Alan García and Peru: a tale of two eras

John Crabtree
29 July 2008

The president of Peru celebrated the second anniversary of his second government on 28 July 2008 with a speech to the national congress in Lima. The substance of Alan García Perez's address could hardly have been more different than that of exactly twenty-one years earlier, on the second anniversary of his first government (1985-90). For on 28 July 1987, García had used the occasion to announce his radical (and ultimately fated) decision to nationalise Peru's domestic banking system. This time, he extolled the role of private investment in tackling the country's social ills.

Among openDemocracy's articles on conflicts and politics in Peru:

Ricardo Uceda, "Fantasy Island" (20 September 2005), Ricardo Uceda,

"Peru's election: a second leap into the void" (9 January 2006),

Lisa Laplante, "The cloud of fear: Peru's anti-terror lesson" (7 March 2006),

Justin Vogler, "Ollanta Humala: a Peruvian gamble" (7 April 2006),

Gaby Oré Aguilar, "Peru vs Fujimori: justice in the time of reason" (10 July 2008)

There is substance as well as symbolism in this personal-political transformation. Since becoming president for the second time in 2006, García has sought to bury the memories of his first administration. This began in 1985 with his decision to limit debt payments to 10% of the annual value of exports. He then nationalised a United States-based oil company, Belco, while seeking to overturn Peru's adherence to policies recommended by the International Monetary Fund (IMF) in favour of a heterodox recipe that privileged the public sector over the private. The decision to nationalise the banks was the high-water mark of this exercise in state-led developmentalism.

It all ended in chaos, as hyperinflation and deep recession took their toll. Few Peruvians ever thought that García would dare to try to stage a political comeback. But García, ever a skilful political strategist, proved the sceptics wrong. He only narrowly lost the presidential elections of 2001 to Alejandro Toledo; and in the next contest in 2006, he managed to beat his main contender Ollanta Humala in the second round.

The new Alan García

The "new" García made it clear from the outset that he would not be repeating the mistakes of his first administration. Indeed, he has gone to the opposite extreme in an attempt to bury all vestiges of his earlier preference for a leftwing agenda, much to the chagrin of elements within his own party, the once left-of-centre Alianza Popular Revolucionaria Americana (APRA).

Thus in 2006 and in face of internal APRA complaints, García sought to make common cause with two of the main groupings on the right: the Unidad Nacional (UN) - whose main component is the pro-business Partido Popular Cristiano (PPC) - and the Alianza para el Futuro (AF), a small band of followers of the disgraced former president Alberto Fujimori. In the event, García owed his second-round victory against Humala to those on the right of the political spectrum who saw him as the "lesser of two evils". He has also developed a close rapport with the country's conservative military; García even selected as his vice-president a senior retired naval officer, the first military man to hold the post since Peru returned to civilian government in 1980.

In economic policy, he has forsaken heterodoxy for a stridently neo-liberal approach that gives primacy to the private sector in the development of the country. After his election, García began by appointing well-known pro-business technocrats to key economic positions. For most of this period, his finance minister has been Luis Carranza, a disciple of the finance and prime minister in Alejandro Toledo's government (and formerly a prominent banker in the United States), Pedro Pablo Kuczynski. Among the main achievements of the 2006-08 period has been the signing of a free-trade agreement (FTA) with the United States.

In his foreign policy too, García has sought to identify himself as a friend of Washington in the region - thus distancing Peru from those countries like Bolivia, Ecuador and Venezuela which have adopted a much more critical stance towards the United States. García's position deliberately contrasts with that of Humala, whose election campaign was supposedly aided and abetted by Hugo Chávez's Caracas. Within Latin America, García has sought to make common cause with other key US allies in the region, notably Colombia and Chile. The contrast with the more radical trend represented by his Andean neighbours and Venezuela is sharp.

The yapping dogs

John Crabtree is a research associate at Oxford University's Centre for Latin American Studies. He is the author of Peru under Garcia: Opportunity Lost (Macmillan, 1992), Fujimori's Peru (ILAS, 1998), and Patterns of Protest: Politics and Social Movements in Bolivia (Latin America Bureau, 2005). He is the editor of Making Institutions Work in Peru: Democracy, Development and Inequality since 1980 (Institute for the Study of the Americas, London University / Brookings Institution, 2006).

Among John Crabtree's articles in openDemocracy:

"Evo Morales's challenge" (25 January 2006),

"Peruvians prepare to bite back" (4 April 2006),

"Peru's chessboard" (18 April 2006),

"Peru: the institutional deficit" (23 May 2006),

"The return of Alan García" (6 June 2006),

"Alan García's second coming" (28 July 2006),

"Bolivia: the battle for two-thirds" (18 September 2006),

"Peru: outing the NGOs" (22 November 2006),

"Latin American democracy: time to experiment" (30 April 2007),

"Peru: dilemmas of power" (8 June 2007),

Bolivia: a tale of two (or rather three) cities" (18 September 2007),

"Alberto Fujimori's return: a political timebomb" (28 September 2007),

"Bolivia's controversial constitution" (10 December 2007),

Santa Cruz's referendum, Bolivia's choice" (30 April 2008),

"Bolivia's democratic tides" (1 July 2008).

