In 1968, the new regime in Peru ended the era of ISI as a development strategy. Instead, export promotion was hailed as the new engine of development. This paper will argue that even though this is in conception a radical shift in policy, it has in practice accomplished almost identical (and equally unsatisfactory) results. Both strategies have relied upon industrial expansion to solve the unemployment problem, and both have concentrated entirely on the modern sector at the expense of the traditional sector. The welfare effects of both policies are thus unsatisfactory. The failure of the new strategy may have been a result of the regime's placing too much reliance on private investment and initiative. The remedy may well be a more influential state role. A crippling budget constraint has previously prevented such an expansion of state participation. This is a problem that has yet to be solved.