History of Peru

FAILED REFORM AND ECONOMIC DECLINE, 1968-85

Military Reform from Above, 1968-80

The military intervention and its reformist orientation represented changes both in the armed forces and Peruvian society. Within the armed forces, the social origins of the officer corps no longer mirrored the background and outlook of the creole upper classes, which had historically inclined the officers to follow the mandate of the oligarchy. Reflective of the social changes and mobility that were occurring in society at large, officers now exhibited middle- and lower middle class, provincial, mestizo or cholo backgrounds. General Velasco, a cholo himself, had grown up in humble circumstances in the northern department of Piura and purportedly went to school barefoot.

Moreover, this generation of officers had fought and defeated the guerrilla movements in the backward Sierra. In the process, they had come to the realization that internal peace in Peru depended not so much on force of arms, but on implementing structural reforms that would relieve the burden of chronic poverty and underdevelopment in the region. In short, development, they concluded, was the best guarantee for national security. The Belaúnde government had originally held out the promise of reform and development, but had failed. The military attributed that failure, at least in part, to flaws in the democratic political system that had enabled the opposition to block and stalemate reform initiatives in Congress. As nationalists, they also abhorred the proposed pact with the IPC and looked askance at stories of widespread corruption in the Belaúnde government.

Velasco moved immediately to implement a radical reform program, which seemed, ironically, to embody much of the original 1931 program of the army's old nemesis, APRA. His first act was to expropriate the large agroindustrial plantations along the coast. The agrarian reform that followed, the most extensive in Latin America outside of Cuba, proceeded to destroy the economic base of power of the old ruling classes, the export oligarchy, and its gamonal allies in the Sierra. By 1975 half of all arable land had been transferred, in the form of various types of cooperatives, to over 350,000 families comprising about onefourth of the rural population, mainly estate workers and renters (colonos). Agricultural output tended to maintain its rather low pre-reform levels, however, and the reform still left out an estimated 1 million seasonal workers and only marginally benefited campesinos in the native communities (about 40 percent of the rural population).

The Velasco regime also moved to dismantle the liberal, export model of development that had reached its limits after the long postwar expansion. The state now assumed, for the first time in history, a major role in the development process. Its immediate target was the foreign-dominated sector, which during the 1960s had attained a commanding position in the economy. At the end of the Belaúnde government in 1968, three-quarters of mining, one-half of manufacturing, two-thirds of the commercial banking system, and one-third of the fishing industry were under direct foreign control.

Velasco reversed this situation. By 1975 state enterprises accounted for more than half of mining output, two-thirds of the banking system, a fifth of industrial production, and half of total productive investment. Velasco's overall development strategy was to shift from a laissez-faire to a "mixed" economy, to replace export-led development with import-substitution industrialization. At the same time, the state implemented a series of social measures designed to protect workers and redistribute income in order to expand the domestic market.

In the realm of foreign policy, the Velasco regime undertook a number of important initiatives. Peru became a driving force not only behind the creation of an Andean Pact in 1969 to establish a common market with coordinated trade and investment policies, but also in the movement of nonaligned countries of the Third World. Reflecting a desire to end its perceived dependency economically and politically on the United States, the Velasco government also moved to diversify its foreign relations by making trade and aid pacts with the Soviet Union and East European countries, as well as with Japan and West European nations. Finally, Peru succeeded during the 1970s in establishing its international claims to a 303-kilometer territorial limit in the Pacific Ocean.

By the time Velasco was replaced on August 29, 1975, by the more conservative General Francisco Morales Bermúdez Cerrutti (1975-80), his reform program was already weakening. Natural calamities, the world oil embargo of 1973, increasing international indebtedness (Velasco had borrowed heavily abroad to replace lost investment capital to finance his reforms), overbureaucratization , and general mismanagement had undermined early economic growth and triggered a serious inflationary spiral. At the same time, Velasco, suffering from terminal cancer, had become increasingly personalistic and autocratic, undermining the institutional character of military rule. Unwilling to expand his initial popularity through party politics, he had created a series of mass organizations, tied to the state in typically corporatist and patrimonialist fashion, in order to mobilize support and control the pace of reform. However, despite his rhetoric to create truly popular, democratic organizations, he manipulated them from above in an increasingly arbitrary manner. What had begun as an unusual populist type of military experiment evolved into a form of what political scientist Guillermo O'Donnell calls "bureaucratic authoritarianism," with increasingly authoritarian and personalistic characteristics that were manifested in "Velasquismo."

