International Reprisals after Coup Strain Peru's Economic Reforms

Article excerpt

PERUVIAN President Alberto Fujimori is finding his country increasingly isolated from world financial bodies at a time when he is trying to enact far-reaching economic reforms.

"The cost of President Fujimori's April 5 {suspension of the Constitution} is Peru's reinsertion in the international financial community," says Hernando de Soto, formerly Peru's "drug czar" and chief liaison between Fujimori and the United States. "I believe that on the Peruvian side, both at the level of government and of public opinion, that has not been understood."

Economists calculate that Fujimori's April 5 move will directly cost Peru $300 million to $400 million this year. According to Bernard Aronson, assistant US secretary of state for inter-American affairs, $164 million - more than half of the canceled aid - was coming from the US.

Economy Minister Carlos Bolona Behr is putting a brave face on the situation. "Obviously, with more external resources we could achieve a series of goals, but we've already been going a long time with no outside help, stabilizing and advancing with the economic program, and that's what we'll have to go on doing."

Mr. Bolona says he is committed to continuing with the International Monetary Fund-approved economic recipe, with priority given to reducing inflation, stabilizing prices, and cutting public expenditure.

In a radio interview, Bolona emphasized the positive aspects of the April 5 decision. "There existed prior to {that decision} a great risk that efforts to balance the budget would be paralyzed," he said. He said the comptroller general's office had tried to sabotage privatization plans; Congress had blocked tax reforms and passed laws (like one giving emergency agricultural aid) that endangered the budget; and judges had been manipulated by the "mercantilist" interests of big business.

"These threats to the economic program have now been eliminated," Bolona said.

But with the external funding tap turned off, Peru's budget for the current year will need restructuring. "In one respect, the April 5 measure gives Bolona more room for fiscal maneuvering," Lima economist Augusto Alvarez says. "The restructuring of the tax system, elimination of tax exemptions for jungle and frontier zones, and more public expenditure cuts - measures that Congress had blocked - will clearly now go ahead."

Improved tax collection will be crucial. Under the previous government, tax collections fell to an all-time low of around 4 percent of gross domestic product. Reforms in tax administration have doubled that in the past year, but most economists agree that a level of 15 percent is essential if even the most basic services are to be maintained. …