Among the demands of the Tupac Amaru rebels holding dozens hostage in this city ringed with desert shantytowns is one most Peruvians can appreciate: a better deal for Peru’s poor.
Since President Alberto Fujimori came to office in 1990, Peru has made stunning economic progress.
Inflation has plunged from more than 7,000 percent a year to 10 percent. Open-market economic reforms, including privatization, have brought a burst of growth, foreign investment and new hope to Peru.
Posh office towers and apartments have risen in elegant Lima districts like San Isidro and Miraflores, transforming a city stagnant from more than a decade of terrorism and economic chaos.
But while Peru’s rich have gotten richer, its poor, like most of their Latin American neighbors, have made little progress.
About half of Peru’s 24 million people live below the poverty line, an increase of nearly 10 percent from 1980. Half of these live in extreme poverty without adequate food and shelter.
Crammed in shantytowns in the desert hills surrounding Lima and isolated in the country’s Andean highlands and Amazon jungle, they have paid a disproportionate price for economic modernization.
“All reforms normally have a cost. But the costs went more on the shoulders of the poor than the rest,” said Pedro Sainz, director of statistics and projections for the United Nations Economic Commission for Latin America and the Caribbean, based in Santiago, Chile.
Across the region, workers lost jobs as newly privatized companies streamlined their operations. Governments, struggling to pay international obligations left over from the debt crisis of the 1980s, cut payrolls as well.
Confident of government promises of better times ahead, the poor accepted the hardships as the price of change.
But now, as economic growth slows across the region, hopes are dimming, spurring populist discontent of the kind that guerrilla movements like Tupac Amaru would like to exploit.
“People are beginning to doubt there’s a light at the end of the tunnel,” said Augusto Alvarez, an economist with Apoyo, Lima’s largest polling firm. “They are getting tired of waiting and they say they don’t see where the country is going.”
“Today’s Peru–13 million Peruvians in extreme poverty. Where is the progress?” read a banner hung by Tupac Amaru rebels at the Japanese ambassador’s residence Saturday.
But while guerrilla calls for a better deal for the poor may have popular appeal, backing away from tough economic reforms is the worst thing Peru and other Latin countries could do, many economists warn.
Venezuela, which experimented with a return to old-style populist economics after the election of President Rafael Caldera in 1994, is struggling with the worst economic crisis in South America.
Chile, which led South America’s rush to free markets by a decade, is one of the few countries on the continent showing big gains against poverty.
Since 1980, extreme poverty in Chile has fallen nearly 60 percent, to around 6 percent.
The problem for a country like Peru, Alvarez said, is that it’s hard to get rid of poverty in five or 10 years.
“There’s a lag between expectations and what can really be achieved that fast,” he said. “One of the main tasks for any government is to explain to people that they will have to wait to see all the results of reform.”
In a 1995 poll, 60 percent of Peruvians said they expected their own economic situation to improve in the next year.
Yet economic growth in Peru, which hit a whopping 13 percent in 1994, dropped to 6.7 percent in 1995 and a mere 2 percent last year.
That has made fulfilling such high expectations “impossible,” Alvarez said. Worse yet, President Fujimori’s government has slackened on a strong education campaign it ran in the early 1990s to explain the need for privatizations and other economic changes.
Now, “the government has to get back to that task,” he said.
Peru, like most Latin American countries, desperately needs to boost its rate of economic growth.
Most economists agree that Latin countries’ economies must grow at least 6 percent a year to achieve real gains against poverty and other social ills. Anything less, thanks to population growth, amounts of standing still or even backsliding economically.
Yet as a whole, Latin America grew only 3 percent last year, half the rate needed. In some respects the region still is recovering from the Mexico peso crash of 1994, which sent growth plummeting to less than 1 percent in 1995.
Another part of the trouble is the region’s continuing heavy debt.
Peru’s decline in growth last year came in large part because of cuts in public spending to allow the country to meet its debt obligations and reduce its current account deficit, which at 8 percent of gross domestic product was creeping toward the level that brought Mexico to its knees in 1994.
Growth should begin to recover slightly in 1997, Alvarez predicted, after boosts in government spending last November and December.
But as the poor wait impatiently for real improvement in their lives, more needs to be done to help them through the interim period and to discourage a wholesale revival of guerrilla movements in the region, analysts say.
The most important thing governments can do is boost spending on education, said Robert Aliber, an international economist at the University of Chicago Graduate School of Business.
That prepares young workers for better, higher-paying jobs in a new international market for their labor and helps draw in foreign companies looking for such workers.
It also reassures families that their children will have a better life, something “people appreciate and that can have a big political benefit” for governments, Sainz said.
Currently, social spending in Peru accounts for just 5.5 percent of the country’s gross domestic product, about half the proportion in Latin America as a whole.
Governments also need to work to find ways to give the poor access to credit needed to launch their own businesses. In Peru, as in much of Latin America, the poor own as much as 75 percent of the land and buildings but have no formal titles to them that can be used as collateral for loans.
“Eighty percent of Peruvians don’t have legal addresses. They’re not inserted in the global economy or even the national economy,” said Hernando de Soto, a noted Peruvian economist who has campaigned for reforms to solve that problem.
Finally, governments like Fujimori’s need to remind the poor that despite a widening wealth gap in the region, their situation has improved in some real ways, particularly through the end of hyperinflation, which enriched wealthy investors with interest-bearing bank accounts while making the paychecks of the poor rapidly worthless.
“Poverty is the problem of this century for Latin America,” Alvarez said. “But the lesson we have learned here in Peru is that all problems can be solved. It just takes time.”
