Democracy and Economic Reform: Can They Co-Exit in Peru?

By Graham, Carol | Brookings Review, Winter 1995 | Go to article overview

Democracy and Economic Reform: Can They Co-Exit in Peru?


Graham, Carol, Brookings Review


Few countries in the world have made turnarounds as dramatic as Peru's. When President Alberto Fujimori was inaugurated in July of 1990, Peru was in the midst of one of the longest-running hyperinflations in history. Annual inflation was more than 8,000 percent. Real wages were lower than they had been in 1970. More than half the population in the capital city lived in poverty. The fanatic Sendero Luminoso (Shining Path) guerrilla movement controlled large parts of the nation's territory. Car bombings, Sendero-led labor disputes, and other forms of unrest rocked the country almost daily. Basic state services ranging from law and order to electricity and water delivery had virtually broken down.

To all appearances, Fujimori has performed a miracle. Hyperinflation has been stabilized and structural economic changes, such as reform of the tax and trading regimes, have been carried out. After two years of deep recession, the economy grew 7 percent in 1993 and is expected to grow 4-5 percent in 1994. The government has carried out fairly extensive privatization of industries previously owned and poorly run by the state, including the national airline, mining, and telephone companies. The supply of basic goods and services is no longer in question. Violence has fallen dramatically. The head of Shining Path, Abimael Guzman, as well as most of the top leadership, is safely tucked away in prison. The government has even begun to address sorely neglected social programs. It has targeted an additional $10 million on health programs for the poorest groups, introduced a pilot program to increase the local autonomy of the nation's schools, and increased spending on FONCODES, a social fund that channels money to projects for the poor.

A Costly Miracle

Unfortunately, this miracle was carried out at no small cost. In April 1992, citing the need for freedom from the inefficiencies and corruption of Congress to fight Shining Path and continue economic reform, President Fujimori closed down the nation's legislative and judicial institutions in an autogolpe, or self-coup. The coup was highly popular among many Peruvians already estranged from many of the nation's personalist and highly partisan politicians. Heavy international pressure--successful because of Fujimori's need for resources from the international financial community--forced him to abandon his initial plans to rule by plebiscite and instead call elections for a Constituent Assembly. Even so, Fujimori has ruled in a highly authoritarian manner since 1992. He has majority control over the Constituent Assembly, and he has given the military complete operational and judicial freedom in the war against Shining Path, with predictable consequences for the civil rights of suspected "terrorists." He also changed the nation's constitution so that he could run for reelection in 1995.

Dictatorship: A Necessary Evil?

Fujimori's success in implementing dramatic reform under authoritarian auspices has given both the nation and the region an unfortunate message about democracy and economic reform. For many both within and outside Peru, the lesson has been that, particularly in a country like Peru, where institutions are fragile and the economy is in crisis, dictatorship is the only route to economic reform. Indeed, Fujimori, by virtue of his oriental origins and operational resemblance to Chilean strongman Augusto Pinochet, has earned the nickname "Chinochet." Shortly after Fujimori's highly popular 1992 coup, Guatemala's President Jose Serrano tried to close down his legislature. President Menem in Argentina also used a referendum to alter the constitution so that he could run for reelection.

Yet a closer look at the Peruvian experience yields some different lessons. First, in the two years before the coup, Fujimori had an enormous amount of freedom to implement economic policy by decree, and an impressive number of economic reforms were pushed through Congress. …

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Democracy and Economic Reform: Can They Co-Exit in Peru?
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