidable rival to guano,
being prepared and exported free, while the latter was exported for the
account of the State and was the source from which three-fourths of the
funds for the national expenditure were derived. President Pardo reduced
the estimate of the home budget to seventeen million sols, as it had
stood in 1871 and sought, by the only available means, to raise
extraordinary funds sufficient to prevent the disaster of a suspension
of the much-needed railroad construction. But the remedy was applied too
late, and all his efforts were defeated by circumstances which would not
have arisen under normal conditions. The president was obliged to borrow
large sums from the banks, which, under the laws then in force, might
issue notes payable to bearer at sight for three times the amount of
currency they had in hand. The merchants, led by the fictitious
prosperity founded on a flattering but burdensome credit, had given far
too great expansion to their trade, and now that they were unable longer
to use drafts corresponding to the value of guano when making foreign
payments, they were obliged to export coin, which was done until the
supply was exhausted, only the banknotes remaining in circulation. As
the government was not in a position to meet its obligations to the
banks, which, in turn, were unable any longer to convert their notes
into currency, a commercial panic followed, in 1875, with the long list
of business failures that accompany such a dire event. The government
came to the rescue by granting the banks a moratorium, which would
enable them to get the necessary cash to resume the payment of their
obligations in currency; but the government was unable to give any
financial assistance and the required coin for payments in cash was not
forthcoming at the expiration of the moratorium. President Prado, who
succeeded President Manuel Pardo in 1877, arranged a new loan with the
banks, in consideration of which the state assumed the responsibility of
the entire emission of banknotes,—fixing the maximum at eighteen million
sols,—thus converting them into government notes, and establishing the
use of paper money. The war with Chile followed in 1879, and proved the
culminating disaster. But, if the consequences of this war were
deplorable from an economic standpoint, the conditions which they
brought about tried the mettle of the nation and proved its strength.
Plunged from wealth into poverty within a few years, with its commerce
paralyzed, its industries at a standstill, nearly all the private wealth
as well as the national fortune swept away, Peru bent under the crushing
weight of accumulated evils. But, like tempered steel, the national
spirit could bend without being broken; and with every lightening of the
load the inherent strength of the people has shown itself, until,
to-day, its optimistic character is as dominant as ever.
[Illustration: THE LIMA SAVINGS BANK.]
[Illustration: THE BANCO POPULAR, LIMA.]
As soon as the war with Chile was ended by the treaty of Ancón in 1884,
Peru turned to the problem of restoring the national finances, and a few
years later the contract elsewhere referred to was arranged, whereby the
Peruvian Corporation assumed the foreign debt and agreed to complete the
construction of projected railways, in return for certain concessions
and privileges. The country began at once to recuperate, though slowly
at first, as might be supposed, the question of politics absorbing much
attention. Patriotic and capable leaders came forward, however, to meet
the occasion with judgment and foresight. One of the most important
reforms effected was the adoption of the gold standard, which has done a
great deal to attract foreign capital and to inspire confidence abroad.
The government notes that had been issued to meet the needs of war,
became so depreciated in value that they were little used and finally
they were practically withdrawn from circulation by the announcement
that their acceptance was optional; immediately the old coins—the silver
sols—began to reappear, imported from other Spanish-American republics,
especially Central American, where they formed at that time the
circulating medium; the government reopened the mint, and Peruvian
silver was coined into sols; at this juncture the depreciation of silver
arose, and the question of establishing a gold standard was debated. The
idea of adopting a gold standard grew in favor when a second fall in
silver occurred in 1886, adversely affecting the finances of all
countries that used the silver standard exclusively. President Pierola
gave a strong impulse to the proposed measure and Congress finally
sanctioned its adoption in 1897. The legal equivalent of the Peruvian
libra, or pound, was fixed at ten sols, which at once solved the problem
of the value of sols in circulation, amounting to about twelve million.
Then the free coinage of silver was suspended and reimportation of
silver sols was prohibited, though it was a legal tender in Peru.
