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Ideas and economic policy change: The influence of policy ideas and non-state actors in the Peruvian case of market -oriented reform

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Ideas and economic policy change: The influence of policy ideas and non-state actors in the Peruvian case of market -oriented reform

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Content IDEAS AND ECONOMIC POLICY CHANGE: THE INFLUENCE OF POLICY
IDEAS AND NON-STATE ACTORS IN THE PERUVIAN CASE OF MARKET
ORIENTED REFORM

by

Alba Hesselroth

A Dissertation Presented to the
FACULTY OF THE GRADUATE SCHOOL
UNIVERSITY OF SOUTHERN CALIFORNIA
In Partial Fulfillment of the
Requirements for the Degree
DOCTOR OF PHILOSOPHY
INTERNATIONAL RELATIONS

May 2006

Copyright 2006 Alba Hesselroth

UMI Number: 3237148
3237148
2007
UMI Microform
Copyright
All rights reserved. This microform edition is protected against
unauthorized copying under Title 17, United States Code.
ProQuest Information and Learning Company
300 North Zeeb Road
P.O. Box 1346
Ann Arbor, MI 48106-1346
by ProQuest Information and Learning Company.
ii

DEDICATION

To Ted, Amy and Samuel,
my lovely family.

iii

ACKNOWLEDGEMENTS
I could have never finished this dissertation without the help of many people
whose support has been invaluable and from whom I have learned so much. First of
all I am greatly thankful with all the members of my dissertation committee.
Professor Nora Hamilton has gone beyond the regular duties of an outside member,
carefully reading all the various drafts of this dissertation and giving me useful
suggestions to improve them. In doing so she shared her time and energy even during
a period of her life when due to health problems she should have invested these two
precious gifts just on her own work. Her will for working in times of physical
weakness has been a source of support and inspiration. Professor Abraham
Lowenthal has exceedingly facilitated my field research in Perú. He gave me not
only important feedback regarding my research proposal, but also made
arrangements and wrote tens of letters of recommendation to assure that I could
effectively have access to a selected network of policy and intellectual elites in Perú
and to material primary sources of information. His letters opened doors that
otherwise it would have been very difficult to reach. Professor Carol Wise, soon after
arriving at USC took on the commitment of working closely with me. Our long
conversations have been a mix of serious work and friendly cheerful moments.
Foremost, she has provided me constructive criticism and invaluable clear-eyed
advice with respect to the content of my dissertation. Likewise, she has shared
important information on doing research in Perú, and especially personal advice,
optimism, and her contagious laughter and good sense of humor, so necessary during
iv

the hectic process of writing the dissertation. Professor John Odell has been a
fundamental pillar of support during all these years, from the time of the elaboration
of the research proposal, until the finishing of the last details related to the filing of
this dissertation. He has patiently guided me step by step, correcting draft after draft,
never loosing his ability to give sound intellectual advice in a highly polite and
friendly manner. Likewise, he has tirelessly helped me to handle a variety of issues
that go from getting funding for my research, to providing strategic tips for
presenting a paper in a conference. He has been a great source of ideas, and an
impressive example of hard work. No matter the time (after office hours, sabbatical
year, summer break), no matter the distance (even from one continent to another),
and sometimes even without me asking for his help (he knew that I really needed it),
Professor Odell has always been there, providing words of wisdom and giving with
his teaching, advice, and open disposition to help, lessons that I will take for life.
It is worth noting however, that none of the members of my dissertation is
responsible for the mistakes I might have made here.
I would also like to thank at the University of Southern California, the
College of Letters, Arts and Sciences, the Center for Law, History, and Culture, and
the Center for International Studies, for their generous financial support during the
writing of this dissertation. The Office of the Provost and the School of International
Relations (SIR) financial support allowed me to present drafts of this dissertation at
conferences in the USA and abroad. At SIR Linda Cole and Luda Spilewsky have
guided me on administrative issues and kindly handled many of these for me.
v
In Perú, special thanks to Eduardo Ballón and Julio Gamero former
presidents of the Centro de Estudios para el Desarrollo DESCO who let me utilize
the logistics of this important think-tank from June-August 2001. I sincerely
appreciate the fruitful conversations with Eduardo Ballón who took the time to read
my research proposal and to discuss it with me, providing invaluable suggestions and
information. Likewise, I greatly appreciate the help of Alfredo Torres, Executive
President of the polling firm APOYO Opinión y Mercado S.A., who kindly allowed
the access to this firm’s documentary archive, and of Lourdes García, head of the
centro de documentación in APOYO who helped with the searching of documents.
At the Universidad del Pacífico, Juan Julio Wicht Dean of the Faculty of Economics,
and Felipe Portocarrero Director of the Centro de Investigación facilitated my access
to the library and centro de documentación of this institution.
I am very thankful to all the people in Perú that accepted to be interviewed by
me and despite their busy schedules and leading positions were able to take a break
and to talk for hours commenting about their experiences in Peru’s private and public
sectors. Through each of these interviews representing diverse points of view I have
learned not only particular details about Perú’s recent economic history from some
of its main actors and analysts, but especially how important policy ideas are.
Many of my friends in Perú have helped me in various ways during my field
research. Among them, special thanks to Percy Bobadilla and Elvira Mendez, both
professors at the Pontificia Universidad Católica, who in many opportunities shared
their precious time to give me a supportive hand. The family Cebrecos-Revilla
vi

warmly hosted me at their house in Lima during one of my visits to Perú (June-
August 2001), and all especially my friend María Fe made me feel really at home.
As in any stage of my life, my parents’ love, prayers, and moral support have
kept me in tune during the writing of my dissertation. Their help taking care of my
kids, and hosting us in their home during our visits to Perú has greatly alleviated my
burden of work. Last but not least, I want to thank Ted my soul mate and beloved
husband, and Amy and Samuel my adorable children. Ted has been an endless
source of strength. I do not have words that could fairly describe his patience,
support, and sacrifice during all these years. He has had to carry the implications of
having me busy at home spending hours in front of the computer, or far away at the
library or at Perú during the three trips that I had to take. After his long days at work
he has devotedly helped me take care of our home and our kids, never complaining
and always giving me words of love and encouragement. Amy and Samuel have had
to share with this dissertation the time and attention that I owed them, and although it
has been difficult for them to do this and understand why I had such a big
“homework” they have responded with love, hugs, and that irresistible smile that
gives me light and sparkle my days. Amy’s colorful drawings, little notes wishing
me the best, and cute prayers for me before going to sleep have been a nice breeze in
stressful times. Probably no study about economic reform has anything to do with
Curious George and Thomas the Tank Engine, but in this case sharing these and
other “adventures” with Samuel has been a source of energy that has helped me to
finish this work. Ted, Amy, and Samuel, what a blessing to have you in my life.
vii

TABLE OF CONTENTS
DEDICATION ii
ACKNOWLEDGEMENTS iii
TABLE OF CONTENTS vii
LIST OF TABLES x
LIST OF FIGURES xiv
ABSTRACT xv

CHAPTER 1: INTRODUCTION 1
The Puzzling Peruvian Setting 1
Hypothesis 9
Main Concepts and Definitions 13
Methodology 17
Variables and method of comparison 19
Process tracing 23
The Importance of Studying the Peruvian Case of Economic Reform
Under an Ideas-Based Analysis 36
The Scope of the Reform Program Implemented During the Early
1990s 38
Economic framework prevailing before 1990 38
Main features of the reform program applied by the Fujimori
government. 42
CHAPTER 2: A REVIEW OF THE IDEATIONAL LITERATURE ON THE
POLITICS OF ECONOMIC REFORM 64
CHAPTER 3: THE BUSINESS ELITE AND THE PERUVIAN PROCESS
OF ECONOMIC REFORM 83
The Interest Group Approach 83
Interests and the Peruvian Experience of Economic Reform 87
The Peruvian business elite and the state (1968-1990) 88
The business elite and Vargas Llosa’s project of market-
oriented reform 95
The business elite and the Fujimori government 98
The effects of market-oriented reforms on the Peruvian
business elite 103
viii

The Peruvian business elite’s reaction to the application of
market-oriented reforms 110
Analysis of the business elite support for the Fujimori
government’s economic program 116
Concluding Remarks 124
CHAPTER 4: ECONOMIC CRISIS AND ECONOMIC REFORM IN PERU 126
The Economic Crisis Argument 126
The Peruvian Experience with Crisis and Reform 135
Economic crisis and ill-fated market-oriented reforms (1975-
1985) 137
García government’s economic policy: The worst the crisis,
the more the intervention in the economy. (1985-1990) 143
Fujimori’s first presidential term: the application of staunch
market-oriented reforms (1990-1995) 145
Concluding Remarks 145
CHAPTER 5: IFIs’LEVERAGE AND ECONOMIC REFORM IN PERU 147
Perspectives Concerning IFIs’ Leverage and Economic Reform in the
Political Economy Literature 148
Perú’s Economic Policy and the IFIs (1975-1990) 154
Continuous breach of agreements with the IFIs (1975-1985) 154
Open confrontation with the IFIs and breaking of institutional
relations (1985-1990) 159
The Fujimori Government: Reforms Beyond IFIs’ Expectations 166
The search for an economic policy program 166
Fujimori’s choice of advisors supporters of the IFIs’
prescriptions 168
Approaching potential international lenders 169
Special Agreements 175
Concluding Remarks 180
CHAPTER 6: SUBSTANTIVE PREDISPOSITIONS WITH RESPECT TO
MARKET –ORIENTED POLICY IDEAS (1978-1987) 182
Definition of the Objects of Study 183
The Morales Bermudez Administration and the Weight of Substantive
Predispositions Against Market Oriented Policy Ideas (1978 – 1980) 187
State actors 188
Non-state actors 189
The Belaunde Administration’s Failed Attempt to Implement Market-
Oriented Reforms (1980-1985) 210
State actors 211
ix

Non-state actors 222
The García Era: The Failure of the Triumph of Substantive
Predispositions Against Market-Oriented Reforms (1985-1987) 231
State-actors 232
Non-state actors 242
CHAPTER 7: MARKET-ORIENTED POLICY IDEAS AND THE
PERUVIAN PROCESS OF ECONOMIC REFORM (1987-1992) 249
The Weakening of Substantive Predispositions With Respect to
Market-Oriented Reforms (1987-1990) 250
The reaction of the wider public to the nationalization of the
banking sector 251
The discursive construction of the Peruvian program of
market-oriented reforms 256
The Peruvian Social and Political Context That Facilitated the
Promotion of Market-Oriented Policy Ideas. 314
Non-state actors 315
State actors 353
Epilogue 366
CHAPTER 8: CONCLUSIONS 376
Contributions to Idea-Based Research 388
Contributions to the Fields of Political Science and International
Relations 392
Contributions to Practice 402
BIBLIOGRAPHY 406

x
LIST OF TABLES
Table 1: Rate of Approval for President Fujimori and his Minister of Finance 2
Table 2: Dailies' reputation in public opinion, % of answers. 29
Table 3: Public Deficit as % GDP 1980-1990 (GDP, Intis 1989) 43
Table 4: Central Government Current Revenues and Expenditures as % GDP
(1985-1990) 43

Table 5: Public Deficit as % GDP 1990-1998 (GDP, Soles 1994) 44
Table 6: Central Government Revenues and Expenditures as % GDP (1991-
1997) 44

Table 7: Rate of expansion of money supply by year as % of GDP (1985-1990) 45
Table 8: Exchange Rate Structure (Period Averages 1988-1991) 46
Table 9: GDP Growth and Inflation – Annual Rates – Pre-Reform (1980-1989) 46
Table 10: GDP and Inflation – Annual Growth Rates – Post-Reform (1990-
1997) 48

Table 11: Real interest rates, annual % (1990-1997) 48
Table 12: Rate of expansion of money supply by year as % of GDP (1991-1997) 48
Table 13: Import Tariffs (1980-1990) 49
Table 14: Import Tariffs (1990-2000) 49
Table 15: Imports Under Quota Restrictions/Prohibitions (1979-1984) 49
Table 16: Imports Under Quota Restrictions/Prohibitions (1985-1990) 50
Table 17: Imports Under Quota Restrictions/Prohibitions (1991-1996) 50
Table 18: Imports of Goods and Services as % of GDP (1980-1989) 51
Table 19: Imports of Goods and Services as % of GDP (1990-2002) 51
xi

Table 20: Participation of the State in Public Enterprises Before 1990 54
Table 21: Employment in Non-Financial Public Sector Enterprises (1990-1997) 55
Table 22: Public Expenditure in Non-Financial Public Enterprises as % of GDP
(1990-1998) 57

Table 23: Non-Financial Public Enterprises Revenues and Expenditures as %
GDP (1990-1998) 58

Table 24: Net Inward Foreign Direct Investment in Perú, 1990-1997 60
Table 25: Sectoral Distribution of Foreign Direct Investment in Perú (1980-
1997) 60

Table 26: Employment (1984-1993) % urban labor force 63
Table 27: Employment (1994-2001) % urban labor force 63
Table 28: Percentages of Effective Protection Rates to the Peruvian
Manufacturing Sector 94

Table 29: CONFIEP’s support for Fujimori’s economic policy (As of June 1,
1991) 102

Table 30: Public opinion polls regarding the nationalization of the banking
sector 252

Table 31: Public Opinion With Respect to Public Enterprises, December 1987 270
Table 32: Public Opinion With Respect to the Size of the State, September
1987, May 1989 270

Table 33: Public Opinion With Respect to the Role of the State and Private
Initiative in the Economy 270

Table 34: Public Opinion With Respect to the Cause of the Increase of Prices,
January, 1988 275

Table 35: Public Opinion With Respect to the Cause of Inflation, March, 1988 276
Table 36 Public Opinion With Respect to the Cause of Inflation, March and
September, 1988 276

Table 37: Public Opinion With Respect to the Sale of Public Enterprises 280
xii

Table 38: Reputation of Public Enterprises Compared to that of Private
Enterprises 280

Table 39: Public Opinion With Respect to the Privatization of Public Enterprises 280
Table 40: Public Opinion With Respect to the Quality of the Service Provided
by the Peruvian State. 281

Table 41: Support for Presidential Candidates (August 1989-April 1990) 293
Table 42: Public Opinion With Respect to Front-Runners in the Presidential
Elections 294

Table 43: Support for Political Parties/Coalitions (February, March 1990) 294
Table 44: Support for Presidential Candidates (January, February 1990) 294
Table 45: Public Opinion With Respect to the New Government's Approaching
to the IFIs 347

Table 46: Public Opinion With Respect to Market-Oriented Reforms 348
Table 47: Public Opinion With Respect to the Potential of the Economic
Program to Overcome Hyperinflation (September-December 1990) 349
Table 48: Public Opinion With Respect to the Stabilization Program
(September-December 1990) 349

Table 49: Public Opinion With Respect to the Privatization of the Main Public
Enterprises 350

Table 50: Public Opinion Indicating the Government's Main Achievements
(July 1991) 350

Table 51: Public Opinion With Respect to the Government's Approaching the
IFIs 351

Table 52: Public Opinion Regarding Perú's Reinsertion in the International
Financial Community 351

Table 53: Support for the Fujimori Government (September 1993) 366
Table 54: Support for the Fujimori Government (September 1996) 366
xiii

Table 55: Average Pre-Reform and Post-Reform Economic Indicators 368
Table 56: Economic Growth Average Annual Compound Growth Rates 368
Table 57: Distribution of Familiar Expenditure in Perú (1985-1996) 371
Table 58: Distribution of Familiar Income in Perú (1985-1996) 372
Table 59: Distribution of Familiar Income and Expenditure Per Capita in Perú
(1985-1996) 372

