Peru: Political Situation, Economic Conditions and U.S. Relations
Peru: Political Situation, Economic
Conditions and U.S. Relations
Miranda Louise Jasper, Research Associate
Clare Ribando Seelke, Analyst in Latin American Affairs
Foreign Affairs, Defense, and Trade Division
Summary
Peru, a coca-producing country in the Andean region of South America, has had
a turbulent political history. Despite its tumultuous past, Peru has recently taken steps
to consolidate its democracy and pursue market-friendly economic policies. For the past
seven years, Peru, a leading mineral exporter, has posted some of the fastest economic
growth rates in Latin America. GDP growth reached 8% in 2007. In June 2006, former
president Alan García (1985-1990) was elected president in a close race. After taking
office, García embraced the United States-Peru Trade Promotion Agreement (PTPA),
which the two countries signed on April 12, 2006 and the Peruvian legislature ratified
in June 2006. PTPA implementing legislation (H.R. 3668) passed the House on
November 8, 2007, by a vote of 285 to 132; the Senate on December 4 by a vote of 77
to 18; and was signed by President Bush on December 14, (P.L. 110-138). In addition
to trade matters, congressional interest in Peru focuses on human rights issues and
counternarcotics cooperation. See CRS Report RL34108, U.S.-Peru Economic Relations
and the U.S.-Peru Trade Promotion Agreement and CRS Report RS22521, Peru Trade
Promotion Agreement: Labor Issues. This report will be updated periodically.
Backgr ound1
Peru has had a turbulent political history, alternating between periods of democratic
and authoritarian rule. Political turmoil dates back to Peru’s traumatic experience during
the Spanish conquest, which gave rise to the economic, ethnic and geographic divisions
that characterize Peruvian society today. Since its independence in 1821, Peru has had 13
1 Cynthia McClintock, “Peru: Precarious Regimes, Authoritarian and Democratic,” Democracy
in Developing Countries: Latin America, Eds. Diamond et al., London: Lynne Rienner, 1999.
constitutions, with only nine of 19 elected
governments completing their terms. Peru’sPeru: Key Indicators
most recent transition to democracyPopulation: 28.6 million
occurred in 1980 after 12 years of military
rule. The decade that followed wasGeographic Characteristics: Pacific
characterized by a prolonged economiccoastal plains, Andean mountain
crisis and the government’s unsuccessfulhighlands, Amazon Basin lowlands
struggle to quell a radical Maoist guerrilla
insurgency known as the Shining PathGDP growth rate: 8% (2007)
(Sendero Luminoso).2
Per capita income: $2,920 (2006)
In 1985, leftist Alan García of the
American Popular Revolutionary AllianceEthnic Composition: Indigenous (45%),
(APRA) was elected president. During hisMestizo (37%), European (15%),
first term (1985-1990) García’s antagonisticAfrican, Japanese, Chinese and other
relationship with the international financial(3%)
community and excessive spending on
social programs led to hyperinflation. HisLanguages: Spanish, Quechua, Aymara,
security policies were unable to defeat theand other indigenous languages
Shining Path. By 1990, the Peruvian
population was looking for a change andSources: World Bank, U.S. Department
found it in the independent candidateof State, “Background Note: Peru,” 2007.
Alberto Fujimori. Once in office, Fujimori
implemented an aggressive economic
reform program and stepped up counterinsurgency efforts. When tensions between the
legislature and Fujimori increased in 1992, he initiated a “self coup,” dissolving the
legislature and calling a constituent assembly to write a new constitution. This allowed
him to fill the legislature and the judiciary with his supporters. President Fujimori was re-
elected in 1995, but his popularity began to falter as the economy slowed and civic
opposition to his policies increased. He was increasingly regarded as an authoritarian
leader, due in part to the strong-handed military tactics his government used to wipe out
the Shining Path that resulted in serious human rights violations.