Congress also passed a law by which custom house duties had to be paid
in gold, at the rate of one pound sterling for every ten sols, which
established the equivalent between the English sovereign and the silver
sols at the rate of one to ten. In December, 1897, a law was passed to
authorize the coinage of the libra, of the same weight and fineness as
the English sovereign, and ordering it to be received by the state as
the equivalent of ten sols. In 1901, it was declared by law that the
monetary unit in Peru was the Peruvian libra and that silver sols were a
legal tender up to the sum of only ten sols; and, two years later, all
the banks came to an agreement to keep their accounts and to perform all
their operations in the new legal money of Peru, the gold libra. The
success and facility with which this important monetary reform was
accomplished does credit to the genius of the financiers who projected
and carried it through.
The fiscal reports of the last ten years show that Peru has made
wonderful progress in the rehabilitation of the national finances and
the establishment of a system of revenue and expenditure which ensures
permanent and solid advancement. A very important share of the credit
for this financial progress is due to the newly elected President of
Peru, His Excellency Don Augusto Leguia, who, as Finance Minister in the
cabinets of President Candamo and President Pardo, gave signal proofs of
his superior financial and administrative gifts. Probably no other
country can show such a rapid increase of revenues due to the
administrative labors of one of its ministers as can Peru, whose fiscal
receipts were raised from twelve million to thirty million sols annually
during his term of office as Minister of Finance. The loan of six
million sols, recently contracted for the purpose of acquiring naval
elements, the creation of the bank of deposits and consignments and
other financial undertakings of great importance to the country have
been effected through his initiative and energy.
Every year shows an increase in the receipts and a decrease of
expenditures under the present government. In all departments of the
fiscal system, reforms have been inaugurated with a view to
strengthening the national finances; the National Company of
Collections, a joint stock company that was formed at the close of the
war with Chile to organize a system of taxation and to take charge of
the collections shows by its latest report that the receipts from taxes
increased more than a hundred thousand sols from the last half-year of
1906 to the same semester of 1907, the collection from July to December,
1907, amounting to two million one hundred and fifty thousand sols. The
interest on the internal debt of thirty-three million sols has been paid
to date; and the claim of the Guano Consignee Company of the United
States has been paid by an issue of fifteen million sols in bonds of the
public debt. The prosperity that has become apparent in all branches of
trade is indicated by the profits shown in the Peruvian Corporation’s
report for 1907, amounting to more than two million sols. The banking
institutions, which have been closely identified with the financial
fortunes of the government, have been particularly successful in their
negotiations during the past year. The bank of London and Peru has had
its securities quoted on the Paris Bourse, and has established a bank of
issue in Bolivia with a capital of two hundred thousand pounds; the
Banco Italiano and the Banco Popular have increased their capital,
besides adding large sums to their reserve funds; the German Bank has
installed branches in Callao, Arequipa, and Trujillo within the past two
years; and the savings banks and insurance companies have enlarged the
scope of their activities.
[Illustration: A NATIVE INDUSTRY OF THE COAST REGION.]
Commerce has felt the stimulus of progressive government, and commercial
enterprise has flourished notably within the past five years. In 1902
the imports amounted in value to three and a half million pounds, the
exports to three and three-quarter millions; in 1906, the value of the
national imports reached five million pounds sterling and the exports
amounted to six million pounds sterling in value. The first half of 1907
showed less trade returns than the corresponding semester of the
preceding year, but the commercial reports for the first half of the
year 1908 give an increase of one hundred and sixty-five thousand pounds
sterling over the total returns for the same period of 1907.
The only export duties charged in Peru are: a three per cent ad valorem
tax on gold in bullion or dust; a charge of forty cents per dozen on
“Panamá” hats exported from Paita; and a duty of twenty cents a
kilogram, gross, or twenty-four cents a kilogram, net, equivalent to
about four per cent ad valorem, on Pará rubber and caoutchouc. The
import duties are more numerous; wines and liquors, tea, coffee, butter,
cheese, and a few other products pay a duty of sixty-five per cent, and
there is a long list of articles on which a duty of from ten to twenty
per cent is charged; but all machinery which is used directly to favor
industrial development is entered free of duty, as are also books and
utensils for the purpose of public instruction.
[Illustration: A COCAINE FACTORY IN THE MONZON VALLEY.]
