Reforms meet resistance in restless Peru

Peru's President Alejandro Toledo is getting a stark reminder of just how hard it can be to make economic reforms in South America.

Riots started in the southern state of Arequipa last Friday to protest the sale of two state-owned power companies. The demonstrations have spread to neighboring Tacna and have left two dead and more than 150 injured. The police and military have battled protesters, which has prompted an upcoming meeting of mayors from seven southern departments in Arequipa to debate a region-wide strike against the government's policies.

Privatization lost much of its luster during authoritarian former President Alberto Fujimori's reign from 1990 to 2000. Congress charges the Fujimori government with squandering some $9 billion brought in through the sale of state assets, which allegedly went into the pockets of government officials instead of for development. As well, citizens fear rate increases and layoffs by the private owners.

"Privatization only means more unemployment and higher rates for the population. There are no benefits," says Luis Saraya, a leader of the Broad Defense Front of Arequipa, which has led many of the protests in the state. Sixty percent of Peruvians reject privatization, public opinion polls find.

But Mr. Toledo, approaching one year in office, made it clear in a televised address Monday that his administration's economic policies – and in particular the privatization of state-owned companies – are not open for debate.

The riots are the latest example of the difficulties Toledo's government faces in trying to meet the immediate needs of the country's 27 million people while moving forward with economic improvements. South America contains other examples of how similar problems led to the demise of leaders in the region.

Argentine President Fernando de la Rua resigned in late 2001, unable to deal with the country's staggering economic crisis that many attribute to poor privatization schemes. Since then, a parade of presidents has come and gone, and the current one, Eduardo Duhalde, continues to face difficult economic choices.

Ecuador's President Jamil Mahuad was sacked in January 2000, after attempting to push through tough economic reforms, including privatization of state-owned companies.

While Peru is not faced with an immediate economic crisis – the economy grew by nearly 4 percent in the first five months of the year – the administration has been unable to address the pressing demands of a growing population. The problem is complicated by numerous unfulfilled promises made by Toledo during the 2001 campaign and after his election.

Protesters say Toledo broke his promise not to privatize the power generators. The government acknowledges this, but says that the country's economic needs forced a change in course.

Carlos Franco, a political analyst with the Development and Participation Research Center, Lima think tank, says the government has ignored complaints against its economic policies.

"The protests in Arequipa were predictable, given the climate in the country over the past few months," says Mr. Franco. "The government decided not to listen to complaints, and has backed itself into a difficult corner."

The president's missteps have led to a massive decline in support. A recent survey by the Apoyo polling firm found that Toledo's popularity has sunk to 21 percent from 60 percent in September.

The protests in the south are the latest in a series of uprisings since September. The national police have registered nearly 500 protests in the past 11 months, including a nationwide strike in May against privatization.

Yet privatization is a cornerstone of Toledo's economic policy, which he says will spur foreign investment. It is also a key element in a two-year agreement with the International Monetary Fund. The government promised the IMF that it would bring in $700 million from privatization this year and nearly $1 billion in 2003. The problems of Argentina's Mr. de la Rua and Mr. Mahuad of Ecuador were complicated by pressure to meet agreements with the IMF.

The mayor of Arequipa and six other mayors have been on a hunger strike for a week to demand that the government revise its privatization plans. Congress is also getting in on the act, with members of Toledo's own party calling for a halt to future privatizations and a review of recent generator sales. And investigators are looking into why Tracatabel, the Belgian buyer of the two utilities, was the sole bidder.

The administration, however, has reiterated that the government is not going to veer from its plan. Finance Minister Pedro Pablo Kuczynski said backing away from privatizations would send a disastrous message to foreign investors.

Even if the government did change its approach, Franco fears it might be too late to convince Peruvians that Toledo is capable of solving the country's problems.

"The president's word has been discredited to such an extent that whatever he says means nothing," he says. "People simply do not trust him any longer."