Peru Economy Grows, But Problems Abound

Alan García can only improve over his first term.
Alan García can only improve over his first term. "He was the worst president that Peru's ever had," an observer says. (By Edgar Romero -- Associated Press)
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By Joshua Partlow
Washington Post Foreign Service
Sunday, November 16, 2008

LIMA, Peru, Nov. 15 -- These should be good times for president Alan García.

His country posted 9.9 percent economic growth in September at a time when world economies were crashing. He nailed down a free-trade agreement with the United States and is negotiating similar accords with China, Japan, Singapore, Canada and the European Union. The wealthy are eating seviche in beachfront restaurants of the capital while luxury high-rise apartments keep going up around them.

"Anything could happen in 2009 and 2010," García told investors at a business conference last month. "Except a recession in Peru."

And yet, times are tough for García. He purged his cabinet amid an ongoing scandal over whether officials in his government received bribes in return for oil exploration concessions. He has declared a state of emergency in four provinces to quell violent social protests over distribution of mining revenue. The Shining Path, which terrorized the country in García's first term from 1985 to 1990, recently launched a series of attacks. And his approval ratings had sunk to 22 percent in October, the lowest level since he took power a second time in July 2006.

García knows quite a bit about bad times. During his first term, things could not have gone much worse. He took power at age 36, a young leftist populist whose thrilling orations from the palace balcony captivated the crowds. His approval ratings hit 90 percent -- before they came crashing down. Seven-digit inflation, a bloody battle against the Shining Path, soaring poverty and corruption scandals left him widely reviled.

"He was the worst president that Peru's ever had," said Jo-Marie Burt, a professor of political science at George Mason University who studies Peru. "This is his chance to reclaim his place as a good president."

He is also trying to be a much different president. García still wears a sash and carries a miter, has the same shock of black hair and heavyset frame, but he has transformed himself. No longer the firebrand leftist who stiffed the International Monetary Fund, cut the military budget and tried to nationalize the banks, García returned to power somewhat chastened, preaching "responsible change" rather than revolution, and with a new conservative faith in markets. This transformation has made him popular with the business community in Peru and abroad, but his critics see it as another example of how out of touch he is with his people and the region, as left-wing movements have taken hold in Venezuela, Bolivia, Ecuador and elsewhere.

"Now, when the world is changing, changing the relationship between the state and the market, looking for new alternatives, García is clinging to the past," said Ollanta Humala, a leftist politician who lost to García in 2006. "We have had two years of abundance and growth, which has not been reflected in development, particularly for the majority, who continue in conditions of economic subsistence."

Many of the recent social protests have revolved around the growing perception that poorer Peruvians are not being helped by the big mines and dams that García has championed. In the southern region of Tacna this month, protests broke out over changes to the law that returns tax revenue paid by mining companies to the regions where they operate. Mobs looted and burned government buildings, two protesters were killed by police, and the government declared a 30-day state of emergency. The number of social conflicts tracked by the national ombudsman's office reached 189 last month, more than twice the level of the previous October.

"The mineral bonanza in this country has been accompanied by significant conflict between large firms and the communities," said Cynthia A. Sanborn, a political scientist at the Universidad del Pacifico in Lima. "The boom brings with it a lot of conflict, it doesn't generate enough employment and it doesn't reduce poverty."

A scandal known as Petrogate has also politically damaged García, whose first administration was dogged by corruption. Audiotapes made public last month cited the ruling American Popular Revolutionary Alliance party in allegedly taking kickbacks for granting five concessions to Discover Petroleum, a Norwegian oil company. The cabinet resigned en masse and García eventually replaced six of the 17 members, including the prime minister. The new prime minister, Yehude Simon, was accused of terrorism and jailed for eight years during President Alberto Fujimori's administration in the 1990s before being pardoned. He is considered to have more liberal views than García.

"It's a very audacious selection by Alan García. Some people might call it an effort to co-opt the left," Burt said.


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