Peru: The Prison of Poverty Is the Problem

The hostage-taking in the Japanese ambassador’s home in Lima by the Tupac Amaru Revolutionary Movement (MRTA) has turned international attention to Peru for the wrong reasons. Crimes of terrorism are indeed a serious problem. Yet terrorism is not the primary challenge facing Peru and the rest of Latin America. Persistent poverty and inequality is.

In the early 1990s, Peru faced a serious challenge from insurrectionary movements. At the time, neither the MRTA nor the bigger and more radical Shining Path movement (which collapsed like a house of cards when its leadership was captured in mid-1992) was able to establish a broad base of social support. Yet the social causes that these movements claim to espouse–in particular, reducing the high levels of poverty and inequality in Peru–remain unresolved.

The MRTA’s demand for an end to the grim if not inhumane conditions in Peru’s prisons is a minor issue compared with what the nation’s poor need: a consolidating and deepening of Peru’s recent turn to the market, a process that has begun to make gradual inroads in reducing poverty. Much more remains to be done in Peru and in the rest of the region to increase the pace of economic growth and, equally important, to ensure that the poor are active participants in the process. This will be key to limiting the appeal of extremist movements, as well as to avoiding electoral backlashes against reform.

The MRTA argues that Peru’s market reforms have been bad for the poor. But Peru’s poor have rarely fared as badly as they did in the period preceding market reforms. From 1985 to 1990, then-President Alan Garcia and his American Popular Revolutionary Alliance party–a movement from which the MRTA leadership emerged–implemented a series of “pro-poor” heterodox economic policies that resulted in hyperinflation and a 25% drop in GDP in 1988-89. Poverty in Lima increased from 17% in 1985 to 54% in 1990. Per capita consumption fell by 50% on average and by more than 60% among the poorest of the poor.

The poor also fared worst from violence: Guerrilla presence was strongest in poor rural areas and in Lima’s shantytowns, where police protection is minimal or nonexistent.

President Alberto Fujimori took office in 1990 and implemented a dramatic stabilization and adjustment program. Like all reform programs, it has entailed some costs. But since the resumption of growth, which reached 14% in 1994, poverty has declined to just under 50%. Social expenditures, meanwhile, while far from optimal, have been reallocated to benefit more of the poor, particularly in rural areas where poverty is extreme.

The picture is far from perfect, and much more remains to be done. Fujimori has avoided the kinds of institutional reforms and investments in human capital–in basic education in particular–that have been key to higher growth rates and lower levels of inequality in East Asia, for example. In Peru, while discretionary social expenditures have increased markedly since 1990, those on basic education and health have increased only moderately from their near zero 1990 levels. In 1996, the Ministry of the Presidency, which is directly controlled by Fujimori and funds such programs as the highly visible, occasionally effective Foncodes public works program, was allocated 22.6% of total public social expenditures. Education received only 7.86% and health 6.17%.

And expenditures are only part of the equation. The health and education ministries receive little executive attention, are highly inefficient and their expenditures disproportionately benefit better-off groups. Fujimori has resisted comprehensive education reform, preferring to spend discretionary funds on such projects as a nationwide school building campaign, regardless of whether the Ministry of Education can provide teachers.

This sort of governmental approach may pay off in terms of votes, but it will do little for Peru’s capacity to grow and reduce poverty and related social pressure.

The publicity conscious MRTA is now capitalizing on Fujimori’s shortcomings. Thus the demands of a vocal few who claim to espouse the cause of the poor are capturing the public eye at the expense of attention and resources for the kinds of solutions that will allow the poor to help themselves. Rather than pressure Fujimori to give in to the demands of this vocal few, as some governments have done, international attention might better focus on encouraging him and other leaders in the region to undertake the kinds of reforms that will allow the silent majority to become active participants in the process of market growth, and thereby help consolidate the region’s recent turn to the market and democratic governance.