Table 60: Distribution of economic/social stratum in Perú (1989-1996) 373

xiv

LIST OF FIGURES
Figure 1: Stages of the process of economic policy change 16
Figure 2: Mill's Method of Difference 21
Figure 3: Circulation of the 12 major newspapers before August 1990 26
Figure 4: Exchange Rate Parity 47
Figure 5: Evolution of Privatization and Concession Process (number of cases) 58
Figure 6: The Pro-Market Discourse in Perú 258

xv

ABSTRACT
Explanations of the wave of neoliberal economic reform in developing
countries emphasize the influence of material variables such as economic crisis, the
leverage of international financial institutions (IFIs), and the pressure of relevant
self-interested actors as the cause of policy choice, viewing these countries largely as
passive actors responding to international structural constraints. Very little (if any)
attention is paid to the role of ideas as sources of economic policy change.
Furthermore, the few studies focused on Latin America that tackle the influence of
ideas in cases of neoliberal economic reform have mainly concentrated on the role
played only by state actors in the process of reform.
The present study assesses the role of policy ideas and that of their advocates,
state and non-state actors as well, in the Peruvian case of neoliberal economic
reform. A qualitative comparative analysis of the economic policy pursued by the
various administrations that governed Perú during 1975-1992 is applied here.
Particular attention is paid to the social-political context, with special focus on the
prevailing economic policy ideas surrounding each of these administrations.
Examining variation in the dependent variable (economic policy) with one of the
independent variables (policy ideas) while holding other potential causal variables
(economic crisis and IFIs leverage) constant across time permits seeing that although
relevant, material variables appear to not have consequential effect on economic
policy change. In contrast, the analysis shows a causal relationship between change
in policy ideas and change in economic policy expressed in Perú in the application
xvi

and consolidation of neoliberal reforms during the 1990s. More importantly, the
findings suggest looking not only at the role played by policymakers in the state
sector, but also at non-state actors: at the “soft power” exercised by technocrats,
think-tanks, and the press, among others, who during the late 1980s in Perú were a
crucial conduit for the diffusion of market-oriented policy ideas throughout society.
1
CHAPTER 1: INTRODUCTION

The Puzzling Peruvian Setting
On September 7, 1990, six weeks after assuming the Peruvian presidency,
Alberto Fujimori took the first step towards the implementation of one of the more
radical processes of neoliberal economic reform yet pursued in Latin America. The
government applied a stabilization program that ovenight reduced the purchasing
power of workers by 80% and drastically increased the price of gas by 3,040%,
electricity by 5,270%, water by 1,318%, and telephone service by 1,295%.
1
While in other Latin American countries the application of measures of this
kind had caused serious confrontations between their respective civil societies and
governments, Perú did not experience comparable demonstrations against the
stabilization program implemented by the newly installed president. In Bolivia on
September 1985, for instance, a general strike and social convulsion paralyzed the
country for ten days. The government of Paz Estenssoro responded by declaring a
state of siege and decimating the labor movement, capturing major union leaders or
forcing them to leave the country. Likewise, in Venezuela during the government of
Carlos Andrés Perez, a huge popular revolt erupted in 1989 and more than a
thousand died as riots broke out in major Venezuelan cities.

1
Carmen Rosa Balbi, “Politics and Trade Unions,” in The Peruvian Labyrinth, Polity, Society,
Economy, ed. Maxwell Cameron and Philip Mauceri, 143 (Pennsylvania: Pennsylvania State
University Press, 1997) and Carlos Parodi, Perú 1960-2000, Políticas Económicas y Sociales en
Entornos Cambiantes (Lima: Centro de Investigación de la Universidad del Pacífico, 2000), 264.
2
Although in Perú some sectors were predictably disappointed that Fujimori
had not announced during his electoral campaign his intention to put the country
through such a radical economic shock, they were unable to lead an effective protest
against his economic policies. For instance, when the confederation of labor unions
(CGTP) called for a general strike, not only did the workers and civil society fail to
support the strike, but when union leaders and a few followers attempted to take over
the streets, they were ridiculed by the population, who told them to go back to work.
2
Moreover, after few weeks, the rate of approval for President Fujimori and the
Minister of Finance Juan Carlos Hurtado Miller was by Peruvian standards
considerably large.
3
(Table 1)
Table 1: Rate of Approval for President Fujimori and his Minister of Finance
September 1990 October 1990 Do you approve the
performance of … ?
Approve Disapprove Approve Disapprove
President Fujimori 58% 28% 59% 27%
Minister of Finance
Hurtado Miller
67% 25% 68% 26%
Source: Polls conducted by DATUM and published in Caretas, “Popularidad de Fujimori”
November 5 (1990): 15.

Even more puzzling when trying to understand the popular approval of
Fujimori’s stabilization plan is that it did not bring an immediate end to inflation. On
the contrary, in the first year of the Fujimori government, inflation rose by 397%,
and while prices increased enormously, wages fell 40%, pushing into deeper poverty

2
Personal interview with Pablo Checa, former labor union leader (Lima, July 8, 2003), Luis Sirumbal,
senior economist at Centro de Asesoría Laboral-CEDAL (Lima, July 9, 2003), and José Marcos
Sanchez, president of Programa Laboral de Desarrollo – PLADES (Lima, July 3, 2003).
3
many Peruvians who had already been strongly affected by the devastating economic
crisis that had hit Perú throughout the 1980s. As noted by Weyland, taking into
consideration the failure of the series of adjustment efforts undertaken during the
1980s, the immediate rise of inflation after the stabilization program applied by the
Fujimori government should have ignited greater skepticism.
4
Instead, as of
December 1991 the reforms met with the approval of 52%-59% of poll respondents.
5
Furthermore, the stabilization program was supplemented in February 1991
with a vast market-oriented reform program that radically changed the Peruvian
economy. As pointed out by Stokes,
6
the depth of this latter program rivaled the
transformations being pursued in the former Socialist block. With this move, the
state and the inward-oriented model of economic development based on Import
Substitution Industrialization (ISI) that had prevailed for almost forty years
practically disappeared from economic policy.
Not only was the scope of the reforms enormous, but they were also applied
quickly and simultaneously, without sectoral policies, a time frame that could permit
domestic actors to adjust, or effective disbursement of funds by the international
financial institutions (IFIs) that could have brought some financial relief. These
combined circumstances resulted in such harsh conditions that Campodónico has

3
As even foreign observers noted, the 60% approval rating of the president was puzzling given the
sharp deterioration of real incomes that the country had endured as a result of the stabilization. The
Economist Intelligence Unit, Country Report , no. 1, (1992): 12
4
Kurt Weyland, The Politics of Market Reform in Fragile Democracies (Princeton, NJ: Princeton
University Press, 2002), 131.
5
APOYO, Informe de Opinión, December 1991.
4
compared the application of the stabilization and structural adjustment in Perú to
“surgery without anesthesia.”
7
The radical nature of the Peruvian reforms and the speed with which they
were applied contrast with the pace and magnitude of other Latin American
countries’ reform experiences. Crabtree and Thomas note that although Perú was not
one of the first countries to pioneer liberalization, the Fujimori government pursued
neoliberalism with a conviction and consistency that was probably unmatched in the
region.
8
Moreover, the reforms took even the multilateral institutions by surprise, as
the depth and scope of the reforms surpassed the terms suggested by those
institutions. The structural adjustment program, for instance, was implemented at a
pace that even IMF officials found excessive.
9
A vast market-oriented reform like the one applied by the Fujimori
government would have been politically unthinkable a few years earlier. During the
previous decade, the government of Fernando Belaunde (1980-85), despite having a
majority in Congress, had failed in its attempts to liberalize the economy because of
intense opposition from unions, the business elite, and political parties. Furthermore,
even Acción Popular, Belaunde’s political party, and members of the executive
branch appointed by the president had rejected the economic policy implemented by

6
Susan Stokes, Mandates and Democracy. Neoliberalism by Surprise in Latin America (Cambridge:
Cambridge University Press, 2001), 162.
7
Humberto Campodónico, “Cirugía sin Anestesia,” Punto Critico Año 1, No. 1, (1991): 12-14.
8
John Crabtree and Jim Thomas, “Neoliberalism, Democracy and Exclusion,” in Fujimori's Perú: The
Political Economy, ed. John Crabtree and Jim Thomas, 266 (London: Institute of Latin American
Studies, 1998)
5
his government. This level of official opposition, added to that exercised by broad
sectors of the Peruvian civil society, interrupted the economic program overseen by
Belaunde’s economic team.
In contrast, president Fujimori (1990-1995), a newcomer in politics, was able
to initiate a vast program of economic reforms far more aggressive than policies that
had evoked intense opposition during past governments. In spite of the considerable
extent and rigidity of the market-oriented reforms applied by the Fujimori
government, support for these reforms from Congress,
10
the business elite, and civil
society was higher than ever before.
Moreover, while the Belaunde government was forced to retreat from the
application of austerity measures and mild market-oriented reforms that it had
proposed in the 1980s, the policies formulated during the early 1990s have lasted far
beyond Fujimori’s first presidential term. The overwhelming popular support that
Fujimori and his list of candidates for Congress received in the 1995 general
elections allowed the president to govern for a second presidential term and to
advance the reform program initiated in 1990.
11

9
John Deveroux and Michael Connolly “Economic Reform and the Real Exchange Rate in Perú,” in
The Peruvian Economy and Structural Adjustment: Past, Present and Future, ed. Efraín Gonzales de
Olarte, 289 (Coral Gables, FL: North-South Center Press, 1996).
10
During the first two years of his government, Fujimori did not control a majority in Congress. His
political group was not a political party but just a coalition of independents that supported his
candidacy. On April 1992, in a frontal attack against democracy, Fujimori closed Congress. A few
months later he called for general elections for the Constituent Congress (Congreso Constituyente),
the assembly appointed to write a new Constitution and legislate until 1995. In these elections,
Peruvians massively voted for Fujimori’s new list of candidates. Since then, Fujimori maintained a
congressional majority, a trend that continued with his presidential reelection in 1995.
11
According to polls conducted by APOYO, 78% of the upper stratum, 60% of the middle class, and
66% of the lowest sectors had voted for Fujimori. APOYO, Informe de Opinión, April 1995.
6
This political outcome also contrasts with the experiences of other Latin
American countries with market-oriented reform. In Venezuela, for instance, the
Perez administration was replaced in 1994 by that of Rafael Caldera, who ran an
anti-neo-liberal campaign and within weeks modified the reforms implemented by
his predecessor, restoring the country’s traditional regime of price and import
controls and state intervention throughout the economy. In Bolivia, the economic
reforms of 1986 were preserved, not because of wider public support but because of
strategic pacts the executive branch had to negotiate with political parties in order to
neutralize possible opposition to these reforms.
12

Although the high approval rates Fujimori received during his first
presidential term dropped somewhat through the end of the decade, the majority of
Peruvians continued supporting the government’s economic policies. Even as of
2006, sixteen years after the initiation of the neoliberal program by the Fujimori
administration and after the election of a new president in 2001, no substantial
changes have been made in its implementation. The core reforms of the economy
initiated by the Fujimori government continue being applied.
Given the massive rejection of market-oriented reforms during the 1980s in
Perú, how can the Peruvian case of economic reform in the 1990s and its
sustainability over time be explained? Mainstream approaches in the political
economy literature hold that the variables that constrain and determine state behavior

12
See Eduardo Gamarra, “Crafting Political Support for Stabilization: Political Pacts and the New
Economic Policy in Bolivia” in Democracy, Markets, and Structural Reform in Latin America, ed.
7
are: power, interests, and international economic structures. Studies of developing
countries’ economic policymaking have likewise emphasized the influence of
structural and international constraints in determining these countries’ policy
choices, viewing developing countries largely as passive actors responding to those
constraints. Consequently, when analysts working under well-established approaches
in the field of political economy seek to explain the wave of neoliberal economic
reform in Latin America, the usual suspects are: economic crisis, the leverage of
international financial institutions (IFIs), and the pressure of business groups.
The literature that gives explanatory primacy to these material variables
explores issues that undoubtedly have accompanied the process of economic reform
in developing countries. For instance, the devastating impact of economic crisis,
added to the overwhelming burden of external debt, has undeniably complicated the
maneuvering of economic policymakers in many Latin American countries.
Likewise, the IFIs have played an important role in warning developing countries
about their limited options with respect to these institutions’ targets, deadlines,
sanctions, and eventual rewards in the form of loans. Moreover, there is evidence
that important sectors of the business elite in many Latin American countries have
directly benefited from the application of neoliberal reforms.
Nonetheless, studies based on an analysis of the material variables mentioned
above cannot answer several puzzles intrinsic to the Peruvian case of neoliberal

William Smith, Carlos Acuña, and Eduardo Gamarra, 105-107 (New Brunswick, N.J.: Transaction
Publishers, 1994).
8
economic reform. During the so-called lost decade of the 1980s, for instance, why
was the neoliberal economic model established in some Latin American countries
and not in others? Specifically, with respect to Perú, why, despite its severe
economic crisis, external debt, and consequent need for external financial support,
did former administrations not follow the IFIs’ policy prescriptions? Why did
President García (1980-1985) so vehemently reject those prescriptions and opt
instead for enhancing inward-oriented economic policies, while during the 1990s
under economic constraints relatively similar President Fujimori issued policies that
surpassed the adjustments proposed by the IFIs’ and nonetheless met the support of
the wider public in this regard? Why was Perú so retarded in adopting policies other
Latin American countries had adopted earlier?
Studies that grant explanatory primacy to the material interests of business
groups in the government’s determination to apply market-oriented reforms, rest on
assumptions whose application, especially in the Peruvian case, is not that simple.
Prior to 1990, the majority of the Peruvian business elite had benefited from the
application of inward-oriented economic policies that provided protection to the
domestic market. In contrast, the implementation of market-oriented reforms
tremendously altered the status quo of these interest groups, in most of the cases
affecting negatively their interests previously protected by the state. Why during the
early 1990s did the business elite that had challenged former attempts to liberalize
the economy opt instead to support a model of economic development different from
the one it had supported for decades and from which it had largely benefited?
9
Hypothesis
I argue that the answer to these puzzles is related to the policy ideas that
prevailed both in government circles and in various sectors of society during the
period that policy makers opt for the application of specific economic policies.
Therefore, with respect to economic policy change in Perú during the 1990s, I
suggest looking at the impact of ideational factors (policy ideas that supported
market-oriented reforms and the advocates of these ideas) on both policy elites and
on the society.
During the late 1980s, non-state actors who supported the retreat of the state
from the economy and the application of market-oriented reforms extensively
disseminated these policy ideas throughout broad sectors of the Peruvian society.
These ideas appealed to large sectors of the wider public, shaping their analysis and
interpretation of the causes and consequences of the dire economic circumstances
Perú was facing. A variety of social actors redefined their interests and began to
support economic policy change in the direction of the market. During the early
1990s, some of the supporters of these ideas became policy makers or occupied
crucial positions in the state and as such were able to adopt and implement economic
policy change. Those in the non-state sector did not play a lesser role. On the
contrary, some actively participated in the diffusion and promotion of market-
oriented policy ideas prior to and during the implementation of the reform program,
while others by their acquiescence also contributed to the unprecedented support for
economic policy change. Thus, the main hypothesis of this study is as follows:
10

The more that the economic policy ideas supporting free markets, non-state-
centered economies, and global integration prevail in state and non-state
sectors, the greater the possibility that the government will be able to
implement and maintain economic reforms along that line.
Although this statement might seem obvious, it has not been adequately
explored in the established literature of policy reform, which, as mentioned above,
has overemphasized the impact of material variables as the cause of economic policy
change in Latin America.
I am aware that the reform-after-crisis argument and the collateral argument
that emphasizes the leverage exercised by the IFIs as the cause of the reforms might
be seen to threaten the validity of my central hypothesis. Therefore, one rival
hypothesis whose validity could challenge mine would be as follows:
The variations in the economic policies of Perú during the early 1990s can be
explained not by variations in the ideas prevailing in policy making and
social sectors, but purely by economic distress and the related pressure for
reform exercised by the international financial institutions.
While I argue that understanding ideational factors is crucial to explaining
and describing the process of economic policy change in Perú, I do not deny the
relative impact of situational factors such as economic crisis and the pressure of the
international financial institutions (IFIs) in influencing economic policy change.
Rather, I maintain that crisis per se is not sufficient to ignite effective economic
policy change. Not all crises end in reform, and even less in the application of
11

market-oriented reforms. Likewise, I do not see the pressure exercised by the IFIs
per se as a sufficient condition for economic policy change. My analysis does take
into consideration the influence exercised by the IFIs, but as this is accompanied by
ideational factors (ideas and their advocates –national and foreign) that facilitate the
receptivity to these institutions’ policy recommendations at the domestic level.
The present work is also in line with political science literature that, without
denying the contextual backdrop of international issues, highlights the important role
of domestic variables such as institutions and interest coalitions in explaining
economic policy change. At the same time, the present study rejects explanations
that consider ideas and interests as mutually exclusive. “Trying to go beyond the
rational neglect of ideas and the rigid separation of ideas and interests,”
13
as Woods
urges, it sees ideas as intimately related to interests but not reducible to them.
14

