Peru

Categories: Overview | Political | Economic | Social | Environmental | Rule of Law | Trade Policy | Money
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Full Report: Peru

Overview

1910-1913: A constitutional republic since 1860, Peru enjoys strong economic growth. A large export industry in sugar, cotton, and mining creates modern agro-industrial plantations and mining enclaves, and a large industrial working class. Frequent clashes over social legislation and border conflicts lead populist President Guillermo Billinghurst to threaten to dissolve congress.

1914-1918: The armed forces seize power under Col. Oscar Raimundo Benavides; Jose de Pardo y Barreda then defeats him in elections. World War I disrupts international markets and Peru's externally oriented economy, bringing recession. Social unrest and the Mexican and Russian revolutions' ideas spawn an increasingly militant labor movement. Victor Haya de la Torre leads a new generation of radical reformers.

1919-1923: Former President Augusto Leguía stages a coup and assumes the presidency. In 1920 a new constitution enhances the state's power to carry out social and economic reform. Essentially a dictator, Leguía develops Lima and modernizes Peru, increasing national debt. He quells labor and student militancy, suppresses opposition, and amends the constitution to allow him to run unopposed for reelection.

1924-1930: During Leguía's second term, Haya de la Torre founds the American Popular Revolutionary Alliance (APRA) as a regional party calling for social reform. Leguía bans APRA. At the dawn of his third term, Leguía's rule collapses under the weight of economic depression, a border dispute with Chile, corruption, and a massive buildup of foreign debt. Lt. Col. Sánchez Cerro overthrows him in 1930.

1931-1933: Having deposed President Leguía, Col. Cerro barely defeats Haya de la Torre in the 1931 elections. Peru declares a moratorium on its US$180 million debt and is barred from U.S. capital markets. Cerro's brutal suppression of Haya de la Torre's APRA party leads a militant Aprista to assassinate him in 1933. Congress elects former President Benavides to complete his five-year term.

1934-1939: Benavides nullifies a disputed 1936 election to extend his term. His repression of the left spawns the Peruvian Communist Party (PCP), which links its cause to those of the native Indian and labor movements. Apristas are implicated in acts of political terror. Bolstered by a range of exports, Peru's economy grows. Manuel Prado y Ugarteche, a Lima banker, wins the 1939 presidential elections.

1940-1945: President Prado softens official opposition to APRA while its leader, Haya de la Torre, moderates its reform program, calling for democracy and foreign investment. Prado allows the return of free elections, and in 1945 APRA is legalized and backs the victorious moderate José Luís Bustamente y Rivero in a coalition. Bustamente appoints an Aprista minister of economy.

1946-1950: Under Bustamente, the state increases its intervention in the economy in an attempt to stimulate growth and redistribution. But price and exchange rate controls do not mix well with sagging exports. The resulting inflation and labor unrest destabilize the government. Gen. Manuel Odría leads a coup. The incoming military junta bans the APRA, and Odría becomes president.

1951-1956: Odría returns Peru to dictatorship. World prices for Peru's commodities rise and lead to strong, export-led growth but uneven development. Two new political parties form out of a growing urban middle class: the Popular Action (AP) and Christian Democratic Party (PDC). Former President Prado defeats AP founder Fernando Belaúnde Terry with APRA support in the 1956 elections.

1957-1962: Uneven development, confined to the coast, sparks social mobilization in the interior highlands (the Sierra), rural-urban migration, and peasant/landowner confrontations. APRA veers to the right, and disillusioned Apristas join the AP. Haya de la Torre wins the 1962 elections but lacks the required one-third of the vote to become president. The military seizes power and conducts new elections.

1963-1965: Military rule ends as Fernando Belaúnde Terry, joint candidate of the AP and the PDC and moderate reformer, wins the presidency. Belaúnde effects social, educational, and land reforms, encourages industrial development, and opens up the interior with a new highway system through the Andes. His reforms, however, are insufficient to quell peasant discontent.