Velasco's replacement, General Morales Bermúdez, spent most of his term implementing an economic austerity program to stem the surge of inflation. Public opinion increasingly turned against the rule of the armed forces, which it blamed for the country's economic troubles, widespread corruption, and mismanagement of the government, as well as the general excesses of the "revolution." Consequently, Morales Bermúdez prepared to return the country to the democratic process.

Elections were held in 1978 for a Constituent Assembly empowered to rewrite the constitution. Although Belaúnde's AP boycotted the election, an array of newly constituted leftist parties won an unprecedented 36 percent of the vote, with much of the remainder going to APRA. The Assembly, under the leadership of the aging and terminally ill Velasco (who would die in 1980), completed the new document in 1979. Meanwhile, the popularity of former president Belaúnde underwent a revival. Belaúnde was decisively reelected president in 1980, with 45 percent of the vote, for a term of five years.

Return to Democratic Rule, 1980-85

Belaúnde inherited a country that was vastly different from the one he had governed in the 1960s. Gone was the old export oligarchy and its gamonal allies in the Sierra, and the extent of foreign investment in the economy had been sharply reduced. In their place, Velasco had borrowed enormous sums from foreign banks and so expanded the state that by 1980 it accounted for 36 percent of national production, double its 1968 share. The informal sector of small- and medium-sized businesses outside the legal, formal economy had also proliferated.

By 1980 Belaúnde's earlier reforming zeal had substantially waned, replaced by a decidedly more conservative orientation to government. A team of advisers and technocrats, many with experience in international financial organizations, returned home to install a neoliberal economic program that emphasized privatization of state-run business and, once again, export-led growth. In an effort to increase agricultural production, which had declined as a result of the agrarian reform, Belaúnde sharply reduced food subsidies, allowing producer prices to rise.

However, just as Velasco's ambitious reforms of the early 1970s were eroded by the 1973 worldwide oil crisis, Belaúnde's export strategy was shattered by a series of natural calamities and a sharp plunge in international commodity prices to their lowest levels since the Great Depression. By 1983 production had fallen 12 percent and wages 20 percent in real terms while inflation once again surged. Unemployment and underemployment was rampant, affecting perhaps two-thirds of the work force and causing the minister of finance to declare the country in "the worst economic crisis of the century." Again, the government opted to borrow heavily in international money markets, after having severely criticized the previous regime for ballooning the foreign debt. Peru's total foreign debt swelled from US$9.6 billion in 1980 to US$13 billion by the end of Belaúnde's term.

The economic collapse of the early 1980s, continuing the long-term cyclical decline begun in the late l960s, brought into sharp focus the country's social deterioration, particularly in the more isolated and backward regions of the Sierra. Infant mortality rose to 120 per 1,000 births (230 in some remote areas), life expectancy for males dropped to 58 compared with 64 in neighboring Chile, average daily caloric intake fell below minimum United Nations standards, upwards of 60 percent of children under five years of age were malnourished, and underemployment and unemployment were rampant. Such conditions were a breeding ground for social and political discontent, which erupted with a vengeance in 1980 with the appearance of the Shining Path (Sendero Luminoso--SL).

Founded in the remote and impoverished department of Ayacucho by Abimáel Guzmán Reynoso, a philosophy professor at the University of Huamanga, the SL blended the ideas of MarxismLeninism , Maoism, and those of José Carlos Mariátegui, Peru's major Marxist theoretician. Taking advantage of the return to democratic rule, the deepening economic crisis, the failure of the Velasco-era reforms, and a generalized vacuum of authority in parts of the Sierra with the collapse of gamonal rule, the SL unleashed a virulent and highly effective campaign of terror and subversion that caught the Belaúnde government by surprise.

After first choosing to ignore the SL and then relying on an ineffective national police response, Belaúnde reluctantly turned to the army to try to suppress the rebels. However, that proved extremely difficult to do. The SL expanded its original base in Ayacucho north along the Andean spine and eventually into Lima and other cities, gaining young recruits frustrated by their dismal prospects for a better future. To further complicate pacification efforts, another rival guerrilla group, the Túpac Amaru Revolutionary Movement (Movimiento Revolucionario Túpac Amaru--MRTA), emerged in Lima.

Counterinsurgency techniques, often applied indiscriminately by the armed forces, resulted in severe human rights violations against the civilian population and only created more recruits for the SL. By the end of Belaúnde's term in 1985, over 6,000 Peruvians had died from the violence, and over US$1 billion in property damage had resulted. Strongly criticized by international human rights organizations, Belaúnde nevertheless continued to rely on military solutions, rather than other emergency social or developmental measures that might have served to get at some of the fundamental, underlying socioeconomic causes of the insurgency.