With respect to the relationship between ideas and institutions, the present
study takes into account the possible impact of political discourse on limiting
receptivity to different policy ideas that propose economic policy change.
15
It
recognizes as noted by Sikkink that the institutional structure and the formal and
informal rules that govern the state may have an impact on the probablity that new

13
Ngaire Woods, “Economic Ideas and International Relations: Beyond Rational Neglect,”
International Studies Quarterly 39, June (1995): 177.
14
In this regard, I agree with authors in the ideas-based research area that hold that instead of positing
an ideas-interest dichotomy, scholars should explore how ideational and rationalist accounts can
supplement each other. See, for instance, Mark Blyth, Great Transformations. Economic Ideas and
Institutional Change in The Twentieth Century, (Cambridge and New York: Cambridge University
Press, 2002); Woods, Op. Cit.; Jeffrey T. Checkel, Ideas and International Political Change:
Soviet/Russian Behavior and the End of the Cold War, (New Haven: Yale University Press, 1997).
12

policy ideas are embraced by these institutions and translated into effective
policies.
16

On the other hand, this study also contends that policy ideas may have a
substantial effect in the modification of institutions as well as in the creation of new
ones. In this regard, it follows Blyth, who maintains that new ideas can act both as
weapons to delegitimize prior ideas and institutions, and as blueprints to promote the
construction of new institutions and maintain their stability.
17

Nonetheless, the present study does not see this two-fold effect as occurring
only as part of a sequential process in which one phase is a pre-condition for the
next. Although such a sequential role of ideas in the supply of new institutions is a
possible scenario, especially at the state level, that is not necessarily the case for
institutions within the private sector. At the state level, new policy ideas provide
guidelines for the creation of new institutional settings that may facilitate the
implementation of policy change or the modification of prior institutions.
18
In the
private sector, in contrast, new institutions can be created even before the ideas they
promote have replaced or effectively diminished the influence of prior policy ideas
prevailing in society. As noted in chapter 7, the creation in Perú of think tanks that
promoted market-oriented policy ideas during the 1980s, before these ideas were

15
Hall defines political discourse as the state institutions and society actors and the way in which
ideas are embodied into them. Peter Hall, The Political Power of Economic Ideas: Keynesianism
across Nations, 383-386 (Princeton: Princeton University Press, 1989).
16
Kathryn Sikkink, Ideas and Institutions, Developmentalism in Brazil and Argentina (Ithaca: Cornell
University Press, 1991), 248.
17
Blyth, “Great Transformations,” 8-9, 38-42.
13

widely known and supported by public opinion, is a case in point. Likewise, private
institutions that initially supported a specific policy trend may change that initial
position precisely because of their receptivity to new policy ideas. In Perú that was
the case of CONFIEP whose creation in 1984 was part of the various initiatives
taken by the business elite to confront the Belaunde government’s attempt to
liberalize the domestic market. During the late 1980s however, CONFIEP became a
strong advocate of market-oriented reforms and played a decisive role in the
diffusion of the pro-market discourse before and during the process of economic
reform.
In sum, although the present study highlights the links among ideas, interests,
and institutions, it does not see ideas as an intervening variable that mediates
between interests and policy outcomes or between institutions and policy outcomes.
Instead, it argues that ideas cannot be reduced to material or institutional
developments and can have substantial effects both in the configuration of interests
and of institutions.

Main Concepts and Definitions
In order to develop the assertions posited above, I have taken into
consideration three interrelated issues. The first is the classification of the stages that
constitute the formal process of economic policy change. A second issue is the

18
For instance, this is the case of Instituto de Defensa de la Competencia y Propiedad Intelectual
(INDECOPI) in Perú created in 1992. I refer to INDECOPI in the last section of the present chapter.
14

definition of ideational factors. The third such issue is the role played by non-state
actors in the diffusion of policy ideas and the resulting economic policy change.
With respect to the first issue, I borrow the classification of stages identified
by Sikkink as: the adoption, implementation, and consolidation of policies.
According to Sikkink,
The ideas of top policy makers influence the adoption of new economic
models. . . . For successful implementation however, these ideas have to
become embedded in state institutions. . . . For an economic model to become
consolidated, a high level of consensus must emerge around the new model.
19

In relation to the second issue, by ideational factors I mean first of all
economic policy ideas. Based upon the general definition of ideas set by Goldstein
and Keohane,
20
I conceptualize here economic policy ideas as beliefs about cause-
effect relationships in economic issues that derive authority from a shared consensus
of specialized elites that provide individuals with guidelines on how to interpret the
economic situation, (re)define their interests, and achieve their economic
development objectives.
Yet I also include within the category of ideational factors the carriers of
policy ideas. In this regard, policymakers play a very important role as the receptors
and advocates of ideas especially during the formulation and implementation of new
policies. The present study highlights that the implementation and consolidation of
economic reforms necessarily require as a pre-condition the adoption of new policy

19
Sikkink, 2.
20
Judith Goldstein and Robert O. Keohane, eds. Ideas and Foreign Policy, Beliefs, Institutions, and
Political Change (Ithaca: Cornell University Press, 1993), 10.
15

ideas by like-minded top policy makers who, acting as their carriers, are able to
incorporate these ideas into the process of policy making.
However, the present study also points out that the mere adoption of new
policy ideas by top policymakers does not necessarily result in the implementation
and consolidation of economic reforms. It is the effective and wider diffusion of
policy ideas beyond the policymaking sector, the “soft power”
21
exercised by their
advocates (state and non-state actors) that make it possible for these ideas to become
policies able to be implemented and consolidated.
Therefore, I include here in the category of the carriers of policy ideas,
besides the top policymakers in charge of formulating and applying the economic
reforms other state actors whose support for the policy ideas that constitute the basis
of these reforms is crucial for their adoption by state institutions. More importantly, I
also consider non-state actors whose role as promoters of these ideas throughout
society is essential for the consolidation of the reforms. Chapter 3 describes the role
of the business elite, and Chapter 7 that of the press, think tanks, political coalitions,
and professional coalitions in the promotion of market-oriented policy ideas. In this
regard, this study follows the line of research proposed by Blyth and Sikkink by
attempting to “bring non-state actors back in” to our understanding of economic
policy change.
22

21
Soft power is the ability to get desired outcomes because others want what you want as a result of
attraction rather than coercion. Such power can derive from the appeal of one’s ideas, or from the
ability to set the agenda and to shape the preferences of others. Robert O. Keohane and Joseph S. Nye,
“Power and Interdependence in the Information Age,” Foreign Affairs, 77, no. 5 (1988), 86.
22
Blyth, “Great Transformations,” 6.
16

Figure 1: Stages of the process of economic policy change
(Formal Process) Formulation Implementation Consolidation

Non-state Actors’ Ideas Political Discourse
Diffusion of Ideas Throughout Society
(Informal Process)

In this context I also examine the language in which ideas were disseminated
and were able to persuade broad sectors of society to lend their support to market-
oriented reforms. I have paid attention not only to what salient state and non-state
actors had to say about economic policy, but also how they said it: the words,
images, metaphors, and symbols they used. As such, this work can again be seen as
similar to the interpretive-institutional approach pursued by Sikkink,
23
although in a
different national setting and with respect to different economic policy ideas.

23
Sikkink explicitly names her approach in these terms (Sikkink, 25-26). Odell also mentions the
importance of interpretive meanings in the diffusion of ideas. See John Odell, U.S. International
Monetary Policy: Markets, Power and Ideas as Sources of Change, (Princeton, Princeton University
Press, 1982), 68.
Policymakers

Ideas

Other State Actors
Political Discourse

State Institutions
Ideas

Non-state Actors
17

Methodology
The present study operates a qualitative analysis. Furthermore, in order to
capture the impact of the variety of issues related to the influence of ideas in
economic policy, the research methodology adopted here is eclectic,
24
since it relies
on a variety of analytical tools. First this study includes tools that are commonly used
in political science research such as the comparative analysis based on Mill’s
Method of Difference, which here is supplemented with process tracing. In addition,
this study applies a qualitative content analysis that combines semiotic and
hermeneutics. These latter are analytical tools disregarded by established studies in
the political economy literature, but whose importance has been underlined by some
scholars who work in the ideas-based research and in the areas of media discourse
analysis and linguistics, and take seriously the impact of language in economic
policy change.
The study of the effect of policy ideas on policy making requires a focus on
the process through which certain ideas become more persuasive than others.
Special attention must be paid to the context, means, and actors that made it possible
for these policy ideas to make their way into policy-making sectors and to gain the
approval of the wider public. Specifically, the present research attempts to answer
how market-oriented policy ideas could resonate in the Peruvian setting against
widely held domestic understandings and beliefs based on the inward-oriented

24
As suggested by Gilpin, “eclecticism may not be the route to theoretical precision, but sometimes it
is the only route available.” Robert Gilpin, The Political Economy of International Relations
(Princeton: Princeton University Press, 1987), 25.
18

perspectives on development strategy that had prevailed for decades. This requires
seeing the process through which market-oriented policy ideas altered perceptions
about the role of the state and social actors in the economy and the state’s policy
with respect to core states, foreign capital, and international financial institutions.
In this regard, a quantitative approach does not seem to be the most
appropriate research methodology. Statistical analysis, by definition, considers
variables in abstraction from their context,
25
which is problematic when attempting
to analyze and reconstruct the process of political decision-making and of the
diffusion of policy ideas throughout the wider public. Furthermore, an attempt to
formulate equations regarding cognitive variables such as ideational factors would
require abstracting variables from their context and introducing restrictive
assumptions about measurement error.
On the other hand, a qualitative case study permits a researcher to carry out a
method of inquiry that involves careful attempts at both description and causal
inference. It allows the analysis of processes of change and adaptation—issues that
are intrinsic to the adoption of new policy ideas—in a deeper and more suitable way
than that permitted by a quantitative approach. Consequently, a qualitative analysis is
here embraced.
Furthermore, given the object of the present study, the qualitative analysis
has to follow a specific sequence. To analyze the impact of policy ideas and avoid

25
See Timothy Mckeown, “Case Studies and the Statistical Worldview,” International Organization,
53, no. 1, (1999): 161-90.
19

circularity in the analysis, it is crucial to assess those ideas as an independent
variable. Market-oriented policy ideas have to be observed and studied as
independent of the policy change outcome, which is the application of market-
oriented reforms. It is essential to show that the proliferation and consolidation of
pro-market ideas in both policy-making and social sectors was a significant factor
that triggered economic policy change and and not the consequence of this change.
In other words, I intend to trace these ideas and observe if they had effects
regarding the application of market-oriented reforms and not vice-versa. This task
implies a deep analysis of the Peruvian context prior to and during the initiation of
economic reform. Methodological and empirical considerations that I discuss below
led me to set the period under study especially from July 1978 to December 1992.

Variables and method of comparison
The independent variables of this study are those that most scholars studying
economic reform in Latin America have focused on as the cause of policy change,
which are the following:
Pressure from business groups
Economic crisis
Pressure from international financial institutions
Policy ideas
The dependent variable is constituted by the economic policies issued by the
Peruvian governments during the period 1978–1995.
20

Through the application of Mill’s Method of Difference the researcher
observes cases that share the same characteristics save one but in which the
outcomes differ. The dissimilar characteristic is considered the cause of the variation
in the cases' outcomes.
26
The study of the Peruvian context during the period 1978-
1992 permits a comparative analysis across time in order to determine whether the
variance that occurred in economic policy during the early 1990s corresponds to the
presence or absence of specific economic policy ideas. Examining variation in the
dependent variable (economic policy) and in one of the independent variables (policy
ideas) while holding other potential causal variables (economic crisis and IFIs
leverage) constant across time permits seeing the causal relationship between change
in policy ideas and the implementation of market-oriented reforms. (Figure 2)
During 1975-1990 all the Peruvian administrations faced economic crises and
IFI pressure. Until the mid-1980s, two additional independent variables were also
constant. The first is policy ideas that favored the application of the ISI model of
economic development, the protection of the national market, and the intervention of
the state in the economy. The other variable is pressure from interest groups for the
application of ISI policies. The dependent variable also remained constant. The
administrations of Morales Bermudez (1976-1980), Belaunde (1980-1985), and
García (1985-1990) applied inward-oriented economic policies.

26
John Stuart Mill, "Two Methods of Comparison," (1888), reprinted in Comparative Perspectives:
Theories and Methods, ed. Amitai Etzioni and Fredric Dubow, eds. 205-213 (Boston: Little Brown,
1970).
21

Figure 2: Mill's Method of Difference

I ) Independent Variables: II) Dependent Variable:
a) Economic distress Economic policies
b) IFI leverage
c) Policy ideas

1980-1982
a) Relatively stable economic situation
External debt concerns ISI policies, inward-oriented,
b) IMF pressure to change policies with some mild market reforms
c) ISI policy ideas
- Technocratic team:
market-oriented policy ideas

1983-1985
a) Severe economic crisis
External debt crisis ISI policies, inward-oriented,
b) IMF pressure to change policies reversal of mild market reforms
c) ISI policy ideas
1985-1987
a) Severe economic crisis
External debt crisis Reinforcement of ISI policies,
b) IMF pressure to change policies increase of inward-oriented
c) ISI policy ideas economic policies.
1988-1990
a) Severe economic crisis
External debt crisis
b) IMF pressure to change policies Reinforcement of ISI policies,
increase of inward-oriented
economic policies
c) policy ideas
- policymakers: ISI
- non-state actors: large support for market-oriented policy ideas
business groups
think tanks
the press
wider public

(Continues in the next page) . . .

22

Figure 2 (Continuation)

1990-1995
a) severe economic crisis
external debt crisis Abandonment of ISI policies,
b) IMF pressure to change policies application of radical market-
c) policy ideas oriented reforms
- policymakers: market-oriented reforms
- non-state actors: large support for market-oriented reforms
business groups
think-tanks
the press
wider public

During the earlier 1980s there was an attempt by the executive’s economic
team to apply market-oriented reforms, but it was blocked by strong opposition both
within and outside government circles. From 1987 onward, there was variation in the
independent variable of policy ideas. Political events motivated social actors to
intensely disseminate market-oriented policy ideas through large sectors of the civil
society. A variation also occurred in the dependent variable of economic policy when
during the early 1990s, the Fujimori government implemented a program of
stabilization and market-oriented reforms that was supported by the wider public.
An aspect particularly interesting in Perú’s experience of economic reform is
that in the early 1980s and in the 1990s, the governments of Belaunde and Fujimori
counted among their economic teams with highly qualified professionals eager to
liberalize the economy. Nonetheless, while the first and less ambitious attempt to
reform the economy pursued during the early years of the Belaunde government was
reversed within the same presidential term, the vast reforms initiated in 1990 under
the Fujimori government have now been in place for more than fifteen years.
23

These circumstances raise another puzzle: Why in nearly identical situations
were the policy outcomes so different? To solve this puzzle, this study operates a
small-N comparison. The objective of including this method of comparison within
the broader object of study is that it supplements the process tracing and helps in
suggesting potential alternatives in similar situations. The particular resemblance
between these two cases–especially regarding the characteristics of the economic
teams in charge of elaborating the reforms–and the variation in the results permit to
better see the important role that ideas and non-state actors had in this regard.