1966-1968: The cycle of export-led economic expansion, relying heavily on fishmeal exports, wanes amid budgetary deficits and spiraling inflation. The Castro-influenced, Aprista-led Movement of the Revolutionary Left (MIR) is born. Belaúnde orders the army to put down the movement. The army complies, but subsequently deposes Belaúnde in a bloodless coup. Gen. Juan Velasco Alvarado assumes the presidency.

1969-1975: Velasco suspends the constitution. Under an import-substitution industrialization policy, the state takes control of most industries, including mines, infrastructure services, banking, and the media. Velasco's dictatorial rule is beset by an earthquake, the Maoist guerilla group Shining Path, the '73 oil embargo, inflation, and debt. Gen. Francisco Morales Bermúdez heads a junta and stages a coup.

1976-1980: Gen. Bermúdez implements an austerity program to aid the failing economy. The state accounts for over 35 percent of national production. Continued economic troubles and corruption charges turn public opinion against the military. A new constituent assembly, elected in 1978, drafts a new constitution, adopted in 1979. A year later, former President Belaúnde, turned more conservative, is reelected.

1981-1982: Belaúnde's neo-liberal economic program, emphasizing privatization and exports, fails to bring economic growth. Natural catastrophes and dropping international commodity prices worsen the situation. Soaring inflation leads to civil unrest among the Shining Path and the emerging Túpac Amaru Revolutionary Movement (MRTA). International demand for coca fuels a rising tide of drug trafficking.

1983-1985: Peru experiences an economic crisis. The government responds by borrowing heavily in international markets. Military counterinsurgency techniques against the Shining Path (who reap financial benefits from defending coca growers) and the MRTA lead to human rights violations and only serve to increase the size and influence of the two groups.

1986-1987: Social Democrat and APRA leader Alan García Pérez is elected president. Political violence by guerilla groups continues to spread. García's economic reforms, including price and exchange controls, bring growth and decreased inflation and usher in a brief period of optimism. The political arena becomes polarized after García's controversial decision to nationalize commercial banks.

1988-1989: With the Central Bank overextending its credit and the external current account in deficit, the economy is a shambles. The government comes under fire for the economic woes, political scandal, and failure to stem guerrilla violence. Peru is cut off from international financial markets after it ceases to make debt payments above 10 percent of the value of exports. Support for García and APRA slips.

1990-1991: Political newcomer Alberto Fujimori, son of Japanese immigrants and leader of a new "Change 90" party, wins the presidential election. Once in office, Fujimori reneges on his promise to revive the economy without "shock therapy" and implements a shock package that includes labor, trade, and financial deregulation and courts foreign investment and privatization. Import substitution is abandoned.

1992: Facing mounting opposition, President Fujimori suspends the Constitution, allies himself with the army, and cracks down on the Shining Path. Social conditions decline despite nascent economic revitalization.

1993-1995: Under international pressure, Fujimori reinstitutes an amended constitution and appoints a council of ministers. The government remains highly centralized. Peru experiences robust economic growth driven by foreign direct investment in the form of privatization in several key industries. Favorable economic development brings increased social spending by 1995, but regional disparities grow.

1996-1999: Peru suffers a triple blow: Fujimori's administration weakens; financial turmoil in Asia, Russia, and Brazil scares off investors; and damage from the El Niño weather phenomenon brings a sharp decline in fishmeal and agricultural production and exports. Storms and mudslides cause environmental damage and sanitation challenges. Inflation, however, drops steadily, and the currency remains stable.

2000-2003: Fujimori seeks a third term, but fraud taints his victory. He flees Peru and resigns. Valentín Paniagua Corazao presides over a caretaker government until the election of centrist Alejandro Toledo of the new Peru's Potential party. Toledo launches a national reconciliation and ends antiterrorism laws, but his economic policy disappoints his low-income constituency, and his popularity plummets.

