Peru's Fujimori Weighs In On Behalf of Street Sellers

Nation's informal economy is protected in president's economic plan

ON any major street corner in Lima you can purchase through your car window such varied merchandise as coat hangers, car oil, or contraband chocolate. You can buy or sell dollars and just about anything else. Street vendors and unofficial taxi drivers are part of Peru's growing army of ``informals:'' men, women, and small children unable to find regular jobs, who eke out a living on the streets.

Often sleeping on the pavement so as not to lose a good ``pitch'' to passersby, they can obstruct sidewalks and cause severe hygiene and litter problems. Local officials have seen the street sellers as a nuisance to be rid of.

But recently Peru's President Alberto Fujimori took up the banner of the ``ambulantes,'' or peddlers, renaming them ``autonomous workers.'' The president issued a decree protecting them from municipal harassment and forbidding local police from confiscating their goods. He also announced measures to provide each with up to $2,000 credit.

``Ninety percent of Peruvians have only two alternatives: They become informals or they turn to crime,'' Mr. Fujimori said. Lima would become ``a branch of hell'' if, instead of street sellers, there were thousands of robbers, prostitutes, or beggars, he said.

The president's actions have provoked angry opposition from the mayors of Peru's leading cities. Luis Caceres, mayor of the historic southern city of Arequipa, predicted ``generalized chaos'' from the reversal of municipal attempts to control street-selling. His comments were echoed by authorities nationwide.

For all its drawbacks, ``informal'' work has allowed Peruvians to survive years of macroeconomic mismanagement and recession. Last August's harsh economic stabilization measures, which caused 400 percent inflation in a single month, pushed another 50,000 people onto Lima's streets. Half a million of the capital's 7 million people are estimated to be street sellers. Many thousands more run unregistered businesses. Almost everyone moonlights with a second or third job.

For many it is the only way to survive. Former Premier Juan Carlos Hurtado Miller, who resigned last week, admitted the failure of the government's Emergency Social Program (PES), intended to alleviate the effects of huge price rises on the neediest. Sister Rosa Ballon of the Roman Catholic Church's relief organization Caritas, estimates that only 300,000 people a day have been receiving food aid through the PES compared with the intended figure of 1.5 million.

President Fujimori insists his ultimate objective is to formalize the position of the informals. ``Let us not forget that the origin of the informal economy lies in a bureaucratic state which curbs Peruvians' access to formality,'' he said, repeating the arguments of his influential adviser Hernando de Soto, who championed the informals in his best-selling book, ``The Other Path.''

Paradoxically, for the moment, the reverse is occurring. Formal traders are increasingly taking to the streets to sell their merchandise. Denny Ghersi, a boutique owner for many years, complains she cannot compete with rivals who contract a few teenagers to hawk T-shirts and blouses in the arcade outside their own shops.

``They sell them at a lower price because you don't give an invoice and don't pay tax,'' Mr. Ghersi says. ``The shop owner is happy and so is the customer. It's crazy, but that's how it works.''

The loser in all this is the Peruvian state. Tax administration authorities estimate that only 100,000 in a population of more than 22 million pay income taxes. Actual tax collections had dropped to about 4 percent of gross domestic product by the change of government in the middle of last year. They have since been raised, with difficulty, to about 9 percent.

In metropolitan Lima, only 124,000 (of 5.3 percent of the economically active population) are ``adequately employed,'' says Carlos Guillermo Morales of the Center for Parliamentary Studies. In the past decade, there were only two periods of recovery in the employment market, between 1981-1982, and 1986-1987. Now his institute estimates underemployment at 86.4 percent.

Such figures reveal how far Peru has fallen economically in a decade. In 1980 an estimated 66 percent of Peruvians were adequately employed; five years later, 64 percent. Between 1980 and 1990, the total Peruvian work force almost doubled, yet output actually declined.

It is not surprising, therefore, that state employees, despite salaries of only about $50 per month, are resisting financial inducements to take early retirement. Recent estimates indicate only a few thousand of the targeted 400,000 have resigned (Peru's public employees number about 1 million). Unlike Brazil and Argentina, programs to reduce the number of public employees in Peru offer no retraining to bureaucrats on the scrap heap.

Yet the restructuring of the state is crucial to any lasting reform, says Economist Roberto Abusada, a former vice-minister of the economy. Low salaries mean the cost of the bureaucracy is almost insignificant, yet such costs ``are still there - at any moment they may press for raises and increase public costs. State-owned companies have to be sold off,'' he says.

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