Process tracing
A crucial tool in the present research has been process tracing.
27
As Goldstein
and Keohane maintain, shedding light on the impact of ideas on policy requires an
effort at causal inference.
28
Finding correlations between ideas and policy outcomes
constitutes the first step in a causal account. Then it is necessary to identify a path
leading from ideas to policy creation and to check for spurious correlations by asking
about the external constraints that affected both ideas and policy outcomes.
29

It is difficult to plainly determine, measure, and track the influence of policy
ideas and of the role of their advocates. Scholars within the ideas-based research

27
See Alexander L. George and Timothy J. McKeown, "Case Studies and Theories of Organizational
Decision Making," in Advances in Information Processing in Organizations, A Research Annual on
Public Organizations, ed. Robert F. Coulam and Richard A. Smith, Vol 2., 21-58 (Greenwich, CT:
JAI Press, 1985).
28
Judith Goldstein and Robert O. Keohane, Ideas and foreign policy: Beliefs, Institutions, and
Political Change, (Ithaca : Cornell University Press, 1993), 27-28.
29
Ibid.
24

field are conscious of the challenges that surround the study of the impact of ideas in
policy change. Hall, for instance, warns that attempts in this research field “might
teeter on the brink of reductionism.”
30
Likewise, with respect to the carriers of these
ideas, for instance, scholars who study the role of think tanks have recognized
serious methodological problems in this research area.
31

Nonetheless, methodological dilemmas related to the study of policy ideas do
not mean that the dynamics affecting their influence cannot be meaningfully
explored. Hall, for instance, notes that the failure to take ideas into consideration
leaves a large lacuna at the center of our understanding of public policy.
32
Schuck
likewise explains that despite the skepticism surrounding the inferential reasoning
researchers use to demonstrate ideas’ independent causal force in politics, “We
would be foolish to ignore it simply because it is less tangible and quantifiable.”
33

Toulmin suggests that in order to understand change and adaptation, we should look
not only at how institutional (or other social) variants make their appearance, but
also how their merit as solutions to outstanding social problems is demonstrated and

30
Peter Hall, The Political Power of Economic Ideas: Keynesianism across Nations (Princeton:
Princeton University Press, 1989), 4.
31
Diane Stone, “Introduction: think tanks, policy advice and governance,” in Think tank traditions.
Policy research and the politics of ideas ed. Diana Stone and Andrew Denham (London: Manchester
University Press, 2004), 10-11. Stone notes that there are wild fluctuations in the assessments of think
tank powers and capacities. For instance, in order to convince members, donors, and benefactors, of
the think tanks’ influence, or importance, think tanks often claim an influence over policy that is
inflated or unrealistic. On the other hand, as the politics and policy process of any country is
invariably complicated, it is rare to find uncontested examples of a one-to-one correspondence
between a think tank report and a policy adopted subsequently by government.
32
Hall, 4.
33
Peter H. Schuck, “The Politics of Rapid Legal Change: Immigration Policy in the 1980s,” in The
New Politics of Public Policy, ed. Marc K. Landy and Martin A. Levin, 51 (Baltimore: John Hopkins
University Press, 1995).
25

how they are successfuly spread and established more widely.
34
Adler in like manner
recommends that when comparing different policy outcomes, we must look at the
causal interaction between ideas and institutions and, most of all, “the human choices
that emerged from a varied range of interpretations of reality.”
35

In order to capture the dynamics of policy change noticed by the
aforementioned scholars the process tracing utilized here has relied on extensive
bibliographic research, interviews, and documentary analysis. With respect to the
interviews, I have contacted several members of policy and intellectual élites that
supported the application of market-oriented reforms. For instance, I have
interviewed some of the members of the economic teams that worked during the
governments of Morales Bermudez, Belaunde, and Fujimori, as well as former
members of Congress, members of think tanks, and professionals experts in economic
policy. Nonetheless, I have also interviewed people that severely questioned or
opposed the way in which the programs of stabilization and market-oriented reforms
were applied in Perú such as one of the most important advisors of President García,
academics, politicians, intellectuals, leaders of NGOs, and former union leaders.
With respect to documentary analysis, I have analyzed written news
published by the press and additional documentary materials published by
institutions such as business guilds, think tanks, and academia. With respect to press

34
Stephen Toulmin, “Evolution, Adaptation, and Human Understanding,” in Scientific Inquiry and the
Social Sciences: A Volume in Honor of Donald Campbell, ed. Marilyn B. Brewer and Barry E.
Collins, 31 (San Francisco: Jossey-Bass, 1981).
35
Emmanuel Adler, The Power of Ideology, The Quest for Technological Autonomy in Argentina and
Brazil, 27 (Berkeley: University of California Press, 1987).
26

documents, I have surveyed top-selling Peruvian newspapers and magazines issued
from mid-1987 to 1992. (Figure 3)
Figure 3: Circulation of the 12 major newspapers before August 1990

Source: Graphic elaborated with data published by APOYO in Perú Económico XIII, No. 10

Because of their direct mode and rapid diffusion, the news media’s reports
usually reach larger sectors of the society than those reached by other political
actors, and at a speed faster than the explanations diffused through other venues by
scholars, political analysts, and political actors. Thus, the news constitute the main
source of information from which ample sectors of civil society get abreast of the
major political/economic/social happenings in their country.
36

36
I am aware that the media effect on public opinion might not be exclusive and determinant. As
noted by Gamson and others in their study of public opinion in the United States, people use media
discourse as one among several resources in making sense of political issues. See William Gamson,
“Media Discourse as a Framing Resource,” in The Psychology of Political Communication, ed. Ann
0
20,000
40,000
60,000
80,000
100,000
120,000
El Comercio
Expreso
Ojo
La Republica
Extra
Popular
Pagina Libre
Universal
Hoy
El Nacional
La Cronica
Ultima Hora
27

Therefore, initially I have paid attention to the informative content of the
news, editorials, articles, essays, and other documents, such as communiqués and
publicity ads. These sources have provided important information on the political
and economic events that occurred prior to and immediately after the application of
the program of economic reform.
Nonetheless, I have considered the press documents not only as sources of
information, but also as objects of analysis per se. Noticing the political importance
of the news’ informational role in producing a special type of popular social
knowledge,
37
I have studied the texts of news not only as news reporting events but
also as events producing events. The media is able to promote specific points of view
about the events reported. It communicates messages and symbols to the general
public, inculcating individuals with certain values, beliefs, and codes of behavior.
38

The news especially constitutes a powerful source of persuasion. As noted by
Corner, broadcast bulletins are selective in their meanings (they contain certain
words and explanations and not others) and evaluative/descriptive (many of the

Crigler (Ann Arbor: The University of Michigan Press, 1996), 111. Nonetheless, as noted by Lewis,
the media are such an important part of people’s semiotic worlds that it is impossible to deny their
role in informing the way people understand and interpret the world: “One might just as well begin by
assuming widespread media influence unless demonstrated otherwise.”

(Justin Lewis, Constructing
Public Opinion. How Political Elites Do What They Like and Why We Seem to Go Along With It [New
York: Columbia University Press, 2001] ), 85.
37
See John Corner, “Textuality, Communication and Media Power,” in Language, Image, Media, ed.
Howard Davis and Paul Walton, 272 (New York: St. Martin’s Press, 1983). Fairclough also notes that
the wider impact of media has to do not only with how they selectively represent the world, but also
with “what sorts of social identities, what versions of ‘self’, they project and what cultural values
these entail.” (Norman Fairclough, Media Discourse [New York: St. Martin’s Press Inc, 1995], 17).
38
According to Emmison, an important aspect of the legitimation of capitalist social formations is to
be found “in the mundane features of the discourse which depicts our economy activity.” Mike
Emmison, “The Economy: Its Emergence in Media Discourse” in Howard Davis and Paul Walton,
28

words and phrases used connect with particular positions).
39
It is precisely through
this dynamic, informing, instructing, and influencing the wider public that the news
both reports and becomes part of the political discourse.
In Perú, the pro-market discourse was largely publicized through the media,
which during the period of study was a conduit of information largely approved by
Peruvians.
40
(Table 2) The mainstream press echoed the pro-market discourse,
reporting about the events organized by the advocates of market-oriented policy
ideas, and publishing their speeches, interviews, and essays about the free-market.
41

Thus an analysis of the news texts has been essential to the ends of the
present research.
42
It has permitted a more comprehensive observation of subtleties

Op. Cit., 154. See also in this regard, Edward S. Herman and Noam Chomsky, Manufacturing
Consent, The Political Economy of the Mass Media (New York: Pantheon Books, 1998), 1.
39
Corner, 274.
40
According to the polling firm APOYO, as of July 1989 Peruvians perceived the media as a very
efficient and influential actor in society (3.1 over a maximum of 5.0) only surpassed by the Catholic
Church. See “El Poder de la Prensa,” Debate XI, No. 56, July-August (1989): 40. Furthermore, polls
conducted by APOYO in 1990, indicate that as of February of that year 59% of poll respondents had a
very favorable opinion of the mass media, 12% a good opinion, while 29% an unfavorable opinion.
Information published in Perú Económico XIII, 3 March (1990): 12.
41
By mainstream press I mean here that one that during the period under study had the largest
audience. According to polls conducted by the firm APOYO, the three newspapers that during the
period under analysis had the largest daily circulation were El Comercio, Expreso, and Ojo. See “El
Negocio de Todos los Días, Los Diarios Después del Ajuste,” Perú Económico XIII, 10, October
(1990): 10-15. Furthermore, these three dailies decisively supported the pro-market discourse. In this
regard, the present study has focused mainly on the information published by the daily El Comercio.
However, I have also relied on information published by the daily La República, because this daily
ranked fourth among those with largest circulation, and because it provides a broader panorama about
the political context since in contrast to the other top selling newspapers, La República also published
news and reports that did not plainly support Vargas Llosa and the advocates of market-oriented
reforms. More importantly, according to polls conducted during the period under study, both El
Comercio and La República ranked top among the dailies that the wider public identified as more
informative, reliable, and influential. See Perú Económico XIII, Op. Cit. (Also, see Table 1 of the
present study). With respect to weeklies, I have focused mainly but not only on Caretas, which during
the late 1980s was rated as the best selling weekly in Perú by the journal The Economist Intelligence
Unit Country Profile 1992-93, 25.
42
During the time of the field research for the present work, access to news television footage and to
videos of the commercials launched by Vargas Llosa (the presidential candidate supporter of market-
29

otherwise not perceived. I have traced how certain language tools contributed to
constructing and promoting a pro-market rhetoric, to coining terms and images
which after being repeatedly communicated through various venues, especially the
news, become part of the political discourse.
Table 2: Dailies' reputation in public opinion, % of answers.
Informative Amenable Impartial Complete Influential Veracious
El
Comercio 53 21 39 71 33 43
La
República 18 10 11 8 17 7
Expreso 9 11 8 5 7 7
Ojo 8 34 8 5 9 7
Others
(11 dailies)

5 18

12

2 10

9
No answer 6 5 12 7 19 10
Source: Public Opinion Polls conducted by the firm APOYO and published in Perú
Económico XIII No. 10, October (1990): 10.

In this regard my research has again proceeded along qualitative rather than
quantitative lines. Once I identified the point of emergence in the news of articles,
editorials, interviews, and communiqués describing or supporting market-oriented
policy ideas, especially from 1987 onward, no attempt at enumeration was made.
Instead, I have pursued a qualitative content analysis, combining semiotics and
hermeneutics
43
and some guidelines used in media discourse analysis.
44
I have

oriented reforms) aired during the period under study was tremendously difficult, if not impossible.
Therefore I have analyzed the pro-market discourse transmitted by the written press only.
Nonetheless, in chapter 6, I refer to these videos relying on the description made by Alvaro Vargas
Llosa (Mario Vargas Llosa’s son and press secretary of his presidential campaign).
43
Bryman notes that qualitative content analysis comprises a searching out of underlying themes in
the materials being analyzed. Semiotics is an approach to the analysis of symbols that is concerned
30

applied what Fairclough terms a multifunctional view of text, which sees a text as
simultaneously having three main functions: ideational, interpersonal, and textual.
45

By focusing upon how these three aspects are articulated, Fairclough notes, a
researcher may investigate the simultaneous constitution of systems of knowledge
and beliefs (ideational function) and social relations and social identities
(interpersonal function) in texts. The researcher can observe particular
representations of social practice (ideational function); particular constructions of
identities (in terms of what is highlighted about the readers, or the people mentioned
in the news); and a particular construction of the relationship between writer and
reader (i.e.: the communication may be formal or informal).
46

I discuss in chapter 7 how those opposed to President Garcia’s attempt to
nationalize the banking sector described this event as a political crisis and called
upon the wider public to oppose not only this measure but also to demand change in
the government’s economic policy framework. Likewise, I note how the pro-market
discourse set the guidelines by which to interpret the role that the state, business, and
social actors should play in a market economy and to justify why Perú should
emulate foreign experiences of reform.

with uncovering the hidden meanings that reside in texts as broadly defined. Hermeneutics is more or
less synonymous with Weber’s notion of Verstehen: through it, the analyst of a text tries to bring out
the meanings of a text from the perspective of its author, and entails attention to the social and
historical context within which the text was produced. See Alan Bryman, Social Research Methods
(New York: Oxford University Press, 2001), 369-385.
44
Media discourse analysis sees discourse as social action and interaction, as a social construction of
reality, a form of knowledge. See Fairclough, “Media Discourse,” 16-19.
45
Fairclough, “Media Discourse,” 58.
46
Ibid
31

Moreover, one of the accurate criticisms of the idea-based research approach
is that many studies in this area do not explain the mechanism by which policy ideas
move “from academic debate to popular consciousness”.
47
In an attempt to forestall
that criticism here, I pay attention to the language utilized in the diffusion of
economic ideas. Woods has posited that economic ideas that are likely to be
attractive to the wider public are those whose components can be broken down into
simple and appealing devices such as metaphors or analogies that permit policy
makers to make sense of complex issues about which they have to take action.
48

Maasen and Weingart note that language already accessible conditions the way in
which novel knowledge can be articulated. Thus, in order to observe the dynamics of
ideas in society, these scholars recommend looking at metaphors as units of
circulation, as messengers of meaning in the process through which scientific
knowledge is received by other societal discourses, such as politics, media, and
everyday communications.
49
Lakoff warns that since much of our social political
reasoning makes use of a system of metaphorical concepts,

an adequate appreciation
of social political thought requires an empirical study of metaphorical thought.
50

47
Mark Blyth, “Any More Bright Ideas? The Ideational turn of Comparative Political Economy”
Comparative Politics, January (1997): 237. In this regard, Haas also poses the question of how it is
that knowledge might “make the trip from lecture halls, think tanks, libraries, and documents to the
minds of political actors?” Ernst B. Haas, When Knowledge is Power (Berkeley: University of
California Press, 1990), 20.
48
Woods, 175-176. Woods takes this concept from psychological approaches to international relations
sketched by Khong (1992) and Larson (1985).
49
Sabin Maasen and Peter Weingart, Metaphors and the Dynamics of Kknowledge, (London:
Routledge, 2000), 15, 19-34.
50
George Lakoff, “Metaphor, Morality, and Politics: Or, Why Conservatives Have Left Liberals in
the Dust,” in The Workings of Language: From Prescriptions to Perspectives, ed. Rebeca Wheeler,
140, 154-155 (Westport, CT: Praeger Publishers, 1999).
32

In the Peruvian context under study, the pro-market rhetoric was
characterized by the use not only of metaphors
51
but also of analogies, myths, and
symbols whose features are relatively similar to those of metaphors. In the present
analysis, therefore, I identify all of these language tools as units of circulation of
market-oriented policy ideas. I take economic ideas, and the language tools through
which these were diffused, seriously.
At the same time, I am interested in observing not only the way in which the
pro-market discourse was constructed but also how it was effectively communicated
and perceived by societal actors and consolidated in the Peruvian arena. As put by
Fairclough, language use is constitutive both in conventional ways that help to
reproduce and maintain systems of knowledge and belief and in creative ways that
help to transform them. Whether which one of these ways predominates depends
upon social circumstances and how the language is functioning within them.
52
Here I
supplement the basic semiotic analysis of press documents with a further inquiry by
taking into consideration the political context within and the venues through which
market-oriented policy ideas were described and supported in news reports. This
analysis helps to scrutinize the conditions that allowed the diffusion of market-
oriented policy ideas and prompted change in economic policy.