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Political

1985-1987: American Popular Revolutionary Alliance (APRA) leader Alan García Pérez is elected president. The charismatic García enjoys popularity until he bows to APRA pressure to implement radical changes. When his rival Luís Alva Castro is elected president of the chamber of deputies, García announces a surprise plan to nationalize banks in a move to retake political power. Politics become polarized.

1988-1989: Already weak private-sector support for President García dwindles, as it does for his APRA party, which is constitutionally banned from reelection. Author Mario Vargas Llosa leads a Liberty Movement to protest the proposed bank nationalization. García's administration is beset by economic crisis, scandal, and failure to confront the political violence caused by guerilla groups and drug traffickers.

1990-1991: Leader of the new "Change 90" party Alberto Fujimori runs for president against Vargas Llosa. Appealing to small entrepreneurial groups and the middle class with a promise not to implement a "shock" economic adjustment, Fujimori wins a run-off election. Politically inexperienced, he comes to power without a coherent team of advisors and immediately goes back on his promise.

1992: Facing mounting opposition and fearing a military coup, President Fujimori suspends the constitution and allies himself with the army, much to the world's consternation. In response to a government crackdown, Shining Path guerillas step up their campaign of terror. APRA drops its support of Fujimori and boycotts elections for a new congress.

1993-1995: A new constitution provides for a president elected by universal suffrage and a single-chamber congress. President Fujimori appoints a prime minister and a council of ministers. The government, however, remains highly centralized. Fujimori, allowed to run again, is reelected thanks to having tamed inflation and orchestrated the arrest of the Shining Path leadership.

1996-2000: During his second term, President Fujimori has a series of prime ministers, each of whom resigns in opposition to either his economic or political agenda. A border dispute with Ecuador is resolved by treaty in 1998. Fujimori makes the constitutionally questionable decision to seek a third term, but bribery charges taint his victory in 2000. He flees the country and resigns.

2001-2003: Valentín Paniagua Corazao presides over a caretaker government after President Fujimori's resignation. Elections in 2001 see the consolidation of a new party, Peru's Potential, led by centrist Alejandro Toledo, whose rags-to-riches story and part-Indian background appeal to low-income voters. Toledo narrowly defeats former President García and begins dismantling the apparatus of repression.

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Economic

1986-1987: President García pulls Peru out of recession with broad reforms including price and exchange controls to stem inflation. He promotes agricultural growth and decentralization of economic activity. With renewed emphasis on exports and off of import substitution, Peru enjoys two years of economic revival. Agricultural production and manufacturing output increase. The GDP reaches 7.7 percent in 1987.

1988-1989: Peru's economic situation unravels as the Central Bank feels the consequences of several years of overextending its credit to the agricultural sector and state enterprises. With the external current account in deficit, dwindling financial resources, and little private-sector cooperation, manufacturing production falls and the economy contracts.

1990-1992: To eliminate import substitution and return Peru to full participation in world markets, Fujimori enacts a "Fujishock" program more extreme than the IMF's recommendation. He deregulates labor and financial markets, reduces tariffs, courts foreign investment, and launches a privatization program. Economist Hernando de Soto urges that the informal economy be incorporated into the mainstream economy.

1993-1997: Peru experiences robust economic growth driven by foreign direct investment (FDI). Almost 40 percent of FDI is a result of the privatization program that includes telecommunications services, the fisheries industry, and electricity generation, transmission, and distribution. By 1997, however, the poor fiscal management of the 1980s begins to erode economic success.

1998-1999: Peru's economy suffers a triple blow with President Fujimori's political collapse, financial turmoil in Asia, Russia, and Brazil, and severe damage caused by the El Niño weather phenomenon. Local and foreign investors are scared off, the privatization program stalls, and fishmeal and agricultural exports decline sharply.

2000-2003: Favorable weather conditions bring an expansion in the fishing industry and agriculture, enabling a slow but definite economic recovery. President Toledo's incoming administration promises to reduce taxes and tariffs as a way of stimulating the economy. Rail and airport privatizations succeed, but water and electricity company sales cause a massive popular backlash and weaken Toledo's position.

