Bowed by Debt, Economic Woes, Peru Struggles to Lift Itself
LIMA, PERU — BURDENED by their country's debt load, Peruvians are despairing over the slow response of multilateral organizations to their efforts to win fresh financing. The next three months will be critical, say many economic analysts. The fiscal deficit is widening dangerously, with tax collections still running at just 7 percent of national economic output.
Three-quarters of tax receipts go to pay Peru's bloated state bureaucracy, civil servants who are hanging on in large numbers despite very low wages. Public investment has been pared to base levels, and further cuts to services are perceived as unacceptable.
"Very few countries embark on a genuine program of structural adjustment without external support of any kind," says Augusto Alvarez, economist and editor of two leading Lima-based economic magazines. "The problem is that adjustment bears fruit only in the medium term, but the costs are immediate."
Peruvians at all levels, from Prime Minister Carlos Torres y Torres Lara on down, wonder how Peru can continue servicing its $2 billion debt without a fresh inflow of funds.
"We want to go on paying," the premier said in March, "but how long can we go on without even a courteous response from the international community?"
Paying in installments
Since October, Peru has paid monthly quotas to the International Monetary Fund, the Inter-American Development Bank (IDB), and the World Bank. Debt payments were halted in 1986 by then-President Alan Garc 146&gt;a P 142&gt;rez. Cash outflow now totals $45 million to $50 million a month.
That is a huge sum for a country whose exports earn less than $300 million a month, and which is also burdened by poverty, terrorism, unemployment - and, now cholera. The epidemic has cost 1,100 lives so far.
More than half of Peru's 22 million people live in conditions classified by the United Nations as "extreme poverty." They have no piped drinking water or sewer systems. More than 90 percent of the capital's economically active population is unemployed or underemployed. Of 250,000 young people who drop out of school annually, less than one-eighth find regular work. The minimum wage is around $60 a month, yet the basic "foodbasket" for a family of five costs almost three times that amount.
Peruvian's attitudes have swung from optimism to pessimism, based largely on their perception of the changing economy.
President Alberto Fujimori's approval rating in his almost nine months as president plunged below 50 percent immediately after the second harsh mid-December economic adjustment measures, when gasoline prices were raised 60 percent overnight.
Failure to win outright International Monetary Fund approval for the economic program and consequent delay in fresh external funding pushed Mr. Fujimori's popularity down to 31 percent by February, according to Datum, a Lima polling agency.
"This is a perilously low figure given his lack of organized party support," says a political analyst.
Economy Minister Carlos Bolona has adopted tough measures to ensure that Peru's wealthy pay. Extensive lists have been prepared that cross-reference ownership of yachts with property purchases and trips abroad.
"People are getting scared," says a tax official. "We're starting to receive checks from professional people who haven't paid tax in years."
But this will be insufficient to cover July expenditures, when state workers receive a traditional "13th monthly salary" for Independence Day. If negotiations with international lenders fail to produce the $500 million needed this year to cover the deficit, "the whole thing could explode," says Mr. Alvarez. "And we're talking about more recruits for Sendero Luminoso."
Sendero Luminoso, or the Shining Path, is Peru's fundamentalist Maoist guerrilla group.
Along with the Tupac Amaru Revolutionary Movement, its terrorist actions have cost some 20,000 Peruvian lives with economic damage totaling about $18 billion over 11 years.
Major actions by Sendero in Lima are sporadic.
Less than two weeks ago, however, while Fujimori and several ministers were at the IDB meetings in Japan polishing Peru's international image and promoting foreign investment, Sendero began its first major action in months. The attack on the capital caused blackouts for up to 24 hours.
"Sendero's following will grow through desperation," Alvarez says.
"At the moment, it is an attractive option. The government gives you nothing - but Sendero gives you a gun and shows you light at the end of the tunnel."