Foreign merchants have established themselves in all the larger towns of
Peru, and in the coast region they have built up very important
enterprises. The English merchants devote themselves especially to the
wholesale import and export trade, in which they have strong competitors
among the Germans. The French have change of a great deal of the retail
business, particularly in articles of luxury; and the Italians are the
principal purveyors of foreign wines, table delicacies, etc. The
Peruvian merchant has a share in all the trade and Peruvian salesmen
travel throughout the country selling to the merchants of the interior
the goods imported by the larger establishments of Lima and Callao. The
North Americans have established few business houses, but they control a
large share of the mining enterprises, and are financially interested in
the construction of railways and other public works of the country. Some
of the largest commercial and industrial establishments of the United
States send their agents to Peru. But North American trade is still in
the infancy of its development so far as the South American market is
concerned, few shippers in the United States knowing much about the
geography of the great southern continent. When, as has frequently
occurred, merchandise ordered for Lima is sent to Mollendo as the
nearest port, and goods for Arequipa are unloaded at Callao by the
shipper’s orders, it becomes apparent that the knowledge concerning
commercial routes south of the equator is decidedly limited among those
exporters who are already in the field, to say nothing of those who have
not yet entered it. But there is a growing interest among merchants of
the United States in the trade of South America, and every year shows an
increase in the correspondence directed to the Peruvian Consulate at New
York seeking information on this subject. The Consul-General, Hon.
Eduardo Higginson, brings large experience in the foreign service of his
country to the particular task which occupies him in the great
metropolis,—the promotion of commercial relations between the two
countries. The offices of the consulate are fitted up with all the
requisites of a consular bureau, and in its library may be found
literature relating to the industrial and commercial conditions of Peru.
It is impossible that the reciprocity of trade between Peru and the
United States should show any marked improvement until better facilities
can be secured for rapid and cheap transportation. But this is to be
accomplished by the inauguration of the new National Steamship Line,
which, next year, will cover the distance between Callao and Panamá in
four days, and, later, by the completion of the Panamá Canal. From 1902
to 1905 the imports from the United States were increased by twenty per
cent, while the exports to that country remained stationary, and in 1905
declined, owing to the special privileges granted by the northern
republic to Cuban sugars, with which Peru was unable to compete; in the
same period, the shipments have more than doubled from Peru to Great
Britain, where Peruvian sugars enter on equal terms with those of other
countries.
The National Assembly of Commerce is an institution of increasing
importance in Peru. Though recently organized, in 1905, it has already
done much to foster trade and to promote the commercial relations of the
country on a broad scale. When Secretary Root visited Lima, he was made
an honorary member of this organization, which works as a kind of
auxiliary of the Chambers of Commerce, as one of its founders described
it in his address to Mr. Root on that occasion, “to carry into practice
the formation of a world wide legislation which shall mark the courses
in which the inexhaustible current of industrial products ought to run.”
In most of the larger cities, chambers of commerce have been established
to promote not only the direct interests of trade, but also the
development of the national industries, with the success of which the
trade of the country is closely identified.
The encouragement and promotion of manufacturing industry is especially
desirable, and this field of enterprise offers exceptional opportunities
for investment. Like all other South American countries, Peru imports
many articles which could be profitably made at home and for which it
furnishes a large share of the raw material. But, until comparatively
recent years, few factories of importance existed in Peru, and most of
these date from the period when the fall in silver and the consequent
depreciation of the national currency made the importation of foreign
manufactured articles enormously expensive, and encouraged the
establishment of home enterprises to compete for this trade. During the
period of the viceroyalty, the home government prohibited manufacturing
in the colonies, in order to protect the commerce of the mother country;
and in the earlier days of the republic the conditions were not
favorable to the development of this branch of industry.
[Illustration: THE ITALIAN BANK, LIMA.]