51
Although visual metaphors are very important (and as noted by Grand, may sometimes be more
persuasive than verbal metaphors), due to constraints imposed by time and the scope of the present
dissertation, I do not analyze them here. I just briefly refer to them in chapter 7. Visual metaphors
come in the form of still pictures, Figures, logos, and charts, and their topics are often either spoken or
implied in the context of its presentation. See Steve Grand, The Battle for Imagery: Visual Metaphor
and TelevisualPersuasion, The Gulf War. Ph. D. dissertation, University of Southern California, 1994.
52
Fairclough, “Media Discourse,” 55.
33

Another important source employed in this study is data provided by public
opinion polls regarding the reaction of the wider public to the promotion of market-
oriented policy ideas and the presidential electoral campaigns. Although I have taken
into consideration those polls appearing in specialized publications that reached
intellectual, professional, and business elite audiences, I have also particularly relied
on those published by the written press and directed to the wider public. This is
because, as noted in chapter 7, the present research pays attention to the important
role played by policy makers but also to the role of non-state actors in economic
policy change. Among these latter group are average citizens. Although these
citizens are not directly involved in the actual formulation and implementation of
economic policies, their votes in general elections determines who would be in
charge of managing the content and direction of the state’s economic policy.
Likewise, their support or lack of it during the phase of consolidation of policies may
contribute to the continuation or reversal of economic reforms. Thus it is crucial to
observe the reactions of average citizens to the market-oriented policy ideas. Public
opinion polls provide important evidence in this regard.
In the Peruvian arena the press reported the results of these public opinion
polls in a simple format that outlined specific results and often accompanied them
with very easily comprehended graphics, commentaries, and caricatures that made
their reading easy and attracted the common reader. As such, I see a dynamic similar
to that described above regarding the news. Public opinion polls presented by the
34

press not only reported about but also contributed to guide certain trends in public
opinion. They were mainly sources of information, but also sources of persuasion.
53

I am aware that public opinion polls might not be always truly representative
of the reaction of the wider public. Furthermore, as in any polling practice, sample
bias–whether innocent, inadvertent, or intentional–may produce measures of public
opinion neither reliable nor valid and create “bandwagon” effects.
54
Despite these
limitations of public opinion polls, what is certain is that peculiarities of the Peruvian
context as well as events which occurred after these polls were conducted, confirm
either the creditability of their results or their persuasive effect in the wider public.
For instance, the polls utilized in the present study were conducted by specialized
firms mainly in urban areas. According to the official Peruvian entity in charge of
overseeing Peru’s national statistics Instituto Nacional de Estadística (INEI), 70%
of the Peruvian population is urban, and Lima concentrates 35% of the Peruvian
population and almost 40% of total employment. Thus, with respect to the present
analysis that deals specifically with the impact of ideas in economic policy, the
conduction of polls mainly in urban areas is not a limitation for the study of the
Peruvian context during the period 1975-1995. Furthermore, public opinion polls
broadly disseminated by the press prior to the initiation of market-oriented reforms

53
As recognized by Lyle and McLeod, since George Gallup pioneered the “scientific” measurement
of public opinion in the early 1930s, surveys have become a standard tool in the political process.
Candidates and parties use surveys for strategic planning and, through selective release of results, for
persuasion. The media have joined in this process, sponsoring polls then reported as news. Jack Lyle
and Douglas McLeod, Communication, Media and Change (Mountain View, California: Mayfield
Publishing Company, 1993), 173.
54
Ibid.
35

in Perú (that is, before 1990) indicated that ample sectors approved the eventual
application of these reforms. The fact that during the 1990s the wider public did not
resist the application of these reforms and instead continued supporting the
government’s economic policy may indicate the veracity or alternatively, the
persuasive effects of the polls conducted before 1990.
In general, to construct a complete explanation of why a particular set of
ideas comes to prevail, in the present study I have tried to follow the research agenda
suggested by Woods.
55
As a starting point for research into economic ideas and
international relations, Woods recommends addressing five questions that highlight
the different roles that ideas might play within a political community:
1. Who do ideas blame for nonperformance?
2. What is the vision promised by ideas?
3. What group (or groups) are created or bound together by the
ideas?
4. What issues do the ideas prioritize and address?
5. How do the ideas contrast with competing sets of ideas?
In order to answer these questions, Woods advises various steps, the first
being that researchers look at what policy makers say and do. The next step is to
draw together the different components of the set of ideas being drawn upon by
policy makers: how the stakes were evaluated; how alternative solutions were
identified and weighed; and how the solution was justified. A third step is to
36

distinguish the competing sets of economic ideas in play at any one time, paying
attention to how each prioritized and responded to international, political, and social
exigencies of the time. Finally, the researcher should pay attention to the political
traditions of a society, noting the important historical and cultural exigencies to
which economic ideas respond.
The present work takes into consideration this process of inquiry. Chapter 3
observes the role of the business elite in policy change in the Peruvian setting.
Chapters 4 and 5 note the prevalence during the 1970s and 1980s of policy ideas
supporting inward-oriented economic policies. Chapters 6 and 7 analyze the decline
of inward-oriented policy ideas and the emergence of market-oriented policy ideas in
the case under study. Chapter 7’s central thesis is that during the late 1980s the
promoters of market-oriented policy ideas discursively constructed support for the
economic reform program applied during the 1990s.

The Importance of Studying the Peruvian Case of Economic Reform Under an
Ideas-based Analysis
As noted earlier, the Peruvian case is on the face of it puzzling. The
traditional arguments of the field of political economy cannot adequately explain the
extent and pace of the Peruvian market-oriented reform during the early 1990s and
the unprecedented public support for this reform that was evident even before 1990.

55
This and the following paragraph are based upon Ngaire Woods, 175-180.
37

Furthermore, Perú is a middle-income developing economy
56
that has experienced
severe economic and debt crises. As such, it has been exposed to many more
structural constraints than are most developed countries in the region and developed
countries in general. If the present work can demonstrate that even in the Peruvian
case ideas affect political economic decisions either independently or in tandem with
other factors such as interests, that finding may constitute an important contribution
to middle-range theory building in the ideas-based research program focused mainly
on developed countries.
Moreover, as Wise notes, the sheer extremities in Perú’s economic
performance over the past two decades make the Peruvian case deserving of study:
“From being during the 1980s the absolute worst economic performer in Latin
America, over the following decade Perú succeeded in joining the ranks of the
region’s leading emerging economies.”
57
It is important then to analyze the Peruvian
case of economic reform. Many studies have focused on the content and effects of
the reforms applied during the government of President Fujimori. The present study
considers important the analysis of the factors that motivated and allowed the
implementation and consolidation of economic policy change, particularly the role in
this regard played by policy ideas.

56
As of 1990 this country was considered as a middle income developing economy according to the
definition of The World Development Report (Washington D.C.: The World Bank, 1993).
57
Carol Wise, Reinventing the State, Economic Strategy and Institutional Change in Perú (Ann
Arbor: The University of Michigan Press, 2003), 9. However, besides the macroeconomic positive
results, dismal patterns of inequality, poverty, and unemployment have persisted. See last section of
this chapter and the epilogue of chapter 7.

38

The Scope of the Reform Program Implemented During the Early 1990s
Economic framework prevailing before 1990
In order to have a better understanding of the impact of market-oriented
policy ideas in the Peruvian arena, it is important to previously take into
consideration the content and scope of the economic reform that these ideas may
have ignited. In this regard, the following brief review of the origins and main
features of the model of economic growth prevailing before 1990 helps to put the
Peruvian situation in perspective.
Before 1968, a primary-export model of growth characterized the Peruvian
economy, with an emphasis on the export of natural resources to world markets and
the import of manufactured goods. The participation of the state in the economy was
minimal, and there were not restrictions to foreign trade and investment. The leading
sectors were in agriculture, mining, oil, and fishmeal. Throughout the century the
landed oligarchy tied to foreign capital had controlled the various governments and
the economy, in such a way that, “the state privatized itself to the demands of the
oligarchy, and the public sphere was formalized in a verbal discourse without real
effect.”
58
Moreover, the oligarchy had perpetuated an uneven “order” without any
incentive to expand growth to other sectors.
The process of urbanization and industrialization that developed during the
1950s had permitted manufacturing industry and financial services to grow to some

58
Manuel Castillo, La escena astillada. Crisis, acumulación y actores sociales (Lima: DESCO,
1992), 28.
39

extent and in 1963 the new government of President Belaunde embarked on a
moderate policy of ISI. However, these relatively important outcomes did not modify
the prevailing export-oriented model of growth, neither diminished the hegemony of
the oligarchy.
From 1963 to 1968, the Peruvian economy largely deteriorated. In that period
the average annual growth rate was 4.4%, less than the 5.3% obtained between 1950
and 1962. The average inflation rate was 11.6%, relatively higher than the average
7% rate for the period 1950-1962. From a positive rate of 0.2% of GDP in 1963, the
fiscal account turned to a deficit of 2.1% of GDP as of 1968.
59

In addition to these economic problems, the government had to confront
frustration and opposition in the social and political arenas. During his electoral
campaign Belaunde had represented the populist option in a context in which
enthusiasm for the liberal economic model had largely begun to wane. His arrival to
government at a time in which the number of popular sectors and their related needs
was considerably increasing and political activism was seriously questioning the
hegemonic power of the oligarchy, had created high expectations across all sectors of
the Peruvian society. Once in office however, Belaunde did not directly confront the
oligarchic order. Furthermore, irregularities in the negotiations between the
government and the International Petroleum Company
60
that favored mainly this

59
See data about economic crisis in Carlos Parodi, Perú 1960-2000: Politicas Económicas y Sociales
en Entornos Cambiantes, (Lima: Centro de Investigaciones de la Universidad del Pacífico, 2000) 8.
60
There were legal problems related to the property rights of the natural resources the IPC had
extracted from Peruvian territory, and to the payment of taxes this foreign firm owed to the state.
During his electoral campaign Belaunde had promised to negotiate a favorable agreement for the
40

multinational corporation ignited a political crisis that resulted in the resignation of
the ministerial cabinet at the end of September 1968.
That situation characterized by the coexistence of negative economic
indicators, social frustration with respect to the government’s inability to confront
the oligarchy, resentment against the oligarchy and foreign capital, and the political
impasse that plagued the Belaunde administration, was capitalized on by the Armed
forces. On October 3, 1968, General Velasco led a coup that deposed president
Belaunde and established the so-called “Revolutionary Government of the Army
Forces.” Claiming his firm position against the oligarchy and imperialism, Velasco
launched a revolution from above that ended the liberal economic model based on
primary exports and changed forever the constellation of economic groups in Perú.
The government expropriated the oligarchy’s haciendas, banks, and newspapers, and
nationalized business owned by foreign firms.
61
The agro-exporting oligarchy
disappeared, and ISI became more radical, both in terms of the degree of protection
of the domestic market and the degree of state intervention in the economy.
On the one hand, the military government issued regulations that impeded or
restricted the entrance of foreign goods and capital, and granted a series of perks to
the industrial sector largely facilitating its access to soft credit, subsidies, and tax
exemptions. On the other hand, the government initiated an era of increased state
intervention and populist policies that deterred private investment. Through the

country with the IPC, a promise that he did not fulfill. This ignited resentment about foreign
investment.
41

nationalization of the foreign owned firms and the transfer to the state of part of the
assets of the oligarchy, a strong public-enterprise sector was built up. Besides, the
military government issued dramatic reforms in the labor sector granting job stability
after a probationary period of three-months,
62
sponsoring new trade unions, and
making obligatory the participation of workers in the profits and ownership of
industrial firms. The way in which the strategy of government intervention was
applied in Perú undermined the potential of ISI and the objectives of economic
development expressed by the military regime.
63

With the exception of job stability regulations that in 1975 were partially
modified by the military government of Morales Bermudez, and the return of the
media firms to their private owners by the Belaunde government, in general during
1975-1990 the various administrations did not perform any substantial change in the
basic institutions established under the Velasco era. Moreover, the García
administration’s economic program largely resembled that of Velasco: the
probationary period for acquiring job stability was again reduced to three months, ISI
was reinforced as well as the intervention of the state in the economy, foreign trade
was largely restricted, and there were not effective incentives to foreign investment.

61
See Henry Pease, El Ocaso del Poder Oligárquico: Lucha política en la escena oficial 1968-1975
(Lima: DESCO, 1979).
62
This meant that if a firm could not prove “just cause” for termination in labor courts, the worker
could choose between being reinstated in a job or receiving a severance payment.
63
As noted by Wise, the excessive intervention of the state in the economy meant the transfer of the
investment burden from the private to the public sector, without any improvement in the ability of the
latter to finance this effort, and with little initiative to gain access to the substantial private-sector
profit registered over the decade. Carol Wise, “State Policy and Social Conflict in Peru,” in The
Peruvian Labyrinth: Polity, Society, Economy, ed. Maxwell A. Cameron and Philip Mauceri, 80
(University Park: Pennsylvania State University Press, 1997).
42

Main features of the reform program applied by the Fujimori government.
From 1990 onward the government of Alberto Fujimori rapidly enacted
radical change in economic policy in direction of price stability, the reduction of the
intervention of the state in the economy, freedom for private competition, and
openness to the world economy. The reform program was accompanied by a
determined effort to reinsert Perú in the world financial markets, reapproaching the
multilateral organizations as well as the international commercial banks.

Fiscal policy and restoring of the fiscal budget
During the mid-1980s, the García government had pursued an expansive
policy of extending subsidies coupled with a relaxation of tax pressure, that rapidly
increased the public sector deficit. For instance, the granting of subsidies contributed
to an increase of 90% in the transfer of funds from the central government to the
public enterprises.
64
In 1988, not only did the public deficit rebounded but also for
the first time the deficit of the non-financial public sector was larger than that of the
central government. (Table 3). Furthermore, revenues fell from 14% of GDP in 1985
to just 7.3% in mid-1990. (Table 4) Between 1988-1990 revenues for income tax
declined by 44.6% in real terms.
65

64
“Radiografía de un desastre: El país que deja Alan García,” Perú Económico, XIII, No. 81 August
(1990): 34.
65
The Economist Intelligence Unit, Country Profile Peru 1991-92, 26.
43

Table 3: Public Deficit as % GDP 1980-1990 (GDP, Intis 1989)
1981 1982 1983 1984 1985 1986 1987 1988 1989
Central
Government -4.9 -3.9 -8.9 -5.4 -2.6 -3.7 -5.7 -2.9 -4.7
Public
Enterprises -3.4 -5.1 -2.7 -0.2 -0.2 -1.8 -0.2 -3.4 -2.0
Other
entities -0.1 -0.3 -0.5 0.2 0.2 0.4 0.2 -0.4 0.2
Total -8.4 -9.3 -12.1 -7.6 -3.0 -5.1 -6.7 -6.7 -6.9
Source: The Economist Intelligence Unit, Country Profile Perú, 1989-90.

Table 4: Central Government Current Revenues and Expenditures as % GDP (1985-1990
1985 1986 1987 1988 1989 1990
Revenues 14.8 12.6 9.2 9.2 5.8 7.8
Expenditures 14.7 13.7 13.0 11.2 10.0 9.1
Source: Alberto Pascó-Font, “Políticas de Estabilización y Reformas Estructurales: Perú,”
Economic Commission for Latin America and the Caribbean ECLAC, Serie Reformas
Económicas, 66, Santiago, Chile (2000).