President Fujimori won a third term in 2000, but the elections were marred by
irregularities. Within weeks of taking office, a bribery scandal broke that, combined with
allegations of human rights violations committed by his top aides, forced Fujimori to
agree to call new elections in which he would not run. An interim government served
from November 22, 2000 to July 28, 2001, when the newly-elected government of
Alejandro Toledo took office. Toledo’s presidency (2001-2006) was characterized by
extremely low approval ratings but high economic growth rates; 5.9% in 2005 and 8% in
2006. Toledo was able to push through several reforms, including a tax reform measure
and a free trade agreement with the United States. Despite the economic improvements,
Toledo’s presidency was marred by allegations of corruption and recurrent popular
protests.
2 Between 1980 and 2000, armed conflicts between Peruvian government troops, the Shining
Path, and others resulted in some 69,260 deaths and disappearances. See Commission on Truth
and Reconciliation in Peru, Final Report, Annex 2, August 28, 2003. For more information, see
David Scott Palmer, ed., The Shining Path of Peru, New York: St. Martin’s Press, 1994.
Current Political and Economic Issues
Political Situation. On June 4, 2006, former President Alan García defeated
populist Ollanta Humala 53% to 47% in a close election. García won in the second round
after garnering support from Peru’s business community, which had been reluctant to
support him in the first round. A retired army officer who led an October 2000 uprising
against then-President Alberto Fujimori, Humala espoused nationalist, anti-globalization
policies. Many observers were concerned that Humala had authoritarian tendencies. Now
the opposition leader in Peru’s Congress, Humala was charged in August 2006 with
murder in connection to his military actions in the 1990s. In the legislative elections,
Humala's alliance won 45 of the 120 seats in the unicameral Congress; García's party
APRA won 36 seats, the center-right National Unity coalition captured 17 seats, and
Fujimori supporters won 13 seats.3
President Alan García has taken steps to assure the international financial community
that he is running Peru as a moderate rather than as the leftist he had been in his early
career. Since initiating his political comeback in 2001, when he made an unsuccessful bid
for the presidency against Alejandro Toledo, García has softened his populist rhetoric and
apologized for his earlier errors. President García seems to have embraced sound
economic policies, and the Peruvian economy has continued to perform well. However,
his government has faced periods of social unrest and popular protests over lingering
concerns about poverty and inequality. García’s approval ratings have varied widely,
reaching a high of 76% in August 2007 after his response to an 8.0 earthquake that killed
at least 519 Peruvians, and then falling to 29% in November after a series of corruption
scandals in his government.4 García has made solidifying relations with the United States
a top priority and shown himself to be a strong U.S. ally and a leading supporter of free
trade in Latin America. Key political challenges facing the García administration include:
!Reducing poverty and inequality. According to the World Bank, the
wealthiest 10% of the Peruvian population control 41% of the country’s
income whereas the poorest 10% control just 1% of the income. In
recent years, Peru has seen rising popular demands for a solution to
economic inequality. Poverty is more prevalent among indigenous
households at 63% compared to 43% among non-indigenous
households.5 President García has pledged to increase public investment
and social spending in order to reduce poverty and inequality, but has
struggled to meet popular expectations.6
3 See CRS Report RS22430, Peru: 2006 Elections and Issues for Congress, by Maureen Taft-
Morales.
4 “Earthquake Relief Effort Becomes First Big Test for Peru’s President,” Financial Times,
August 22, 2007; Economist Intelligence Unit, “Country Report - Peru,” January 2008.
5 Gillette Hall and Harry Patrinos, eds. Indigenous Peoples, Poverty and Human Development
in Latin America: 1994-2004, New York: Palgrave Macmillan,2006.
6 “Peru Struggles to Spread Resources Wealth, Leaving Many Mired in Poverty,” Wall Street
Journal, January 14, 2008.
!Fujimori Trials.7 In December 2007, the main trial began against
former President Fujimori who is accused of corruption and human rights
abuses. While most Peruvians feel that Fujimori ought to be prosecuted
for his past crimes, many also feel that the possible punishment he faces
– up to 30 years in prison and a fine of $33 million – is too harsh. As the
trial continues, President García may lose the support of the Fujimorista
bloc in the Peruvian Congress, which he relies on to pass legislation, as
well as popular support. In a separate case, also in December, a judge
sentenced Fujimori to six years in prison for ordering an illegal search of
a private residence during his last days in office.
