TCS Daily

The Peru Snafu

By Roger Bate - June 13, 2003 12:00 AM

Last weekend, the Peruvian government, supported by the Pan American Health Organization, hosted health experts from across the region to "help accelerate access to HIV/AIDS treatment." Ironically, the Peruvian government, like so many in South America, is a major reason for treatment failure. Peruvian protectionist policies slow drug access by favoring local producers, probably breaching World Trade Organization rules, and definitely defying economic sense. Their approach means that Peruvian taxpayers, and donor money from around the world is wasted on more expensive domestic products, many of which may be inferior to the cheaper products offered internationally.

Such Soviet-style absurdities would be laughable if they weren't so harmful. There are approximately 70,000 people with HIV/AIDS in Peru; yet less than one percent receives proper antiretroviral treatment. Such massive failure naturally leads local media to find a target for blame, and the Peruvian government is doing all it can to avoid their ire. By focusing on medicine patents, and blaming international drug companies for greedy pricing, the government has deflected attention from their own failing policies.

The Peruvian government's law number 27633 gives preferential, protectionist and discriminatory treatment to local Peruvian companies bidding on government tenders, including those for AIDS medicines. The final cost of drugs is somewhere between 12 and 20 percent above prices that Peruvian officials could obtain without the policy. According to the report Public Procurement and Competition in the Pharmaceutical Market, by the Peruvian agency for intellectual property protection, "the preferential treatment given to goods manufactured locally may have translated in the acquisition of some medicines at a higher price and therefore in an inefficient use of government's resources." This means that just reallocating funds away from domestic procurement could treat an extra 80 to 120 people.

The Peruvian policy flies in the face of rational economics and is even opposed by the Global Fund on AIDS, Tuberculosis and Malaria, which expressly condemns giving preferential treatment to local source production. They say domestic policy should be "consistent with international law...and encourage efforts to make quality drugs and products available at the lowest possible prices for those in need." It is ironic that quality control was high on the agenda at last weekend's meeting since it would be less of an issue if the Peruvian government were not pursuing domestic preferential policies.

One of the reasons that health experts are concerned about domestic production is because they know that the quality can be lower and at least more variable in poor countries, which means efficacy may be much lower. The WHO cannot oversee production quality and its tests are limited to some random batch testing, which is woefully inadequate, but unavoidable, given its budget for this work.

There are longer-term problems with poor quality as well. Jerry Norris, an adjunct scholar at the Hudson Institute says, "quality control is vital to control resistance developing to antiretrovirals." In other words, not only can buying domestic products be more expensive, but it also means assuming an unnecessary risk to the current and future HIV positive population.

Ironically, Peru doesn't even do most of the manufacture of AIDS medicines for which they give preferential treatment. Other countries, notably India, do the complex chemical synthesis - only secondary processing is done domestically in Peru. Incidentally, this is a weakness of both the Argentine and Brazilian programs as well, the latter of which is held up as the international example of best domestic practice, but relies heavily on foreign trade.

The Global Fund recently announced a $23.6 million grant for comprehensive AIDS prevention and treatment programs in Peru, part of which will be used to purchase anti-retrovirals. One wonders whether the Global Fund knows that Peru may be purchasing more expensive and unproven drugs just to help protect domestic industry, leaving many Peruvians without access to treatment. Furthermore, the Peruvian approach contravenes the Global Fund's own procurement policy.

The only good news coming out of Peru is that they have eliminated various duties and taxes previously imposed on imported AIDS medicines. Unfortunately, many other countries in Latin America still tax life-saving drug imports. If last weekend's meeting at least achieved across-the-board duty reductions, it will have been a success. But by declaring national health emergencies, and encouraging support for legislation that favors domestic production, far greater harm continues to be done.

It's time these outdated economic polices were removed. Treating one percent of HIV-positive Peruvians is unacceptably low.

Dr. Roger Bate is a Fellow of the International Policy Network.

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