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Social

1986-1987: Improving economic conditions draw many migrants back from the cities to the countryside, where the government implements policies to increase agricultural credit and guarantee prices for key food products. In urban areas, President García implements a new public works program to reduce unemployment. Higher living standards bring hope for continued improvement in social conditions.

1988-1990: With the beginning of a financial and economic crisis, social expenditure begins to fall. By 1990, it is 27 percent of its 1986 level. Minimum and average real wages fall nearly 60 percent in one year. Water and electricity shortages further worsen the quality of life.

1991-1994: President Fujimori announces a series of emergency social programs which go largely unimplemented. Government funds are focused on debt servicing and tackling political violence rather than on social spending. Almost 60 percent of Peruvians live in poverty. In rural areas, much of the population lacks access to basic services. A cholera epidemic illustrates deteriorating public-health conditions.

1995-1999: Favorable economic development brings increased social spending. Growth in the construction, commerce, and agricultural sectors contributes to a reduction in the rate of extreme poverty, but regional disparities grow. The government's social programs reach only a small, usually urban portion of the poor. Indigenous populations fall behind in social and political integration.

2000-2003: The poverty rate stands at 54 percent. While the unemployment rate is 10 percent, approximately 60 percent of the labor force is underemployed. President Toledo's incoming government announces a social policy program valued at US$500 million designed to benefit the country's poorest, but Toledo's popularity plummets amid protests over economic policy and privatization.

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Environmental

1985-1989: Uncontrolled industrial and mining discharges pollute Peru's water resources and coastal areas; rural cultivation of coca destroys its forests. Peru is endowed with South America's widest range of resources but has a weak environmental protection framework. Efforts at regulation are uncoordinated, typified by scattered and conflicting legislation, widespread noncompliance, and poor enforcement.

1990-1994: The government promulgates the country's first Environment and Natural Resource Code. The Code sets forth an outline for an effective national environmental policy, but fails to set up an authority or financial mechanisms for its applications. In the meantime, the opening of the Peruvian market to imported, used vehicles brings a surge in automobile use and, concurrently, automobile emissions.

1995: Congress approves a law creating the National Environmental Council (CONAM), Peru's first environmental authority at the central level. CONAM has a host of responsibilities, from formulation, coordination, and evaluation of national environmental policy to initiation of civil and/or criminal action against polluters. Environmental legislation, still in the development stages, is weakly enforced.

1996-1998: Peru suffers from a particularly severe El Niño effect, the annual warming of sea temperatures of its coast. El Niño brings a combination of droughts and floods, cripples the fishing industry, and wreaks havoc on storm-vulnerable crops. Storms and mudslides also cause environmental damage and sanitation challenges.

1999-2003: The government and private sector begin to cooperate on environmental protection in the tourism sector. Laws governing the timber industry are overhauled, with conditions placed on logging and exports. A 5,000-square-mile stretch of rainforest is transformed into a national park. An environmental movement protests plans for mineral extraction after gold deposits are discovered in the Northwest.

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Rule of Law

1985-1987: The Shining Path spreads control throughout the countryside through sheer terror. President García reduces reliance on military force to combat the guerillas, and the violence spreads. In urban areas, the informal, and often illegal, economy grows as a result of unemployment, underemployment, and a Byzantine bureaucratic system governing the creation of small businesses.

1988-1991: The Shining Path shifts its focus to Lima, where it conducts regular kidnappings, murders, bombings, and attacks on infrastructure. A surge in criminal violence accompanies economic decline. President Fujimori increases reliance on the military for power and passes laws by decree powers awarded him by Congress. Corruption scandals surface at the highest ranks of government and law enforcement.

1992-1993: President Fujimori institutes martial law, suspending Congress and the courts. An emergency rule to combat corruption and terrorism enables the capture and sentencing of a key Shining Path leader, restoring the tattered prestige of Peru's government and police force. Guerilla raids begin to diminish. In 1993 the constitution is restored, with some amendments.