!Counternarcotics policies. The government has increasingly relied on
forced eradication to reach its coca eradication targets, which has in turn
produced violent clashes between coca farmers and police. In 2006, the
government eradicated 12,688 hectares of coca, making it the second year
in a row that it surpassed its goal of eradicating 10,000 hectares.8 Former
Shining Path guerillas have reportedly been involved in coca growing
and in providing security for drug-traffickers in Peru.9
Economic Issues. President García has continued the pro-market economic
policies of his predecessor, Alejandro Toledo, who presided over one of the highest
economic growth rates in Latin America throughout his term, with 8% growth in 2006.
García has embraced the U.S.- Peru Trade Promotion Agreement (PTPA), appointed a
fiscally conservative finance minister, and cut government pay. Economic growth has
been fueled by Peru’s strong exports of minerals, textiles, and agricultural products such
as sugarcane, potatoes, and asparagus. Peru is the world’s second largest producer of
silver and sixth largest producer of both gold and copper. It is also a significant producer
of zinc and lead. The Peruvian economy has been boosted by U.S., Brazilian and
Argentine investments in the Camisea natural gas project, which by 2009 is expected to10
be exporting liquified natural gas to the United States and Mexico.
President García has sought to reassure poor Peruvians that he is addressing their
needs by pledging austerity measures such as halving the Government Palace’s annual
spending and redirecting the funds to a rural irrigation project. García says he will also
find ways to use trade to reduce the level of poverty in Peru and widen income
distribution. His government is seeking to boost rural development by increasing its
investments in road construction, sanitation projects, and water connections.
7 Fujimori went into exile in Japan in 2000 and tried to return to Peru in November 2005, but was
arrested en route by Chilean authorities. In September 2007, Fujimori was extradited from Chile
to Peru. See “Peru Politics: Fujimori Trial Continues,” EIU, January 3, 2008.
8 Eradication and seizure figures taken from U.S. Department of State, International Narcotics
Control Strategy Report, March 2007.
9 “High-level Shining Path Guerrilla Killed in Peru,” EFE News Service, November 27, 2007.
10 “High Growth Masks Peru’s Two Diverging Economies,” Financial Times, July 28, 2007.
U.S. - Peruvian Relations
Peru enjoys strong ties with the United States, characterized by extensive economic
linkages and significant counternarcotics and security cooperation. Since the presidency
of Alejandro Toledo in 2001, Peru has focused on strengthening those ties. Some 200,000
U.S. citizens visit Peru annually and over 400 U.S. companies are represented in Peru.
President García met with President Bush at the White House in October 2006 and again
on April 23, 2007, at which time the leaders discussed their shared commitment to
fighting the production and consumption of illicit drugs and to securing congressional
approval of the PTPA. On December 14, 2007, Presidents Bush and Garcia met again for
the signing of H.R. 3668, the implementation bill for the PTPA. Issues in U.S.-Peruvian
relations include democratic development, human rights, counternarcotics, and trade
issues, which are at the forefront of the bilateral agenda.
U.S. Aid. The United States provided $141.7 million in foreign aid to Peru in
FY2006 and another estimated $138.9 million in FY2007. The FY2008 request for Peru
is for $93.2 million, with the most significant cuts occurring in counternarcotics funds
traditionally provided through the Andean Counterdrug Initiative (ACI). Beginning in
FY2008, alternative development programs previously supported by ACI funds will be
shifted to the Economic Support Fund (ESF) account. ACI has been the primary U.S.
assistance program to help Colombia and its neighbors address drug trafficking and
related economic development issues. The Consolidated Appropriations Act for FY2008
(H.R. 2764/P.L. 110-161) stipulates that funding from the Development Assistance and
Global Health and Child Survival (formerly Child Survival and Health) accounts be made
available for Peru at no less than the amount allocated in FY2007. It also provides
funding for environmental programs in Peru at FY2006 levels. The joint explanatory
statement to the Consolidated Appropriations Act recommends providing $30 million in
Economic Support Funds and $36.8 million in ACI funds to Peru in FY2008.
The U.S. Agency for International Development has four main goals for Peru:
strengthening democracy; increasing governance in isolated areas where drug traffickers
operate; reducing poverty; and decreasing maternal mortality and other health threats.