The severe internal social and political strife, not to mention the deteriorating economic conditions, manifested in the Shining Path insurgency may have contributed in 1981 to a flareup of the border dispute with Ecuador in the disputed Marañón region. Possibly looking to divert public attention away from internal problems, both countries engaged in a brief, five-day border skirmish on the eve of the thirty-ninth anniversary of the signing of the 1942 Protocol of Rio de Janeiro (Rio Protocol). Peruvian forces prevailed, and although a ceasefire was quickly declared, it did nothing to resolve the two opposing positions on the issue of the disputed territory. Essentially, Peru continued to adhere to the Rio Protocol by which Ecuador had recognized Peruvian claims. On the other hand, Ecuador continued to argue that the Rio Protocol should be renegotiated, a position first taken by President Velasco Ibarra in 1960 and adhered to by all subsequent Ecuadorian presidents.

Along with these internal and external conflicts, Belaúnde also confronted a rising tide of drug trafficking during his term. Coca had been cultivated in the Andes since pre-Columbian times. The Inca elite and clergy used it for certain ceremonies, believing that it possessed magical powers. After the conquest, coca chewing, which suppresses hunger and relieves pain and cold, became common among the oppressed indigenous peasantry to deal with the hardships imposed by the new colonial regime, particularly in the mines. The practice has continued, with an estimated 15 percent of the population chewing coca on a daily basis by 1990.

As a result of widespread cocaine consumption in the United States and Europe, demand for coca from the Andes soared during the late 1970s. Peru and Bolivia became the largest coca producers in the world, accounting for roughly four-fifths of the production in South America. Although originally produced mainly in five highland departments, Peruvian production has become increasingly concentrated in the Upper Huallaga Valley, located some 379 kilometers northeast of Lima. Peasant growers, some 70,000 in the valley alone, are estimated to receive upwards of US$240 million annually for their crop from traffickers--mainly Colombians who oversee the processing, transportation, and smuggling operations to foreign countries, principally the United States.

After the cultivation of coca for narcotics uses was made illegal in 1978, efforts to curtail production were intensified by the Belaúnde government, under pressure from the United States. Attempts were made to substitute other cash crops while police units sought to eradicate the plant. This tactic only served to alienate the growers and to set the stage for the spread of the SL movement into the area in 1983-84 as erstwhile defenders of the growers. By 1985 the SL had become an armed presence in the region, defending the growers not only from the state, but also from the extortionist tactics of the traffickers. The SL, however, became one of the wealthiest guerrilla movements in modern history by collecting an estimated US$30 million in "taxes" from Colombian traffickers who controlled the drug trade.

As the guerrilla war raged on and with the economy in disarray, Belaúnde had little to show at the end of his term, except perhaps the reinstitution of the democratic process. During his term, political parties had reemerged across the entire political spectrum and vigorously competed to represent their various constituencies. With all his problems, Belaúnde had also managed to maintain press and other freedoms (marred, however, by increasing human rights violations) and to observe the parliamentary process. In 1985 he managed to complete his elected term, only the second time that this had happened in forty years.

After presiding over a free election, Belaúnde turned the presidency over to populist Alan García Pérez of APRA who had swept to victory with 48 percent of the vote. Belaúnde's own party went down to a resounding defeat with only 6 percent of the vote, while the Marxist United Left (Izquierda Unida--IU) received 23 percent. The elections revealed a decided swing to the left by the Peruvian electorate. For APRA García's victory was the culmination of more than half a century of political travail and struggle.

Peru at the Crossroads

As García took office on July 28, 1985--at thirty-six the youngest chief executive to assume power in Peru's history--he seemed to awaken hope among Peruvians for the future. Although he had no previous experience in elected office, he possessed, as his decisive electoral victory illustrated, the necessary charisma to mobilize Peruvians to confront their problems. At the same time, the governing APRA party won a majority in the new Congress, assuring the new president support for his program to meet the crisis.

The crisis seemed daunting indeed. The foreign debt stood at over US$13 billion, real wages had eroded by 30 percent since 1980, prices for Peru's exports on the world market remained low, the economy was gripped in recession, and guerrilla violence was spreading. The future of Peru's fledgling redemocratization now hinged on García's ability to reverse these trends and, at bottom, to restore sustained economic growth and development.

Peru History Contents

SOURCE: Area Handbook of the US Library of Congress