AS the recent bloody disturbances in Venezuela illustrate, Latin America's prolonged economic crisis is likely to produce political crises in the next few years. As moderate, democratically elected leaders fail to reverse economic deterioration, alternatives are growing: elected but radical populist leaders; renewed military rule; violent disturbances; or, in some cases, even revolution. All of these unpleasant scenarios are real possibilities in Peru. Its fragile democracy is threatened by economic collapse and social disintegration. Unless this decline can be halted, Peru is likely to be the first nation to reverse the democratic tide that has swept Latin America in the 1980s.
Peru's economic plunge is deep. The economy shrank more than 10 percent in 1988, while the minimum wage sank to 50 cents a day. Inflation reached almost 2,000 percent in 1988. The country's lower and middle classes are desperate.
The most immediate reason for Peru's economic collapse is mismanagement. When President Alan Garc'ia P'erez unilaterally reduced Peru's debt service in 1985, the resulting savings were squandered amid incoherent policies. Peru's commodity-based economy has been losing ground for 30 years, but the decline has accelerated in the past five years. In 1960, Peru was in the mid-range of South America's economies; now only Bolivia is poorer.
Peru's economic deterioration has fueled the growth of a grisly insurgency, the Shining Path (Sendero Luminoso). The Shining Path is increasingly bold. More deaths were attributed to the rebels in November 1988, than in any previous month. The movement now controls much of the Central Andean highlands, including the region east of Lima - as well as the coca-growing area in the Huallaga Valley, where it may net as much as $30 million a year from its activities.
Many residents of the coastal capital fear encirclement by the Shining Path; in a recent poll, 15 percent said they believed the Shining Path will eventually take over Peru, up from 4 percent a year ago. Right-wing death squads emerged for the first time in 1988.
Despite these enormous problems, and the consequent widespread repudiation of President Garc'ia, there has been considerable national resolve to preserve Peru's constitutional democracy through the next presidential election, scheduled for April 1990. The campaign has already begun. It is likely to pit moderate Marxist Alfonso Barrantes Ling'an, the former mayor of Lima, against novelist Mario Vargas Llosa, a conservative who favors neoliberal economic policies. However, as conditions worsen and both civilians and military officers worry that the country will be ungovernable by 1990, coup rumors are intense.
It is not clear how much the United States can do to help save Peru's democracy, given the severity of the difficulties and the limits of US influence. But uncertainty of success is no reason for passivity. Several US actions could make a difference for Peru. At the least, this would signal to all of Latin America that the Bush administration can see past Managua and recognizes the political threat posed by the region's economic crisis.
First, the US should quietly encourage Peru to reach an agreement with the International Monetary Fund (IMF). This would offer Peruvians some hope of a light at the end of the economic tunnel before 1991 (when a new administration's policies would be implemented). It would also help restore rationality to Peruvian economic policy. Reaching such an agreement won't be easy: Garc'ia once stridently opposed the IMF, and the international financial community is wary of him. Now, however, some Peruvian officials have renewed contacts with the IMF and are lobbying Garc'ia to accept an accord. Washington can bolster the influence of these officials by making it clear that, upon an agreement, the US will promptly provide standby credits and some bridge financing.
Second, if the US decides to pursue its risky plan for additional armed Drug Enforcement Agency personnel in Peru's Huallaga Valley, it should greatly expand USAID programs to strengthen agriculture in the area. Unless the region's coca farmers have alternative income-creating opportunities, they are likely to ally even more closely with the Shining Path.
Third, the respected US ambassador, Alexander Watson, should continue to take every opportunity to express strong US opposition to a military coup. The Bush administration should reinforce that message and make it clear it is prepared to work with whomever the Peruvian people elect in 1990.
The US cannot solve all of Peru's difficulties. But it is time for a forgiving Washington and a sobered Lima to make a priority of rescuing Peru's failing democracy.