The most important manufacturing enterprises are in the hands of the
Peruvians themselves, though Italians and other foreign colonists have
established large factories within the past few years. The manufacture
of cotton and woollen goods by the primitive process used among the
Indians to-day has been in vogue from time immemorial, but not until
nearly half a century ago, in 1861, were the first modern looms
introduced, for the woollen factory of Lucre, near Cuzco, which was
founded by Dr. Garmendia in 1860. The most modern establishment for the
manufacture of woollen goods is that of Marangani, also in the
neighborhood of Cuzco, founded in 1897, with Peruvian capital amounting
to five thousand pounds, which has since been increased to thirty
thousand pounds. The factory is now owned by the heirs of the founder,
the largest shareholder, Don J. W. Rodriguez del Carpio, being also the
manager of the enterprise. English, German, and Belgian machinery of the
most modern manufacture is used, the factory is lighted by electricity,
as are also the houses of the operatives. All the employés are native
workmen, and the managers of the various sections are also Peruvians,
except in one section, of which an Italian expert has charge. The
company provides free instruction for the children of employés, as well
as free medical attendance when required. Cashmeres, flannels, and fine
cloths are manufactured from native wool, chiefly that of the sheep,
though some alpaca is used. Only the dyes are imported, everything else
used in the factory being of native origin, and the dyes are chiefly
made from woods found in the Montaña. The Marangani establishment has
direct communication with Cuzco by telephone, and with all the cities of
the republic by telegraph. It is one of the most progressive and
up-to-date enterprises in South America. The largest cloth factory in
Peru is that of Santa Catalina, in Lima, which produces about a quarter
of a million yards of cashmere and cloths for the army, besides various
knitted goods. It gives work to between seven and eight thousand
employés and its business is increasing annually. There are only four or
five woollen factories in the republic, Arequipa having one of the
larger ones, and Lima another.
[Illustration: VESTIBULE OF THE BANK OF LONDON AND PERU, LIMA.]
The manufacture of cotton goods has progressed with remarkable success
since the establishment of the first cotton factory in 1874. Five large
and flourishing mills of this kind are now located in the environs of
Lima, besides several in other cities, of which the most important are
those of Arequipa and Ica. From these factories, Peru and Bolivia are
supplied with cotton materials, duck, drills, etc., and since their
advent, the importation of cotton cloth from Germany and England has
notably diminished. The annual output of Peruvian cotton factories is
about twenty-five million yards, the consumption of clean raw cotton
being from two to three thousand tons annually. The capital employed is
estimated at between four and five million sols. The Victoria cotton
factory of Lima is one of the most modern establishments of its kind in
Peru, and a visit to the various departments inspires one with
admiration for the systematic and orderly appearance of the place, as
well as the quality of the work done, which is equal to the best turned
out from similar factories in Europe and North America.
The silk industry is still in the experimental stage, so far as the
making of fabrics is concerned, though Lima has a practical school of
sericulture and the Department of Abancay is giving especial attention
to this branch of industry. The making of Panamá hats occupies a
considerable number of the population in Catacaos, Eten, and Moyobamba,
though there are no large establishments having charge of their
manufacture exclusively. For the preparation of cereal and other food
stuffs, several mills and factories have been opened in Lima and Callao.
The flour mills of the Santa Rosa Company and the biscuit factories,
fruit-preserving works, chocolate factories, etc., of these and other
cities employ modern machinery and are successful enterprises. Lima,
Callao, Arequipa, and Cuzco have large breweries and cigar factories,
the latter being also an industrial feature of the towns of Trujillo and
Piura.
Trujillo has, in addition to its other factories, extensive works for
the elaboration of cocaine. This drug has grown greatly in demand within
recent years, and is now prepared in twenty-five Peruvian factories,
some of them located in the region of the coca trees. The factory of
Monzon is among the most important of these enterprises. Peru produces
enough cocaine to meet the world’s demand, the annual output approaching
a hundred tons. It is remarkable that so few of the medicinal plants and
dyewoods of Peru are elaborated in native establishments. Sulphuric acid
could be produced at low cost, and there is a promising field for the
manufacture of dyes. Among the minor manufactures are paper, matches,
leather, cotton seed oil, lumber, ceramics, and similar useful articles
of universal necessity or artistic value.
The Santa Rosa works, inaugurated by the Associated Electric Companies
of Peru, or, as the syndicate is sometimes called, the “Electric Trust,”
is a manufacturing industry of the greatest importance. It is
established for the purpose of generating electricity for the entire
service of electric lighting and the system of railroads and street cars
in Lima, Callao, and Chorillos. The capital employed in this gigantic
enterprise is more than ten million dollars gold, and it is owned and
controlled by Peruvians. The offices of the company are located at Santa
Rosa, in the outskirts of Lima, and the central generating station is in
Chosica. This immense establishment is, to-day, capable of providing
fourteen thousand horse-power in motor force. Nearly all the electric
material for the enterprise was purchased in the United States. The
Associated Electric Companies represent the first appearance of the
modern “trust” in the Andean republic of the Pacific.
[Illustration: PERUVIAN COTTON IN THE FACTORY.]