He was supposed to be something radically new in Peruvian politics--a president from humble origins and largely of Indian extraction, a man totally untainted by the corruption of past governments and largely independent of the traditional political classes. Today, midway through his term, President Alejandro Toledo presides over a mess of troubles. His approval rating, which hovered around the sixtieth percentile when he took office two years ago, has slid to 14 percent. While nobody doubts that he will finish his term, where his country will go from here is in serious doubt. Some of the signs on the horizon are far from reassuring.

If macroeconomic indicators told the whole story, Toledo would be riding high on a crest of public approval. The country's gross domestic product expanded by 5.2 percent last year--virtually the best rate in the region--and it continues to grow this year at roughly 4 percent. Inflation is low; the currency is stable; Peruvian bonds are performing well in international markets. Unfortunately, much of this is due to an expansion of natural resource exports and does not trickle very far down the income pyramid. The country's minimum wage remains at about $120 a month, and more than half the country's 27 million people live in poverty. More significantly, according to the Lima Chamber of Commerce, the number of urban residents employed in companies with more than ten employees has been stagnant since 1998. Underemployment or disguised unemployment in the capital is estimated at 60 percent.

These dismal figures are the first course for an unappetizing meal. Toledo himself--a Stanford-trained economist and former functionary of the Inter-American Development Bank--has been something of a disappointment even to his followers. Since his inauguration his government has been tainted by scandals, including the startling revelation that his wife (a Belgian-born and self-styled leftist "anthropologist") was receiving a $10,000 monthly stipend from a European bank for her (unspecified) services as an "adviser." Upon taking office the president promptly tripled his salary to $18,000 a month, making him one of the best compensated publicly elected chief executives in the region--in one of its poorest countries. His tactless response to criticism was to reduce that figure to a mere $12,000. Rumor also has it that he has been enjoying an extremely stimulating nightlife in Lima.

Moreover, the fact that he was independent of any political party--an asset in the presidential race--has proven to be something of a liability since he took office. Without anything approaching majority support in the Congress, he is slowly being forced to come to terms with Peru's only important political party, the APRA, led by former President Alan García (of whom more momentarily). Hovering in the background is another force, Bandera Roja, an extreme left organization, which controls much of Peru's labor movement and has a reach into the country's Indian communities. Many of Toledo's former supporters are drifting into its camp.

Just how volatile the political situation in Peru has become was demonstrated this last May by a month-long strike of teachers, joined by farmers and government workers, forcing the government to declare a state of emergency. When the dust settled, the teachers were forced to accept half the amount they had demanded--a $29 a month increase. But the farmers, who blocked roads, were not so easily bought off, since their demand is that the government end the importation of cheap foodstuffs. Meanwhile, Toledo's opponents have derived considerable political capital from violent clashes that took place during the strike between soldiers and protestors in Puno, a town some 500 miles southeast of the capital, and led to the shooting death of one university student.

To listen to Toledo's critics--the unions and opposition parties, particularly the APRA--one might imagine that he had embarked upon a radical program of restructuring Peru's economy along market-oriented lines. Their prescription for what ails the country is unadulterated populism-a huge burst of public spending, abolition of indirect taxes, and heavy levies "on those who have the most." It's all quite simple for Mario Huamán, president of the country's largest labor federation. "By eliminating tax exemptions for the large economic groups worth more than a billion dollars," he told an Argentine newspaper, "teachers can get a substantial raise and new jobs will be created."[1]

This kind of thinking--that abundance is hiding somewhere under a rock, if only the politicians will have the courage to turn it over--has plagued Latin American politics for more than fifty years. While Peru, like most Latin American countries, needs serious tax reform, soaking the rich alone will not suffice. The country's welter of regulations has driven millions of Peruvians into the informal sector--now thought to occupy roughly half the country's economic activity. This includes not merely unlicensed vendors, currency traders, and taxi drivers, but also people involved in money laundering for drug operations. By the most conservative estimates, these illicit operations are costing the Peruvian treasury $70 billion in revenue each year. Some put the number at nearly double that figure. Yet so far Toledo, though tarred as a "neoliberal" by his opponents, has done little to dismantle these barriers. At the same time, earlier plans to privatize the country's electrical system, which would have both created new jobs and spurred economic growth in the regions outside of Lima, were shelved at the first whimper of opposition.

Recurrence of Two Old Plagues

Meanwhile, two problems that plagued Peru in the past seem to be reemerging. The first of this is the reappearance of the Sendero Luminoso (Shining Path) guerrilla movement, responsible for the death of more than 30,000 Peruvians between 1980 and 1992. By capturing its founder, Abimael Guzmán, and many of his key associates (now serving extended prison terms) and enacting strict antiterrorism laws, former president Alberto Fujimori had apparently brought the Sendero to its knees. Early last month, however, a group of sixty-two guerrillas (including five women and seven minors) surrounded a construction camp belonging to the Argentine firm Techint in the province of Arequipa and stole radios, nearly 3,000 sticks of dynamite, and detonators. Techint is in the process of constructing a pipeline to carry natural gas from Peru's Amazon jungles across the Andes to the Pacific coast. The Sendero have stated that their ultimate intention is to blow up the line, once built, if they do not receive a handsome payment from the company.