1994-1999: In a controversial move, President Fujimori grants amnesty to those previously convicted of human rights abuses. Government forces end a four-month hostage-taking crisis at the Japanese embassy in Lima by killing Túpac Amaru Revolutionary Movement guerillas and freeing more than 70 diplomats and business leaders. The government strengthens its fight against narcotics cultivation and trafficking.

2000-2003: Fujimori wins fraudulent elections, then resigns, bowing to pressure from opposition parties and evidence of widespread corruption. Presidential advisor Vladimiro Montesinos is apprehended and charged with crimes ranging from corruption to murder. New president Toledo establishes a Truth and Reconciliation Commission which finds that 45,000 people were killed in the two-decade-long civil war.

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Trade Policy

1986-1989: A brief economic boom causes imports to rise significantly in response to domestic demand. Despite a return to a policy of export-led growth, Peru's exports remain low. The external current account falls from a slight surplus to a deep deficit.

1990-1997: Fujimori overturns trade policy to reintegrate Peru into the world trade and financial systems. Direct quantitative restrictions on imports are lifted. Wildly dispersed tariff rates are consolidated at three lower levels ranging from 15 to 25 percent. Peru is a founding member of the WTO. The government emphasizes a raw-material export model, offering incentives to capital-intensive investments.

1998-2003: Economic recession and El Niño cause a drop in exports. A parallel decline in imports narrows the trade gap. Peru enters a customs union with other Andean countries. Development of natural gas fields promises an energy surplus that Peru hopes to export to neighbors. Peru sells its primary exports (fish products, minerals, agricultural products, and textiles) mostly to the U.S., China, and Japan.

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Money

1985-1986: In an attempt to stop the inflationary spiral, President García's administration implements price controls and promotes a generous wage increase before applying wage controls as well. The exchange rate is adjusted, and the government ends the process of continued devaluation. Taxes are cut.

1987: Anti-inflation measures are moderately successful in the short term, with a drop from 163 percent in 1985 to 86 percent in 1987. Capital flight slows; private fixed investment rises. Reduced taxes result in deficit growth for the central government. The IMF makes Peru ineligible for new credit when García decides to stop paying its external debt service beyond 10 percent of the value of exports.

1988-1989: The dramatic increase in Central Bank credit required to uphold price controls and support agricultural expansion combined with the high rate of growth of demand brings renewed inflationary pressures. The currency is overvalued, making exports unprofitable.

1990-1992: President Fujimori's shock therapy program includes cutting subsidies, aggressively collecting taxes, raising prices, and ending two large streams of Central Bank credit. These drastic measures lower inflation from above 2,000 percent in 1990 to 139 percent in 1991. Fujimori renews negotiations with external creditors, but the IMF cuts off new adjustment lending when he suspends democracy in 1992.

1993-1996: The government eliminates restrictions on capital flows and opens the economy to foreign investment. Constitutional amendments in 1993 provide the basic legal structure for foreign investment, furthered in 1996 by an Investment Promotion Law. The economy becomes increasingly dollarized, with 80 percent of bank deposits and 85 percent of debts in U.S. dollars.

1997-1999: Political turbulence, international financial crises, and economic recession keep spending down and scare off foreign investors. A number of bank mergers and failures affect the financial system. Inflation, however, drops steadily, and the currency remains stable.

2000-2003: Inflation reaches a record low of 3.7 percent. In agreement with the IMF, the government maintains a floating currency, refusing to peg it to the U.S. dollar. Peru's financial sector remains relatively stable, but the country is burdened with foreign debt payments representing 56 percent of GDP.

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Categories: Overview | Political | Economic | Social | Environmental | Rule of Law | Trade Policy | Money
Graphs: Growth | Income | Inflation | Unemployment | Well-being | Trade Volume | Trade (CAB) | Spending

Related: LinksView all categories for years from to | See Full Report | Print