Alan García's reinvention is nowhere clearer than in his appeal for foreign investment as the motor of the country's development. He outlined his thinking in a newspaper article published in October 2007, entitled El Sindrome del Perro del Hortelano. This loosely translates as a "dog in the manger attitude", and refers to Aesop's fable about the dog which will not allow the cattle to eat. In this article, García bitterly lambasted those who he saw standing in the way of progress, particularly those on the left, pro-indigenous groupings and environmental lobbyists. He advocated the liberalisation of restrictive land legislation to encourage investment to tap Peru's natural potential wealth: agriculture and timber in the Amazon forests, mining in the highlands and the fishing in the Pacific ocean.

The government hopes that the FTA with the United States will bring with it major new US investment in Peru in these primary export sectors. Indeed, the longer-term importance of the FTA has probably less to do with trade than the guarantees it offers foreign investors. The García administration also plans to negotiate FTAs with other key commercial partners, notably China, Japan and the European Union. It is making the most of these new linkages in 2008 by hosting the EU-Latin American/Caribbean summit (May) and the annual Asia-Pacific Economic Cooperation (Apec) meeting of Pacific-rim countries (November).

Peru's attractions as a destination for investment capital have been highlighted by the number of major mining companies that begun operations since the Fujimori government opened the sector for investment in the 1990s. The country's untapped mineral potential plus its favourable tax regime mean that major companies have seen it as a highly attractive proposition, particularly in the context of high prices for key commodity exports such as gold, copper, silver and zinc. Among the latest to join the rush are Chinese companies keen to assure themselves of secure supplies.

The paradoxes of growth

The Peruvian economy has boomed in recent years, mainly thanks to investment and high mineral prices. The growth-rate in 2008 is expected to be around 8%, matching that in 2007. Exports have reached their highest level ever, as have net international reserves at the central bank. The government, aided by rising demand and rising taxation income, has sufficient cash to pay for social programmes as well as provide new capital expenditure for items like road-building.

However - as García's speech to congress on 28 July 2008 acknowledged - the government's main problem is how to ensure that the fruits of growth are shared among the population as a whole, not just the richest 5%. Although poverty rates have fallen over the last five years, more than 40% of the population are still officially classified as "poor" and nearly 20% live in acute poverty. The impact of growth is much more noticeable in the cities of the coast - particularly Lima with its current construction bonanza - than in the highlands or the Amazon region.

Meanwhile, even where social spending is in the ascendant, the mechanisms to ensure that it reaches the poorest sectors of society are woefully deficient. In his speech to congress, García promised to improve on his government's distributive record, but the main problem it faces is the absence of solid, transparent institutions at the local level through which to channel available funds. Peru has long been a highly centralised country whose central governments in Lima have never made it a priority to build local administration; this is even more true of the finance ministry that holds the purse-strings. In addition, corruption abounds at the local level: a disincentive to reform, and a judgment on its absence.

The inflation-popularity scissor

Alan García also faces the political problem of his diminishing popularity as inflation accelerates to 7%, its highest rate for many years - and an uncomfortable reminder of what proved to be his nemesis first time round. The current opinion polls suggest that only around a quarter of the population think he is doing a good job. His approval rating may not be as low as his predecessor (Toledo's hardly reached double digits for most of his period in government, 2001-06), but García is a politician whose eyes are constantly focused on his own popularity. García's falling support is particularly evident among poorer sectors of the population, among women and among those living outside the capital.

The rising tide of discontent was reflected in a one-day general strike on 9 July 2008 organised by the main union confederation, the Confederación General de Trabajadores del Perú (CGTP), and by protests both in the highlands and Amazon region against presidential decrees that make it easier for investors to acquire land from indigenous communities. There are also ongoing conflicts in many parts of the country involving peasant communities locking horns with mining companies over access to land and the contamination of water. In the absence of strong, legitimate local intermediation, such conflicts frequently turn violent.

Yet amid these problems, García's greatest political asset may be the lack of an effective opposition capable of organising and orchestrating political discontent. The parties of the left, once important political actors, are today but shadows of their former selves. The political momentum behind the candidacy of Ollanta Humala (who won more votes than Garcia in the first round of voting in 2006) has been largely dissipated. The parties associated with Humala - the Partido Nacionalista del Perú (PNP) and the Unión por el Peru (UPP) - together represent the largest bloc in congress, but do not operate as a coherent opposition. Meanwhile, the social movements that animate dissent at the local level remain atomised at the margins of the political system.

The next three years

Alan García has until 2011 to establish his legacy: a self-imposed target of reducing poverty levels to 30% of the population and improving income distribution. In his speech to congress he recognised the current dissatisfaction of a large proportion of the population, particularly women who see prices in the markets rising faster than family incomes. So far, however, his government has done relatively little for those Peruvians at the bottom of the pile, most of whom voted in 2006 for Ollanta Humala.

So long as Garcia's opponents remain fragmented and unable to articulate a clear set of alternatives, his government's lack of popularity will not prove destabilising. If, however, a new and viable opposition emerges as the 2011 presidential elections approach, Peru's president may find himself once again - as at the end of his first presidency - in trouble.


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