This incident has reopened debate in Peru over how to deal with terrorism. During the Fujimori years, the Peruvian army and police were frequently criticized by international human rights groups for their "shoot first, ask questions later" style of counter-insurgency. On the other hand, it obviously worked. Now Toledo's critics (and Fujimori himself, living in exile in Japan) are arguing that the recrudescence of Sendero is the direct result of repeal of some of Fujimori's vigorous (some would say repressive) antiterrorist legislation. To be sure, at this point the Sendero threat is small compared to what it was twenty years ago, when it could boast of 5,000 partisans spread across all three of Peru's major regions (Amazon, the Andean highlands, and the Pacific Coast). Today most estimates put the movement at somewhere between 300 and 500.

Sendero is a mixture of many things, as Congressman Javier Diez Canseco explained to the Miami Herald (June 16, 2003): "It is a political group and a criminal group that develops a terrorist action. It has common links with common criminals and drug traffickers." He might have added that its activities are dressed up in a gloss of Marxist-Maoist mumbo-jumbo, presumably for the delectation of European and North American political innocents, since the overwhelming majority of Peruvians have no interest in such ideologies.

The reappearance of Sendero in the Ayacucho region is particularly troubling, however, since it is an important area for the cultivation of the coca leaf, the raw material for production of cocaine. At the same time, it has become the focus of generalized criminal activity. Both represent a reversal of earlier trends. In the late nineties, coca production had declined because of low prices, more effective interdiction and eradication, and alternative crop programs. Although it is known that Peru destroyed nearly 18,000 acres last year, a joint UN-Peruvian government study concedes that, even so, cultivation increased by more than one percent in 2002. The U.S. Department of State pushes the figure up to more than seven percent, which it attributes to a declining police presence in some coca-growing areas and a deceleration of eradication programs.

Meanwhile, the coca farmers themselves are pressuring Toledo to lift restrictions on what is, after all, a highly profitable crop. In May thousands converged on Lima to protest eradication measures, and at a meeting with Toledo they received assurances that the government would devise methods of reducing coca cultivation gradually, thereby allowing a phased transition to other crops. So far, however, the economic realities have trumped rhetoric. Given the general situation of the country, it would be surprising if they did not.

Waiting in the Wings

Who is best positioned to reap the political harvest from widespread dissatisfaction with President Toledo? On the face of it, the most likely candidate would be the chief of the APRA party, former president Alan García. He is remembered by many foreign observers as quite possibly the silliest man ever to hold the presidency of a major Latin American country. (This was before the election of Venezuela's Hugo Chávez.) His most memorable pronouncement--one of many, be it noted--was an offer to deliver all the cocaine produced in Peru to the United States in exchange for a check for $10 billion-after which Washington could drop the stash in the Pacific Ocean or wherever it wished.

More to the point, he was one of the most disastrous chief executives his country has ever endured--he left it in virtual financial ruin. Even so, García has proven himself a remarkably resilient and resourceful politician. He speaks a language which, however incomprehensible to outsiders, is highly seductive to Peruvians--a kind of addiction from which they cannot quite free themselves.[2]

At the same time, precisely because his term ended thirteen years ago, many younger voters have no recollection of his time in office. This much was demonstrated by his excellent showing in 2001--having abandoned the presidency in disgrace, faced charges of illicit enrichment, and been forced into exile for nearly a decade, he nonetheless very nearly beat Toledo on the first round of voting. At the time many observers concluded that unless the latter turned in an excellent performance, an eventual return of García was a virtual certainty.

If García is something of a dark angel of Peruvian democracy, someone even more sinister may be waiting in the wings. He is a certain Ollanta Humala, a cashiered army lieutenant colonel who once led a revolt against President Fujimori, presumably inspired by the example of Hugo Chávez. Like Chávez, Humala was court-martialed and sentenced to a long prison term, and like him, too, he was pardoned by the successor to the man he would have overthrown, in this case, interim president Valentín Paniagua. Humala is now retailing his own version of left-wing populism, tinged with authoritarian rhetoric, hoping that distrust of politics and politicians will carry him to power. The uninspiring performance of Toledo only underscores the need to take such challenges seriously.

By way of defending his chief, Prime Minister Luis Solari recently told the Lima newspaper El Comercio (June 6, 2003) that "40 years of inequality can't be solved in 24 months." This is true enough, but Toledo rode into office on a wave of promises, and the public cannot be blamed for holding him to them. And, Solari added, "the ingredient we are lacking is a written agreement between the political forces and the commitment to carry this part of the history of Peru in peace up to 2005, when the electoral campaign begins. . . . Now is the time to introduce an intense social peace in the country."

Unfortunately Peru's political groups have no particular incentive to do any such thing; with elections only two years away, all are positioning themselves for the next round of competition. Having wasted the first half of his term, the best President Toledo can hope for is a bit of luck on commodity prices and interest rates, combined with a bit of foreign investment. Since his opponents have accused him all along of being a "neoliberal," he would have been better advised to plead guilty as charged and proceed with the privatization of electricity. By now he would be harvesting the economic results, instead of presiding over an atmosphere of drift and indecision.

Notes

1. Clarín (Buenos Aires), June 2, 2003.

2. A colleague of mine who served in the offices of the Ford Foundation in Lima during García's presidency told me that coming to the office the morning after one of the latter's marathon television addresses, he asked the Peruvian staff if they had bothered to watch it. "We don't watch him on television," they said--this was in the final months of his term, when his prestige was at rock-bottom--"we're afraid that if we do, we'll agree with him."

Source: American Enterprise Institute