Ending the oligopolies

Peru’s president wants to shake up the business environment. 

President Pedro Castillo’s assault on Peru’s private sector continues apace, and with little logic. His administration has introduced an executive bill that proposes to amend the constitution to prohibit ‘monopolies’ and ‘oligopolies.’ Thankfully for nervous investors, the broad-reaching and vaguely worded draft legislation is unlikely to be passed by congress.  

A political and economic analyst based in Peru explained, “I think this bill will exert a strongly negative effect on market confidence. Indeed, currently existing legislation would be sufficiently effective in ensuring fair competition if it were better enforced, constitutional amendments are simply not necessary.”

“…currently existing legislation would be sufficiently effective in ensuring fair competition if it were better enforced, constitutional amendments are simply not necessary.”

A political and economic analyst, Peru

A de facto Mergers and Acquisitions (“M&A”) law recently implemented controls by way of oversight from the National Institute for the Defense of Competition and Protection of Intellectual Property (“INDECOPI”). Previously, only the position of dominance was sanctioned when the monopoly was abused. The new anti-oligopoly project that the government is talking about appeared to our sources as demagogic and unfairly punitive. The draft legislation leaves thresholds ambiguous.  

“INDECOPI can investigate and sanction anti-competitive agreements between companies and can also investigate the abuse of a position of dominance of large companies, although it has not done much lately,” explained a former INDECOPI official. 

Since 2019, INDECOPI authorises or prevents M&A according to their impact on the markets. Rather than add to the statute book, it would make more sense if president Castillo moved to strengthen INDECOPI so that it can better exercise its functions by giving it more resources and promote more research and market studies to detect the failures, barriers and regulations that hinder fair competition in Peru. Better still would be to give this entity more autonomy so that it can perform its role with technical independence, exactly the kind of mature oversight that would reassure investors at a time when they are turning their back on Peru.  

The sectors most exposed to the proposed legislation are likely to be the press, including outfits such as the El Comercio group which controls TV channels and newspapers. Media will be specifically “targeted” which clearly has a political motivation rather than an economic one. Other sectors will fall within the line of fire too – given how broad and ambiguous the legislation is. Certainly, monopolies do exist in Peru from media to construction to banking, but the effect of the legislation will be to deter investment. In the neighbourhood, where monopolies exist see Brazil and Colombia it has been innovative startups that have acted as disruptors – Castillo’s administration should take heed of this trend.  

A former INDECOPI public official in Peru explained, “With this bill, the Executive seeks to prevent the growth of anticompetitive concentration in the markets or that companies in concentrated markets engage in “anti-competitive” conduct, but for that there is already a menu of instruments at the INDECOPI. There seems to be a clear political motivation to these latest proposals – it smacks of playing to the populist crowd.”

“There seems to be a clear political motivation to these latest proposals – it smacks of playing to the populist crowd.”

A former INDECOPI public official, Peru

Given pro-business opposition forces, the likelihood of the bill being approved in congress remains low. Such bills form part of Castillo’s populist march as his administration continues to argue the case for a new constitution, anti-business rhetoric forms part of that mission – his efforts to portray business as the enemy is unlikely to cease anytime soon.

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