Peru was recently selected to participate in the Millennium Challenge Account (MCA)
Threshold Program. That program will focus on combating corruption, strengthening the
rule of law, and improving resource management in Peru.
Human Rights. The government of Peru has taken steps to expand and enforce
its labor laws and to prosecute those accused of past and current human rights violations.
According to Human Rights Watch, while the Peruvian government has made some
progress in holding those accused of past abuses responsible for their actions, many are
still able to avoid prosecution. The State Department’s Country Reports on Human Rights
Practices covering 2006 says that while the Peruvian government generally respects the
rights of its citizens, ongoing problems include abuse of detainees and inmates by police
and prison guards; poor prison conditions; trafficking in persons; child labor in the
informal sector; and failure to enforce labor laws, among others. Human rights groups
have also expressed concerns that a law passed in December 2006 to regulate the
activities of non-governmental organizations operating in Peru unnecessarily restricts
freedom of expression and association in the country.11
Counternarcotics Cooperation. Peru is a major illicit drug-producing and
transit country, accounting for 28% of global cocaine production. In 2006, according to
United Nations figures, coca cultivation increased by 7% in Peru even though the12
government increased its coca eradication efforts by 4% from 2005 levels. The United
States and Peru signed a five-year cooperative agreement for 2002-2007 that links
alternative development to coca eradication more directly than past programs have. Peru
is the second largest coca cultivating country in the world after Colombia, but receives
less than one quarter of the funding Colombia receives through the Andean Counter Drug
Initiative. In FY2008, counternarcotics assistance to Peru is estimated to total $66.8
million, down from the $106.5 million allocated in FY2006, and an estimated $103.3
million in counternarcotics funding provided in FY2007. Recent aid reductions appear
to be due to overall budget cutbacks rather than any U.S. government dissatisfaction with
Peru’s counternarcotics efforts.
U.S. - Peru Trade Promotion Agreement. The United States is Peru’s largest
trading partner. Since December 2001, exports from Peru have received preferential duty
treatment through the Andean Trade Preference Act (ATPA), later amended by the
Andean Trade Promotion and Drug Eradication Act (ATPDEA) in August 2002. These
trade preferences were scheduled to end on December 31, 2006. However, the acts have
been extended twice, and are now scheduled to expire on February 29, 2008.13 ATPDEA
gives duty-free market access to selected Peruvian goods without requiring reciprocal
trade concessions or addressing issues such as intellectual property rights.
On December 7, 2005, the United States and Peru concluded negotiations on the
U.S.-Peru Trade Promotion Agreement (PTPA). President Bush notified the Congress of
the United States' intention to enter into the PTPA on January 6, 2006, and the agreement
was signed on April 12, 2006. The PTPA was ratified by the Peruvian legislature in June
2006. Whereas the ATPDEA provides temporary trade preferences to some goods from
Peru, the PTPA is a comprehensive trade agreement that will permanently eliminate tariffs
and other barriers on U.S.-Peru bilateral goods and services trade. After several Members
of Congress indicated that some of the provisions in the agreement would have to be
strengthened, the Bush Administration and Congress reached an agreement on May 10,
2007 on a new trade framework that includes core labor and environmental standards. On
June 27, 2007, Peru’s Congress approved the amendments to the PTPA. PTPA
implementing legislation (H.R. 3668) passed the House on November 8, 2007, by a vote
of 285 to 132; the Senate on December 4 by a vote of 77 to 18; and was signed by
President Bush on December 14, (P.L. 110-138). During its second session, the 110th
Congress is likely to be interested in implementation of the PTPA.
11 Human Rights Watch, “World Report 2000”; CRS Report RS22521, Peru Trade Promotion
Agreement: Labor Issues, by Mary Jane Bolle and M. Angeles Villarreal; “García Forges Ahead
with his own War on Terror,” Latin American Andean Group Report, January 11, 2007.
12 United Nations Office on Drugs and Crime (UNODC), World Drug Report 2007.
13 See CRS Report RS22548, ATPA Renewal: Background and Issues, by M. Angeles Villarreal.