One of the Fujimori government’s first tasks was to increase tax revenues and
close the fiscal deficit. In this endeavor subsidies were drastically cut and the
complex tax system simplified. While in 1990 there were 60 taxes with multiple
rates, many of which were not adequately administered, in 1992 there were only 6
main taxes under the jurisdiction of the central government. Furthermore, the tax
collection agency Superintendencia Nacional de Administración Tributaria
(SUNAT) was reorganized and granted special powers to pursue payment. As a
result, between 1990-1997 there was a stable increase in tax revenues: from 10.8% of
GDP to 14.1%. While in 1990 the sales tax constituted only 18.5% of the
government’s tax revenue, in 1997 it surpassed 46%. In the same period, revenues
from income tax increased from 6% to 25.8%.
66

66
Carlos Otero, Perú: Gestión del Estado en el Período 1990-2000. Santiago de Chile: Instituto
Latinoamericano y del Caribe de Planificación Económica y Social, CEPAL, 2001, 14.
44

Likewise, as part of the efforts to restore the budget the government created a
cash committee that would operate under a strict rule of keeping payments in line
with revenues. These reforms resulted in an immediate decrease of public deficit
from 8.8% of GDP in 1990 to 2.6% in 1991. Both the stringent fiscal discipline of
keeping payments in line with revenues and the decreasing trend in public deficit
continued throughout the 1990s. (Tables 5 and 6) Perú’s public sector accounts
registered in 1997 its first surplus in 30 years.
Table 5: Public Deficit as % GDP 1990-1998 (GDP, Soles 1994)
1990 1991 1992 1993 1994 1995 1996 1997 1998
Central
Government -7.9 -2.5 -3.9 -3.6 -3.2 -3.3 -1.4 -0.8 -1.1
Public enterprises
-0.90 -0.63 -0.05 0.37 0.28 -0.16 0.13 0.61 -0.16
Other
entities 0.00 0.2 0.13 0.14 0.11 0.31 0.30 0.43 0.49
Total Public
Sector -8.8 -2.6 -3.8 -3.09 -2.8 -3.1 -0.8 0.4 -1.7
Source: Carlos Otero, “Perú: Gestión del Estado en el Período 1990-2000,”CEPAL, Serie
Gestión Pública, No. 14, 2001, Santiago, Chile; and Banco Central de Reserva del Perú.

Table 6: Central Government Revenues and Expenditures as % GDP (1991-1997)
1991 1992 1993 1994 1995 1996 1997
Revenues 9.1 11.0 10.8 13.0 15.3 15.8 16.0
Expenditures 9.2 10.0 9.8 11.1 15.5 15.2 15.1
Source: Economic Commission for Latin America and the Caribbean, Economic Survey of
Latin America and the Caribbean, 1998-1999, November 1999, 273. From 1995 onward:
Banco Central de Reserva del Perú.

Monetary / exchange rate policy
Prior to 1990, the instruments of monetary policy had favored the financing
of the public sector. Under the pressure of the executive branch during the García
government, in order to finance the public sector the Central Reserve Bank (BCR)
45

had resorted to the depletion of Perú’s international reserves and to the primary
emission of money.
67
With respect to the supply of money in national currency,
while in 1985 it had represented 15% of GDP, as of 1990 it had been reduced to 5%
of GDP. (Table 7) This situation had generated an excess of demand that increased
the cost of credit between 200% and 400% per year in real terms.
68
Furthermore, the
system of a multiple-tier exchange rate regime applied by the García government had
resulted in a large differential between the highest official exchange rate known as
the Mercado Unico de Cambios (MUC) (for all exports and priority imports) and the
freely floating rate (applied for all other transactions). (See Table 8) The MUC
lagged considerably behind the consumer price index increase and gradually lost
significance. In a context of increasing inflation (Table 9) and economic instability
the dollar consolidated its position as the main reserve asset of the economy.
Table 7: Rate of expansion of money supply by year as % of GDP (1985-1990)
1985 1986 1987 1988 1989 1990
National 8.1 12.2 12.6 6.3 5.4 3.0
Total 15.7 14.9 13.7 8.0 7.4 5.2
Source: Alberto Pascó-Font, “Políticas de Estabilización y Reformas Estructurales: Perú,”
Serie Reformas Económicas, 66, ECLAC, Santiago, Chile (2000), 273.
67
During the García government the autonomy of the Central Reserve Bank (BCR) was largely
undermined. The decisions about monetary and exchange policy were taken mainly out of the BCR,
by President García and his closer advisors. The three presidents that the BCR had during his
government were friends of García and sympathizers of APRA the president’s political party, who
entirely submitted to his decisions. Each of them brought a team of advisors that disregarded the
technical expertise of the experienced professionals working in the BCR. “Banco Central de Reserva:
La buena imagen se desvanece,” Perú Económico XII, No. 3, March (1989): 1.
68
Radiografía de un desastre: El país que deja Alan García,” Perú Económico XIII, No. 81 August
(1990): 34.
46

Table 8: Exchange Rate Structure (Period Averages 1988-1991)
Intis per U.S. Dollars (*)
Rate
(MUC)
Financial
Rate
Bank
Rate
CLD
Rate
Parallel
Market
1988 128.8 159.2 268.9 … 314.6
1989 2,666.2 4,006.6 4,330.2 4,130.9 4,394.9
1990 187,855.6 197,272.9 202,403.7 194,339.6 206,401.1
1991 … … 0.8 … 0.8
Source: International Monetary Fund, International Financial Statistics Yearbook, 1997.
(*) On 1 February 1985 Perú replaced the sol by a new currency, the inti (valued at 1,000
soles) which began circulating in May 1985, while notes were issued in 1987. A new
currency, the nuevo sol (equivalent to 1 million intis), was introduced in July 1991.

Table 9: GDP Growth and Inflation – Annual Rates – Pre-Reform (1980-1989)
1980-
82
1983 1984 1985 1986 1987 1988 1989
GDP (*) 3.28 -12.6 4.81 2.27 9.24 8.31 -8.22 -11.6
Inflation 66.3 111.1 110.2 163.4 77.9 85.8 657 3398.5
(*)At constant 1979 prices. Source: Miguel A. Kiguel and Nissan Liviatan, “Stopping
Three Big Inflations (Argentina, Brazil and Perú)” World Bank Policy Research Working
Papers WPS 999, October (1992): 26.

Against this backdrop, the reforms applied during the early 1990s unified the
foreign exchange market, established a flexible exchange-rate system, and authorized
bank deposits denominated in dollars. The new legislation specifically forbade the
BCR to finance the public sector, to provide deeds and special sectoral loans, and to
establish multiple exchange rates.
During the period 1990-1992, the BCR fixed decreasing rates of growth of
the amount of domestic money in circulation by buying or selling dollars. Dancourt
notes that this monetary policy indirectly controlled inflation but also caused
exchange rate appreciation, (Figure 4) which checked the rise in prices. Since the
increase in prices (as a result of the cut in subsidies) acted in the opposite direction,
47

these dual effects explain why the disinflation until 1993 was slow.
69
(Table 10) Due
to the restriction in the growth of money in circulation, until 1993 the reduction of
interest rates was also slow. (Table 11) The increase in total liquidity was possible
because of the flow of foreign capital to the banking system.
70
(Table 12)

Figure 4: Exchange Rate Parity

Source: Elaboration of graphic based on data presented in Felix Jimenez, El Modelo
Liberal Peruano, Límites, Consequencias Sociales y Perspectivas, Documento de
Trabajo No. 184, Departamento de Economía, Universidad Católica, March (2003), 3.

During the period 1993-1995, marked by a rapid decline in inflation, the
macroeconomic policy consisted of exchange-rate targets that replaced the monetary

69
From the beginning of the stabilization program until the point at which a rate of inflation (in terms
of the consumer price index) of less than 2% per month was registered for three consecutive months,
the stabilization process took 37 months (from August 1990 to September 1993). Oscar Dancourt,
“Neoliberal Reforms and Macroeconomic Policy in Peru,” CEPAL Review 67, April (1999): 61.
70
Otero, 8.
0
50
100
150
200
250
1985 July
1990July
1991 Dec.
1993July
1994 Dec.
1996 July
1997 Dec.
1999 July
48

targets and reduced the permissible range of fluctuation of the exchange rate.
71
The
inflationary cycle that had begun in the late 1970s ended. (Table 10)
Table 10: GDP and Inflation – Annual Growth Rates – Post-Reform (1990-1997)
1990 1991 1992 1993 1994 1995 1996 1997
GDP (*) -5.4 2.8 -1.4 6.4 13.1 7.3 2.4 6.9
GDP Per Capita -7.2 0.9 -3.1 4.6 11.1 5.5 0.7 5.0
Inflation (**) 7481. 409.5 73.5 48.6 23.7 11.1 11.5 8.6
(*) At constant 1979 prices. Source: Economic Commission for Latin America and the
Caribbean, Economic survey of Latin America and the Caribbean 1998-1999, ECLAC
Santiago, Chile, November (1999).
(**) Source: International Financial Statistics, CD-ROM, June 1999.

Table 11: Real interest rates, annual % (1990-1997)
1990 1991 1992 1993 1994 1995 1996 1997
Deposit -5.3 13.7 -20.9 -16.9 -4.6 -0.5 -1.4 1.6
Lending Rate -13.0 248.2 58.5 38.7 34.5 23.5 17.8 20.5
Equivalent Interest
Rate in Foreign
Currency (*)
33.8 83.0 12.7 -12.8 11.4 0.9 -1.2 5.6
(*) Interest rate on deposits deflated by the variation in the exchange rate.
Source: ECLAC Economic survey of Latin America and the Caribbean 1998-1999,
November 1999, 273.
.
Table 12: Rate of expansion of money supply by year as % of GDP (1991-1997)
1991 1992 1993 1994 1995 1996 1997
National 4.7 4.7 4.5 5.8 6.4 6.9 7.5
Total 11.6 13.5 14.6 16.1 17.0 21.0 21.3
Source: Alberto Pascó-Font, “Políticas de Estabilización y Reformas Estructurales: Perú,”
ECLAC, Santiago, Chile (2000), 273.

Furthermore, together the reduction of inflation and the financial liberalization
(especially the abolishment of the control of interest rates) contributed to the increase
in savings in national currency. The liquidity of money increased from 5% of GDP in
1990 to 18% in 1996. (Table 12) In contrast to the system prevailing before 1990, in
order to increase or reduce liquidity the BCR only resorted to market mechanisms.
71
Dancourt, 63.
49

Trade policy
At the end of the 1980s, the import tariff average rate was 66%. There were
39 tariffs between the range of 15% and 84%, and 14 additional tariffs between 15%
and 108%. (Tables 13, 14) On the other hand, there were 114 legal rulings in force
granting tariff exemptions in a wide range of goods.
72
Likewise, there were 540
products whose importation was prohibited, and most of the products, more than
4,700, were subjected to foreign exchange licenses and strict quotas. (Tables 15, 16)
Table 13: Import Tariffs (1980-1990)
July
1980
1981 1982 1983 1984 July
1985
July
1990
Average 39 32 36 41 57 63 66
Maximum 156 61 69 70 91 103 110
Source: Carlos Boloña and Javier Illescas, Políticas Arancelarias en el Perú, 1980-
1997, Lima, Instituto de Economia de Libre Mercado, 1997, 38.

Table 14: Import Tariffs (1990-2000)
December
1990
July
1991
1992 1993 1995 1997 2000
Average 32 26 18 16 16 13 13
Maximum 60 50 25 25 25 20 20
Source: Central Reserve Bank of Perú

Table 15: Imports Under Quota Restrictions/Prohibitions (1979-1984)
1979 1980 1981 1982 1983 1984
Without quota 3,745 4,990 5,088 5,075 5,136 4,996
With quota 1,258 107 112 144 118 126
Prohibited 9 7 7 7 8 7
Total 5,012 5,104 5,207 5,226 5,301 5,377
Source: Central Reserve Bank of Perú

72
Luis Abugattas, In Fujimori's Perú: The Political Economy, ed. John Crabtree and Jim Thomas.
London: Institute of Latin American Studies, 63.
50

Table 16: Imports Under Quota Restrictions/Prohibitions (1985-1990)
July
1985
1986 1987 1988 1989 December
1990 (*)
Without quota 4,757 3,224 0 0 4,192 5,269
With quota 350 1,574 4,715 4,724 535 0
Prohibited 196 541 539 539 539 0
Total 5,303 5,339 5,254 5,263 5,266 5,269
Source: Central Reserve Bank of Perú
(*) Six first months of Alberto Fujimori’s government (July1990 -Dec. 2000).
Table 17: Imports Under Quota Restrictions/Prohibitions (1991-1996)
1991 1992 1993 1994 1995 1996
Without quota 5,269 6,483 6,483 6,483 6,483 6,483
With quota 0 0 0 0 0
Prohibited 0 0 0 0 0 0
Total 5,269 6,483 6,483 6,483 6,483 6,483
Source: Central Reserve Bank of Perú
With respect to exports, these were under a system of high and complex tax
regulations and controls. For instance, the export of traditional products was charged
by taxes that could be as high as 17% of the total export value. On the other hand,
the exporters of non-traditional products were granted special benefits such as the
Certificate for Reimbursement of Taxes on Non-Traditional Exports (CERTEX)
through which the government returned a percentage of the value of taxes paid in the
production process. In 1990 there were four categories of CERTEX: Basic (15-30%),
Complementary (1-10%), Handicraft (35%), and Decentralized (10%).
During the first months of the Fujimori administration the protection system
for manufacturing was totally dismantled. Tariffs were cut and made more uniform.
The system of cascading or stepped tariffs, so typical of ISI, was replaced by a two-
51

tier system of tariffs of 15% and 25%.
73
(Tables 13, 14)) Likewise, import
prohibitions and non-tariff barriers were removed. (Tables 16, 17) As a result, the
imports of goods and services increased in comparison to the decreasing trend
prevailing during the late 1980s. (Tables 18, 19)
In 1991 the Decreto Legislativo 668 established and guaranteed free trade,
and in 1992 the Decreto Ley No. 25909 established the prohibition to any state
entity, except for the Ministry of Finance in certain exceptional circumstances, of
establishing any restriction to external trade operations. Later these provisions were
incorporated into the new Constitution approved in 1993.
Table 18: Imports of Goods and Services as % of GDP (1980-1989)
1980 1982 1983 1984 1985 1986 1987 1988 1989
Imports 19.1 19.4 19.3 15.3 16.1 14.2 10.2 12.1 8.7
Source: International Monetary Fund, 1997 International Financial Statistics Yearbook.
Table 19: Imports of Goods and Services as % of GDP (1990-2002)
1990 1991 1992 1993 1994 1995 1996 2000 2002
Imports 12.1 11.4 13.0 13.5 14.3 16.4 16.3 18 17
Source: International Monetary Fund, 1997 International Financial Statistics Yearbook.
Information for years 2000-02: World Bank, World Development Indicators,
http://www.worldbank.org/cgi
Besides, within the strategy of establishing a free market system and
facilitating the activities related to foreign trade, the government reorganized the
entity in charge of overseeing customs creating the Superintendencia Nacional de
Aduanas (SUNAD), and issued policies directed at reducing transportation costs in
harbors and airports. The modification of maritime transportation regulations is a

73
As part of the process of reinforcing the opening up of trade, in April 1997 the two-tariff levels
were reduced from 25 to 20% and 15 to 12% respectively.
52

case in point. Before 1990, at least 50% of the goods imported or exported through
Peruvian harbors had to be transported by the state-owned firm Compañía Peruana
de Vapores S.A. (CPV), or by “national” firms. According to the Peruvian legislation
national firms were those constituted in Perú in which Peruvians owned at least 80%
of the capital and participated in the administration of the firm by least 80%. The
Fujimori administration eliminated all the monopolies and privileges existing in
favor of public enterprises and national private firms. The CPV was privatized and
today foreign capital can easily invest in the maritime sector.

