Priorities in Developing a Competition Framework in a Developing Economy: The Case of Peru

30 April-1 May 1999, Christchurch, New Zealand

Armando Caceres
Chief Economist, Indecopi


Developing a strong competition framework is a necessary condition for the success of the regulatory reform processes that many developing economies are currently undertaking. Regulatory agencies are in charge of supervising natural monopolies in public services and sectors characterized by distortions and externalities in production or consumption, and they rely mainly on price, quantity and access to the market regulations. On the other side, competition laws and agencies promote and protect competition and economic efficiency, preventing abuses of market power, dominance, exclusionary practices and non-competitive agreements among competitors. From a theoretical point of view, both approaches are complementary and seek to produce significant benefits for consumers and competitors operating in a fair and competitive environment.

Even when these general principles are widely known and recommended, the experience of regulatory reform suggests that agencies usually faced problems related to lack of political support, uncertain rules and limits to regulator discretion, inadequate staffing and budgeting, and limited deterrence power. Both competition and regulatory agencies need to work hard for establishing an institutional framework that guarantees the adequate scope of regulation, sound institutional credibility, independence, policy consistency and coordination among competition and regulatory bodies.

In this discussion, the review of the Peruvian regulatory reform experience proves to be very useful for explaining the obstacles that competition and regulatory agencies faced in the economic development process. After a brief analysis of the general characteristics of the regulatory process, the focus is centered in two strategic sectors of the economy: telecommunications and electricity.

In the case of telecommunications, in Peru the State Enterprise in charge of local and long distance telephony was privatized in 1994, granting a five-year monopoly to a private operator (Telefónica del Peru). At the same time, while the Ministry of Telecommunications kept the main responsibilities for granting access to the market, a specialized regulatory agency (Osiptel) was created in charge of supervising tariffs and competition issues. In 1998, one year before the deadline established in the privatization contracts, the main goals of the process were achieved and the private operator gave up his monopoly rights, establishing, earlier than expected, a period of free competition in the telecommunications market.

In the electricity sector a different model was applied. Here three institutions shared sectorial responsibilities: the Electrical Tariffs Commission or CTE, in charge of regulating domestic and corporate prices; Osinerg, the regulatory agency in charge of supervising the performance of the industry operators; and Indecopi, the competition agency, in charge of the merger review process and other violations of the competition law. The regulatory framework is actually under exam and new challenges for the regulators are being proposed.

The review of both experiences showed the institutional and technical priorities faced in developing sound regulatory and competitive frameworks. The future policy agenda includes both legislative and institutional reforms, to reinforce the deterrence power of the agencies and guarantee credibility and consistency of the regulatory frameworks, and technical and financial independence. These reforms need to be complemented, especially in the APEC economies area, with the development of mechanisms that promote technical and case-by case cooperation.