Pedro-Pablo Kuczynski

No economic-policy czar in Latin America has a more glittering resume than Pedro-Pablo Kuczynski. A graduate of Oxford and Princeton, Kuczynski was not yet 30 years old when he was named deputy director of Peru's central bank in 1967. An outspoken champion of the export-led, free-market policies that have drawn fire throughout South America in recent years, he was appointed Economy and Finance minister by Peru's newly elected President Alejandro Toledo in 2001--and was fired a year later amid violent protests over proposals to privatize state-owned electric utilities. Kuczynski returned to the ministry a year ago this month, and during both of his cabinet stints Peru has outperformed nearly every other Latin American economy. Now the 66-year-old finance man is being mentioned in some quarters as a possible candidate in next year's presidential elections. NEWSWEEK's Joseph Contreras spoke with him earlier this month. Excerpts:

KUCZYNSKI: We had made a lot of progress on the economy, and I felt that if I came back I had a chance of getting this to be a more permanent feature. And it has turned out to be the correct bet. Our growth last year was 5 percent, with lowish inflation of 3.5 percent.

Toledo comes after almost 30 years of either dictatorships or governments that weren't so democratic. People expect Toledo to solve all the problems of the last 30 years, which included an enormous increase in relative poverty, so I think part of his unpopularity comes from that.

This administration has done nothing to change the rules of the game. It remains an economy that's very open and very liberal [with] no capital controls and relatively low tariffs. The international environment is highly positive. How can you miss, when copper is $1.40 a pound, gold is above $400 an ounce and zinc is $1,000 a ton? You'd have to be a total dunderhead to miss in those circumstances.

Something happened between 1998, when all Latin American countries were hurt, bank lines of credit were cut and commodity prices fell, and now. Despite the recession, countries made progress in reducing their deficits and putting their house in financial order. The ratio of debt to gross domestic product is much lower. Countries are less vulnerable than they were six or seven years ago.

I'd say it's a picture of progress and financial strengthening, but there are still some underlying problems.

There's still a latent [threat of] inflation in Brazil, which the central bank fights with very high domestic interest rates. Venezuela is in a very strong financial position right now because of high oil prices, but investment is slow, there are investment disputes and the direction of the country is somewhat uncertain. Certain areas of the Argentine economy have unrealistic price controls, like utilities, and that's holding back investment.

Labor markets are not flexible enough, you have very high costs [for firing workers] in some countries and employers are reluctant to hire people as permanent workers. Corruption is still a problem. There are still a lot of things that could be either fully privatized or farmed out to the private sector.

Much tougher. In the early 1990s you had power blackouts and water cuts. That doesn't exist anymore, and privatization [of utilities] has been very successful in terms of the quality of public services. So there's no pressure to privatize anything.

[ Pauses ] One should not harbor ambitions that cannot be met because it's hard to get elected president of Peru. Certain things are very clear. The population is fed up with politicians.

[ Laughs ] I didn't answer your question because I'm thinking about it. It has crossed my mind; I don't rule it out. But I do not underestimate the difficulties. It has crossed the minds of many others, so we have to see in the next few months if this is a possibility.