Financial and banking sector
Until 1990 the state massively participated in the banking system. There were
four development banks, three state associated banks, six regional banks, and also
institutions such as the Corporación Financiera de Desarrollo (COFIDE), the Caja
de Ahorros, and the Banco de la Nación (this latter in charge of the administration of
taxes and payments to public institutions). Moreover, there were many restrictions to
the entrance of foreign investors into the banking sector.
During the early 1990s the banks of development were closed down,
operations of financial institutions were substantially extended and liberalized, and
the private commercial banks were once again authorized to accept deposits and
grant loans in foreign currency. A new financial regulatory framework was approved
in order to strengthen the regulatory agencies and grant the state authorities the tools
53

to adequately control the financial firms. The functions of the Banco de la Nación
and COFIDE were modified
After the first four years of the adjustment approximately thirty-five state-
owned financial institutions (banks, financial firms, savings and loan associations,
and credit cooperatives) disappeared. Furthermore, the financial reforms together
with the process of privatization permitted foreign investors to buy the state-owned
national banks. This resulted in the de-nationalization of the banking sector
74
and
exposed the domestic banks to competition with foreign capital as never before.

Privatization
At the end of the 1980s, according to the COPRI (Commission for the
Promotion of Private Investment) there were in Perú 224 public enterprises.
However, only around 150 of these firms were actually trading, while the rest were
in bankruptcy, process of liquidation or not operative. (Table 20) Among these, 82
were 100% owned by the state. With respect to the other firms, the state had a stake
of at least 50% in 49. In general the state controlled between 15% and 20% of GDP
(28% of exports and 26% of imports) and monopolized the provision of electricity,
hydrocarbons, and telecommunications.
75

The state also controlled more than 35% of mining production, and had a
large participation in the fishing sector and in the import and distribution of basic

74
In the year 2000, more than the half of banks in the Peruvian financial market were controlled by
foreign investors or had foreign participation in their shareholding system.
75
See Kurt Burneo, El Desafio de la Privatización en el Perú, (Lima: CEDAL, 1993).
54

food products. In the financial sector, the state participated in the ownership of 47
firms, 8 of these were totally owned by the state, 35 had state participation in more
than 60% of their capital, and 4 had minority participation by the state.
76
The
number of workers in the public enterprises sector was around 170,000 (representing
over 2% of the labor force).
77

Table 20: Participation of the State in Public Enterprises Before 1990
Eclectic System: Private and
State Capital
Enterprises

Total
100%
capital
owned by
the
state
The majority of
capital is owned
by the
state
The state
owns
minority of
capital
In process
of
liquidation
Financial 47 8 35 4 0
Non-financial 135 74 14 16 31
Total 182 82 49 20 31
Source: Pedro Pablo Kuczynski and Felipe Ortiz de Zevallos, Respuestas para los 90's,
Lima : Editorial Apoyo (1990).

From 1990 to 1991 the Fujimori government adopted policies directed to
restoring the negative budgets of the public enterprises as a previous stage to the
process of privatization. The radical cut of subsidies operated in August 1990
permitted the increase of prices of the goods and services produced and
commercialized by the public enterprises. Likewise, the government reduced
considerably the number of workers in this sector. (Table 21)
In September 1991, in sharp contrast to the policy pursued by previous
governments, the Fujimori administration approved legislation directed at promoting

76
Franco, B., Muñoz I., Sánchez, P. y Zavala V. Las privatizaciones y concesiones en La Reforma
Incompleta, Tomo I, (Lima: Universidad del Pacífico e Instituto Peruano de Economía, 2000), 144.
55

the participation of private investment in the public enterprises sector.
78
In 1992,
supplementary norms were approved that extended the guarantees to private
investment and reduced state interference in economic activities. The new legislation
included basic tax dispositions that protect local and foreign investors from any
arbitrary change of rules, and allowed investors who acquire more than 50% of a
privatized company to benefit from legal stability agreements.
Table 21: Employment in Non-Financial Public Sector Enterprises (1990-1997)
Thousands of workers at the end of the year

1990 1991 1992 1993 1994 1995 1996 1997
Electricity 15,4 12,6 8,9 8,5 5,6 4,8 3,2 3,0
Hydrocarbons 12,0 9,6 8,3 6,2 5,5 5,5 1,9 1,8
Mining 26,7 23,3 18,4 14,1 12,6 10,0 9,0 3,3
Telecommunications 15,3 13,3 12,3 12,1 --(**) ---- ---- ----
Industry 11,4 9,8 8,0 6,2 4,0 3,8 1,5 0,1
Fishing 5,5 4,9 3,2 2,0 1,4 1,1 0,2 ----
Water Utilities 5,5 5,1 4,2 3,1 3,1 2,9 2,7 3,1
Transportation 22,5 19,1 12,6 8,6 7,9 6,8 5,3 5,3
Other sectors 24,6 20,4 15,4 14,2 10,7 5,6 5,6 4,6
Total 139,0 118,0 91,3 76,1 51,3 40,6 30,4 21,4
Employment
transferred to the
private sector

…
(*)

… 3,3

6,2

22,8

28,4

33,7

42,0
Source: Roberto Paliza, “Impacto de las privatizaciones en el Perú”, Estudios Económicos, Banco
Central de Reserva del Perú, July (1999). (*)At this point in time the government had not yet
begun the process of privatization. (**) As an effect of the privatization, from this point in time
onwards there were not more workers under the public regime in this sector.

Moreover, under the new legal framework the government placed the entire
state-owned productive sector on the block, a process that redrew the economic

77
Pedro Pablo Kuczynski and Felipe Ortiz de Zevallos, Respuestas para los 90's.
78
Ley de Promoción de la Inversión Privada en Empresas del Estado, Decreto Legislativo Nº 674 del
27 de septiembre de 1991.
56

ownership map of the country.
79
While other Latin American countries balked at
divesting from certain strategic industries, the Fujimori administration proudly
pointed out that there were no “sacred cows” that merited special dispensation.
80
As
a result of these reforms, the state monopoly on oil, public utilities, and
telecommunications was eliminated.
In 1993, the Peruvian Congress approved the Ley Orgánica de
Hidrocarburos that opened all the areas related to the exploration, exploitation, and
production of petroleum to private capital, national or foreign. In 1994, the
telephonic company Compañía Peruana de Teléfonos and the Empresa Nacional de
Telecommunicaciones were acquired by a holding led by Telefónica de España.
Likewise, while before 1990 private investment in the electricity sector was
prohibited, in 1991 the government declared “of national interest” the promotion of
private investment in this sector. As a result of this government initiative, 60% of the
shareholdings of the firms that distributed electricity in Lima were transferred to the
private sector (mainly to foreign capital).
A remarkable modification in the Peruvian legal framework is the definition
in the Constitution of 1993 of the subsidiary role for the State in economic activity.
Article 60 prohibits the state from engaging in economic activity. The state could be
excepted from this prohibition only if (a) it is expressly authorized by law, (b) the

79
“Privatization” in Suplemento Especial Perú Económico XVI, No. 4, April (1993): 12.
80
For instance, up to date Mexico’s PEMEX (petroleum industry) remains in state hands, as does
Chile’s CODELCO, the biggest producer of copper in the world. Ibid.
57

private sector is unable to satisfy demand, and (c) the activity will serve the public
interest and national convenience.
Privatization has dramatically changed the structure of the state. For instance,
central government’s expenditures in the non-financial public enterprises sector
(which in 1990 represented the second largest current expenditures after those
corresponding to the whole government) were reduced from 15% of GDP in 1990 to
6% in 1997. (Table 22) Likewise, the expenditures corresponding to salaries were
reduced from 2.20% of GDP in 1990 to 0.67% in 1998. (Table 23)
Table 22: Public Expenditure in Non-Financial Public Enterprises as % of GDP (1990-1998)
1990 1991 1992 1993 1994 1995 1996 1997 1998
Total Public
Expenditure
38.3 34.8 35.7 33.8 33.3 33.4 31.0 28.0 29.3
Current
Expenditure
34.9 30.9 30.7 28.4 27.1 25.4 22.9 22.5 24.0
Central
Government
19.5 15.9 17.8 16.8 16.8 17.7 17.2 16.8 17.5
Non-financial
Public Enterprises
15.3 15.0 12.9 11.6 10.2 9.75 8.12 6.09 5.03
Capital
Expenditure
3.38 3.86 5.01 5.33 6.20 5.93 5.62 5.63 5.47
Central
Government
2.00 2.81 3.99 4.35 5.23 5.01 4.62 4.63 4.26
Non-financial
Public Enterprises
1.38 1.05 1.02 0.99 0.97 0.92 1.00 1.00 1.21
Source: Carlos Otero Bonicelli, “Perú: Gestión del Estado en el Período 1990-2000,” CEPAL,
Serie Gestión Pública, No. 14, 2001, Santiago, Chile; and Banco Central de Reserva del Perú.

Besides, since 1996, the government doubled efforts to make even more
attractive the legislation promoting concessions. Through these concessions private
investors are allowed to participate in infrastructure projects and utilities that are to
be built, managed, or offered in the country. (Figure 5)
58

Table 23: Non-Financial Public Enterprises Revenues and Expenditures as % GDP (1990-1998)
1990 1991 1992 1993 1994 1995 1996 1997 199
8
Current
Revenue

15.7

15.3

13.5

12.8

11.4

10.3

9.00

7.25

5.70
Current
Expenditure

15.3

15.0

12.9

11.6

10.2

9.75

8.12

6.09

5.03
Salaries 2.20 2.81 2.20 1.77 1.37 1.18 1.06 0.74 0.67
Goods and
Services

7.26

6.58

5.35

5.34

4.99

4.74

4.10

3.26

2.41
Interests 1.16 0.68 0.66 0.36 0.14 0.16 0.13 0.07 0.06
Taxes 4.17 4.47 3.92 3.64 3.22 3.29 2.31 1.66 1.52
Other 0.57 0.50 0.68 0.55 0.37 0.53 0.36 0.37 0.37
Source: Carlos Otero Bonicelli, “Perú: Gestión del Estado en el Período 1990-2000,” CEPAL,
Serie Gestión Pública, No. 14, 2001, Santiago, Chile; and Banco Central de Reserva del Perú.

Figure 5: Evolution of Privatization and Concession Process (number of cases)

Source: Graphic elaborated with data published by Proinversión, The Agency for the Promotion of
Private Investment, Lima, Perú. http://www.proinversion.gob.pe/english/peruvista/cont_1.htm
0
5
10
15
20
25
30
35
40
Privatization 26 36 37 35 31 20 6 15 9
Concession 2 36 32
1994 1995 1996 1997 1998 1999 2000 2001 2002
59

Foreign direct investment (FDI)
The new regulations guarantee non-discriminatory treatment of foreign
investors who now can invest in all economic activities, do not have limitations in
sending revenues abroad, and may sign a legal standstill agreement with the state
that safeguards their investments in the country. This agreement grants tax stability,
foreign currency availability, and the right to non-discrimination. In 1993, the
principles set in the new legislation of foreign investment were incorporated into the
new Constitution.
The government also signed bilateral agreements which allow foreign
investors to insure their investments against non-commercial risks with the
Multilateral Investment Guarantee Agency (MIGA), the Overseas Private Investment
Corporation (OPIC), and the International Center for Settlement of Investment
Disputes (ICSID).
During the 1990s FDI inflows increased sharply, five fold from 1993 to
1996. (Table 24) In GDP terms FDI rose from 15.6% in 1990 to 24.4% in 1997.
81

The privatization program has been of particular importance in this regard. By 1997
FDI had participated in the process of privatization of 150 public-sector companies.
82

While during the 1980s FDI basically in manufacturing —in keeping with the ISI
model being applied at the time— and mining, during the 1990s FDI is salient in the
services sector, which previously was monopolized by the state. (Table 25)

81
World Trade Organization, Trade Policy Reviews, Peru, May 2000.
82
Economic Commission for Latin America and the Caribbean, ECLAC, Foreign Investment in Latin
America and the Caribbean 1998 Report, Santiago, Chile (1998), 120.
60

Table 24: Net Inward Foreign Direct Investment in Perú, 1990-1997 (Million of dollars)
1990 1991 1992 1993 1994 1995 1996 1997
FDI 41 -7 136 670 3084 2000 3226 2030
Source: Economic Commission for Latin America and the Caribbean, Foreign Investment in Latin
America and the Caribbean 1998 Report. Santiago, Chile, 1998. ECLAC Publicaciones.
http://www.eclac.cl/publicaciones/DesarrolloProductivo/2/lcg2042/lcg2042i.pdf
Table 25: Sectoral Distribution of Foreign Direct Investment in Perú, 1980-1997
Period

Amount in US Dollars
1980-1989
US$ 126
million
1990-1996
US$ 703
million
1997
US$1.03
billion
Primary Sector 36 15 8
Manufacturing 35 12 18
Commerce 16 4 5
Finance and Insurance 7 12 8
Other Services 6 1 2
Telecommunications - 41 5
Electricity, Gas and Water - 15 54
Source: ECLAC, Foreign Investment in Latin America and the Caribbean 1998 Report. Santiago,
Chile, 1998.

Free competition
Especially since 1968, in the particular way in which the ISI framework was
implemented in Perú, the creation of monopolies by law was a recurring event. The
main monopolies were in the hands of the state. The Competition Law approved in
1991 banned anti-competitive conduct by any firm (private or public) and established
that the government should not restrict economic activity more than necessary to
achieve other social goals. Although the Constitution of 1979 had also banned anti-
competitive conduct, the Constitution of 1993 extended the scope of the prior
constitutional mandate establishing both the obligation of the state to defend free
competition and the prohibition to create monopolies by law.
61

Furthermore, in 1993, the government created the Institute for the Defense of
Competition and Intellectual Property (Indecopi), an autonomous agency responsible
for the “free competition law”; a “market access law” against government rules that
impose unwarranted barriers to entry; and a wide range of laws related to market
reform. During its initial years Indecopi became a powerful force for reform within
Perú and “one of the developing world’s most articulate competition advocates.”
83

Labor policy
Until 1990 formal workers enjoyed employment stability. In November 1991
the Fujimori administration issued reforms that sharply diminished the costs of hiring
and firing and made job contracts more flexible. In practice, these norms partially
reduced job stability, a right guaranteed by the Constitution of 1979. Workers with
contracts signed before November 1991 date maintained their job stability rights,
while new workers would only have protection against unfair dismissal, which meant
that they could be dismissed at will upon payment of a severance benefit.
Subsequently, the Constitution of 1993 totally abolished job stability replacing this
with the right for all workers to be protected from unfair dismissal. In 1995, the
government issued legislation that further relaxed the employer’s obligations.
In general, the deregulation of the labor market has granted more power to
the employer, reduced the relative cost of firing, and facilitated the possibility of
hiring through flexible contracts (multiple contracts that cost less than permanent
62

ones). It has largely reduced average labor costs; but also led to deregulatory
behavior (wage employment without labor contracts).
84
According to Martinez and
Tokman around 1996 the cost of employing someone in industry on a permanent
basis was US$ 2.1 per hour, but the figure was only US$ 1.37 for those with short-
term contracts and US$ 1.1 for those without contracts.
85
Not surprisingly, the
employers opted to transfer a majority of wage earners to cheaper contracts.
86

From 1994 onward, unemployment decreased slightly. (Tables 26-27)
However this change happened within a context of increasingly precarious job
conditions.
87
For instance, while during the 1980s the number of non-permanent
workers represented 20% of the group of formal workers, from 1992 onward after
the first wave of labor reforms that partially reduced stability, that number rose to
38%. In 1995, after the second wave of labor reforms in which labor stability was
terminated and the employers’ obligations with respect to work contracts were
significantly reduced, that number increased to 56%.
88

83
Terry Winslow, “Competition Law and policy in Perú. A Peer Review,” (Paris: OECD, 2004), 10.
84
Norberto García, “Growth, Competitiveness and Employment in Perú, 1990-2003,” CEPAL Review
89, August (2004): 83.
85
Martinez and Tokman, cited by García, Ibid
86
Norberto García notes that the massive transfer of wage earners to less costly contracts cut average
labor costs by 14%, equivalent to a one-off drop of 4.7% in total unit costs. Nonetheless, he indicates
that “the drop in labor costs was wholly insufficient to offset the pressure generated by the rise in the
real exchange rate, the reduction of tariff protection and controls, and the stagnation of productivity.”
García, “Growth, Competitiveness and Employment in Perú, 1990-2003,” 89.
87
In that decade, formal employment grew at an annual rate of 1.2% but informal employment by
4.7%, intensifying the trend seen in earlier decades. Jaime Saavedra and Maximo Torero, Labor
Market Reforms and Their Impact over Formal Labor Demand and Job Market Turnover: The Case
of Perú. Lima: GRADE, December 1999, 82.
88
Alberto Pascó-Font, “Políticas de Estabilización y Reformas Estructurales: Perú,” Serie Reformas
Económicas, 66, ECLAC, Santiago, Chile (2000): 58. Furthermore, this trend continued throughout
the decade. Between 1991-2001, the proportion of wage earners with temporary (flexible) contracts
rose to 32%, and the proportion of wage earners without contracts rose by far more, to 47% in 2000.
63

Table 26: Employment (1984-1993) % urban labor force
1984 1986 1987 1989 1991 1992 1993
Employed 54.3 51.9 60.3 18.6 15.6 14.7 12.7
Unemployed 8.9 5.3 4.8 7.9 5.8 9.4 9.9
Underemployed 36.8 42.7 34.9 73.5 78.5 75.9 77.4
Source: International Monetary Fund, “Perú- Statistical Annex September 1997,” IMF Staff
Country Report No. 97/80, 17; Economic Intelligence Unit, Country Profile Perú, 1990-91 and
1992-93; World Bank 1997 International Financial Statistics Yearbook.
Table 27: Employment (1994-2001) % urban labor force

1994 1996 1997 1998 1999 2000 2001
Employed
16.9 50.3 47.2 48.3 48.8 49.5 44.5
Unemployed
8.9 7.0 7.7 7.8 8.0 7.4 7.9
Underemployed
74.3 42.7 45.0 43.9 43.2 43.1 47.6
Source: International Monetary Fund, “Perú- Statistical Annex September 1997,” IMF Staff
Country Report No.97/80, 17; Encuesta Nacional de Hogares, III Trimestre, 1996-2001,
Ministerio de Trabajo y Promoción del Empleo – Programa de Estadísticas y Estudios Laborales.

