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Peru Economy Grows, But Problems Abound
Scandal, Protests, Guerrillas Plague President

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.

García is also facing rising violence from the Shining Path, the communist guerrilla movement that caused havoc in his first administration. García has launched a new offensive against the remnants of the group, and 17 soldiers were killed last month, the most in years. Nearly half the estimated 70,000 deaths that resulted in the fight against the group from 1980 to 2000 came at the hands of the Peruvian military, according to the country's Truth and Reconciliation Commission. Many government officials, including García, have been accused of war crimes during that period. García attracted fresh criticism recently when legislators from his party proposed an amnesty for members of the military and police facing trials on human rights violations.

García's supporters believe he is being unfairly blamed for the country's problems and has not received enough credit for its strong economic performance. Peru's economy grew by nearly 9 percent in 2007 and is projected by the IMF to reach similar levels this year, higher than any other country in Latin America. The government says the poverty rate has fallen, from more than half the country affected to 39 percent.

First Vice President Luis Giampetri blamed García's current unpopularity on inflation creeping up, as well as regional officials' failure to spend all the money coming from the central government.

"They continue thinking that the government is responsible, when at this time they're the ones with money to invest," Giampetri said.

Before the 2006 election, García apologized for past mistakes and presented himself as a changed man. In a series of essays and books, he laid out his new free-market vision of how to develop Peru by exploiting its natural resources, including mineral wealth, to generate jobs, while also encouraging major foreign investment. Developing the millions of acres of idle and unused lands and mineral deposits does not benefit only large companies, García wrote in one essay, "but also will create hundreds of thousands of formal jobs for Peruvians who live in the poorest zones of the country."

García has said he wants Peru to be a First World nation by 2021, its bicentennial year, but some political observers say his rush to modernize has not been inclusive. "Drag them out of the jungle and the highlands, concentrate more people into larger cities where the state can provide them with services, and put all those lands in value, with large-scale private investment," Sanborn said, describing García's approach. "And really no concern with rights and consensus-building and consultation."

Giampetri said García is essentially a "pragmatic" politician who realized there was no escaping globalization and that leaders such as Hugo Chávez in Venezuela and Evo Morales in Bolivia are "marching against history."

"We have an advantage over other countries in Latin America: We have lived very closely with the communist ideas in the country in the time of the military government," Giampetri said. "This historic memory has made it clear that the system of supply and demand, of free enterprise, is the system that until now has worked better."

But others say that while the macroeconomic numbers look good on paper, not enough people say they are benefiting.

"There's growing frustration, after all we've gone through, after all the violence and the crisis, we still don't have a government who is paying attention to the people," Burt said.

Special correspondent Lucien Chauvin contributed to this report.

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