Finally, it is worth noting that the core of the reforms described above were
issued by the executive branch on March 11, 1991, with the approval of the
Congress democratically elected in April 1990.
89
That is, the implementation of
these reforms began one year before Fujimori illegally closed the Congress in April
1992. After this incident, the consolidation of these reforms developed with the
approval or acquiescence of large sectors of the wider public,
90
the majority of the
members of the Congreso Constituyente (1993-95),
91
and the members of the
consecutive Congressional Assemblies elected during the period 1995-2006.

The proportion of private-sector wage earners with stable contracts fell to 21% in 2000: 79% of the
country’s private-sector wage earners had short-term contracts or none at all. See Norberto García, 89.
89
Not only did Congress ratify the program enacted by the executive, but also approved on May 1991
the new budget and on September 1991 an increase to the sales tax, a key component of tax reform.
90
See in this regard the results of public opinion polls, chapter 7 of this dissertation.
91
See explanation about this matter in footnote 10 of the present chapter.
64

CHAPTER 2: A REVIEW OF THE IDEATIONAL LITERATURE ON THE
POLITICS OF ECONOMIC REFORM

In the present chapter, I survey some of the main works that explore the
influence of ideas in economic policy change and critically review those studies that
analyze Latin American cases of market-oriented reforms. With respect to these
latter, I note that despite their important contributions to the ideational literature,
their exclusive focus on the policy making sector leaves aside the analysis of issues
that require scholarly attention. I argue that such a restricted analysis does not allow
setting an explanation about the important role that non-state actors may play in the
process of economic reform, and of the dynamics that accompany the difussion of
policy ideas prior to the application of reforms in line with these ideas. I explain why
it is crucial to include these issues in the analysis and the important contributions that
in this regard the present work can offer to the ideational literature.
Sikkink has noted the paradox that in the subfields of international relations,
international political economy, and Latin American politics, scholars whose entire
existence is centered on the production and understanding of ideas attribute so little
significance to ideas for explaining political life.
92
In like manner, Goldstein and
Keohane comment that the limited theorizing regarding the influence of ideas on
politics contrasts with the expansive elaboration of rationalist explanations that
dictate that it is not necessary to know what political actors think in order to explain

92
Sikkink, 1.
65

how they will act.
93
In fact, this has been particularly evident in the study of
developing countries’ economic policy making.
During the last two decades however, a growing –but still relatively small-
literature has put ideational factors at the center of their analyses, highlighted the
relationship between ideas, interests, and institutions and underlined the explanatory
power of ideas in analyzing policy change. Taking into account not only structural
realities such as gross national product growth and military power but also ideas,
knowledge, and information,

the ideas-based research program establishes that ideas
might determine both how states behave and the content and direction of policy.
94

Furthermore, these studies maintain that the evolution of ideas may lead to changes
in policies and institutions at the domestic and international levels.
95

The pioneering works that opened the inquiry into the role of ideas and
institutions came from the areas of political economy and comparative politics.
96
For
instance, in his study of U.S. international monetary policy, Odell called into serious
question the common assumption among analysts of foreign economic policies that
attention can focus solely on interests and that intellectual variables do not need to be
carefully conceptualized and investigated. His perspective rests on the assumption

93
Goldstein and Keohane, Ideas and Foreign Policy, 4- 5.
94
Adler, 3
95
Adler, 11.
96
For instance, from the historical institutionalist approach, the seminal works of Skocpol and Weir
argue that the divergent policy responses of states during the Great Depression are explained by the
degree to which preexisting institutional arrangements were open or closed to new ideas. See Theda
Skocpol and Margaret Weir “States Structures and the Possibilities for Keynesian Responses to the
Depression in Sweden, Britain, and the United States,” in Bringing the State Back In, ed. Peter B.
Evans, Dietrisch Rueschemeyer, and Theda Skocpol, (Cambridge: Cambridge University Press,
1985), 116.
66

that interests do not fully or always determine ideas, and that these latter may have
substantial and independent effects in policy shifts.
97

With respect to the impact of Keynesian ideas in various national settings,
Hall concluded that the variety of policy outcomes was the result of variables
particular to each country, since the ability of new ideas to influence policy making
depends on how congruent they are with pre-existing institutions able to select,
implement, and spread these ideas.
98
In a later work, however, Hall suggests a
broader role for the impact of ideas in institutions.
99
Borrowing from Kuhn, he
develops a model of policy paradigms constituted by three levels of policy
intervention: specific policy instruments (first level), techniques used to attain these
goals (second level), and overarching goals (third level).
100
Change at the first and
second levels are seen as changes within an existing paradigm, while change at the
third level implies a change of paradigm. He concludes that ideas can produce
change in institutions and in economic policy.
The works included in the volume edited by Goldstein and keohane explore
the influence of ideas in foreign policy. Among the works that deal with economic
issues, those authored by Ikenberry
101
and Halpern
102
highlight the role of ideas as
road maps. “Under conditions of uncertainty, causal ideas help determine which of

97
Odell, 58.
98
Peter Hall, “Conclusion: The Politics of Keynesian Ideas,” in Hall, “The Political Power of
Economic Ideas,” 383.
99
Peter A. Hall, “Policy Paradigms, Social Learning and the State: The Case of Economic
Policymaking in Britain,” Comparative Politics, 25, no. 2 (1993), 275-296.
100
Hall, “Policy Paradigms,” 278.
101
G. John Ikenberry, “Creating Yesterday’s New World Order,” in Goldstein and Keohane, 57–86.
67

many means will be used to reach desired goals and therefore help to provide actors
with strategies with which to further their objectives.”
103
In the same volume, the
analysis by Garret and Weingast underlines the role of ideas as focal points and glue.
These scholars explain that when individuals have to select from a range of viable
outcomes, ideas provide solutions to problems associated with problems of collective
action. The creation of a shared belief system permits overcoming divergent
preferences of the participants in a cooperative agreement.
104

Goldstein and Keohane note that the studies included in their edited volume
have not established general theories or causal inferences regarding the ideas-policy
relationship and that their account of ideas subordinates them to interests or
institutions. Nonetheless, their arguments and hypotheses are sufficiently plausible to
merit further research in order to contribute to middle-level theory building. By
pointing out that determinist theories could not provide convincing explanations on
their own and that ideas may offer important insights, these works have taken an
important step in the analysis of policy making.
Among the most recent works in the ideational literature, Blyth develops a
theoretical understanding of ideas that examines how and when they are vitally
important components of institutional construction and change. He proposes a
sequential understanding of change that recognizes that ideas have different effect at

102
Nina Halpern, “Creating Socialist Economies: Stalinist Political Economy and the Impact of
Ideas,” in Goldstein and Keohane, 87-110.
103
Goldstein and Keohane, 13.
104
Geoffrey Garret and Barry Weingast, “Ideas, Interests, and Institutions: Constructing the European
Community’s Internal Market, in Goldstein and Keohane, 173-206.
68

different junctures.
105
First, in periods of economic crisis, ideas (not institutions)
reduce uncertainty since it is ideas that diagnose the nature of the crisis and thus the
possible solutions. Second, following this reduction in uncertainty, ideas make
collective action possible by shaping perceptions about potential coalition partners.
Third, ideas can act both as weapons to attack and de-legitimize existing institutions
and as blueprints by which new institutions are created. Following institutional
construction, ideas make institutional stability possible. Blyth pays attention to three
main actors: the state, organized labor, and organized business. In his analysis
collectivities are seen as agents able to promote ideas and policy change.
In sum, in the recent years, the ideational literature has grown in both the
number of works and in terms of a more elaborated conceptualization of the role of
economic ideas, contributing to alternative explanations in the analysis of policy
making. Certain limitations in earlier studies that looked at the role of ideas as
mediated by static interests and institutions have been tackled by recent studies that
do not see a dichotomy between ideas and interests, and seriously consider economic
ideas as important components of institutional construction and change.
Despite its important contributions, the ideas-based research area still has
some limitations. For instance, with respect to its scope, the ideational literature has
focused primarily on developed countries’ policy outcomes. During the last few
years, important research about third world countries and economies in transition has
been done, but still few studies have focused on Latin America. Furthermore, these
69

studies have mainly concentrated on the most developed countries of the region, such
as Argentina, Brazil, and especially Chile. Given the importance of these countries’
economies in the region, as well as the leading role played at different points in time
by their intellectuals as mentors of new ideas about economic development, such a
limited focus might seem justified.
106
However, by focusing on the most developed
Latin American countries, the ideational literature has left aside the study of cases of
economic reform that might bring important insights about the influence of policy
ideas in developing countries’ economic policy making.
Research about Latin America that tackles the topic of economic ideas may
be divided into three groups. The first includes works that emphasize the role played
by intellectuals or policy elites as carriers of new policy ideas. For instance, Drake
examines the role of experts from international organizations and academic
institutions who participated in programming structural adjustment throughout the
region from the 1890s onward.
107
Love traces the development of economic ideas
concerning industrialization from the largely theoretical phase in the 1930s to the
rise and fall of structuralism and dependency analysis between 1960s-1980s.
108
With

105
Blyth, “Great Transformations,” 11.
106
During the1950s and 1960s, intellectuals from Brazil and Argentina actively contributed to the
global development debate, and their works have considerably enriched the political economy
literature, especially Cardoso and Faleto from Brazil regarding the theory of dependent development,
and Raul Prebisch from Argentina with respect to the theory of underdevelopment. Likewise, during
the mid-1970s a group of selected economists in Chile offered the blueprint for economic change in
the pioneer and by far the soundest case of neoliberal economic reform applied in the region.
107
Paul Drake, Money Doctors, Foreign Debts and Economic Reforms in Latin America from the
1890s to the Present (Wilmington, DE: Scholarly Resources Inc., 1994).
108
Joseph Love, “Economic Ideas and Ideologies in Latin America,” in Ideas and Ideologies in
Twentieth Century Latin America, ed. Leslie Bethell, 207-274 (Cambridge; New York, NY
Cambridge University Press, 1996).
70

respect to studies that include cases of market-oriented reforms, Harberger praises
the role of a key group of technical experts whom he identifies as a “handful of
heroes,”

without whom, he notes, the policies would in all likelihood have failed or
never got started.
109
Valdez highlights the institutional support that the Chicago
School offered to the Catholic University of Chile in the academic formation of
generations of Chilean economists, and the impact that these have in economic
policy making during Pinochet’s military governmwent.
110
Dominguez focuses on
the "technopols,” a group of technocrats who have participated in economic policy
making, opting, he argues, for the promotion of both democracy and free markets.
111

In the same vein, Markoff and Montesinos,
112
as well as Centeno and Silva,
113

looking at the process of technocracy ascendancy in Latin America, discuss the
participation that experts—mainly economists—have had in government affairs,
especially during the 1980s.
The above mentioned research offers invaluable historical and biographical
information, an obligatory body of scholarship for any researcher interested in the
study of economic ideas and policy change in Latin America. Given the focus of

109
Arnold Harberger, “Secrets of Success: A Handful of Heroes.” American Economic Association
Papers and Proceedings 83, no. 2, (1993), 343.
110
Juan Valdes, Pinochet's Economists. The Chicago School in Chile (Cambridge: Cambridge
University Press, 1995).
111
Jorge Dominguez, ed. Technopols. Freeing Politics and Markets in Latin America in the 1990s
(University Park: The Pennsylvania University Press, 1997).
112
Jonathan Markoff and Verónica Montesinos. “The Ubiquitous Rise of Economists.” Journal of
Public Policy, 13, no. 1 (1993): 37-38. See also Verónica Montesinos, Economics, Politics and the
State: Chile, 1958-1994. Amsterdam: CEDLA, 1998
113
Miguel Centeno and Patricio Silva, eds. The Politics of Expertise in Latin America (New York:
Saint Martin's Press, Inc., 1998), 4. Also see Miguel Centeno, Democracy Within Reason,
71

their analysis, however, these studies’ interpretation of the role of ideational factors
in economic policy making does not establish hypotheses directed to middle-range
theory building. They do not explore what resources and conditions allow the
carriers of policy ideas to effectively affect policy making, how specific policy ideas
are translated into policy decisions, and why certain ideas become politically
influential. As noted by Checkel, the carriers of new ideas may have expertise and
knowledge, substantial negotiating skills, and strategic domestic and international
connections, but these resources are not sufficient conditions to open windows of
opportunity for these actors to advance their ideas.
114

The second group of studies does not focus specifically on ideas, but opens
the discussion about the role of ideas in Latin America’s economic policy change, an
aspect largely rejected by established arguments in the political economy literature.
For instance, Stallings pays attention to the diffusion of knowledge, but she
underlines that it is the powerful influence of international constraints based on the
asymmetries in the power relations between creditors and debtors what explains the
major adjustment decisions of the 1980s.
115
In his study of IMF and World Bank
conditionality, Kahler affirms that social learning, the spread of specific ideas to
broader segments of the political elite and relevant publics, helps to account for the

Technocratic Revolution in Mexico (University Park, Pennsylvania: The Pennsylvania University
Press), 1997.
114
Checkel, 11.
115
Barbara Stallings, "International Influence on Economic Policy: Debt, Stabilization, and Structural
Reform," in Stephan Haggard and Robert B. Kaufman, eds., 41-88, The Politics of Economic
Adjustment (Princeton: Princeton University Press, 1992).
72

tendency towards greater orthodoxy in the late 1980s.
116
Haggard and Kaufmann
also stress the role of international financial institutions and of technocratic alliances
around specific policy ideas in determining policy choice, pointing out that the
sustainability of the reform will depend on a convergence of thinking beyond the
technocratic elite about fundamental means-end relationships in the economy.
117

Biersteker maintains that ideas are important for defining the content of change, but
their impact on promoting reform depends on “both interests and institutional bases
of support.”
118
Along this line is the work of Conaghan and Malloy, who trace the
origins of the reform experiments in Ecuador, Perú and Bolivia during the 1980s.
119

The research by a third group of works that tackle in a more substantive way
the direct influence of ideas in economic policy making constitutes a decisive step
towards theory building in the ideas-based area. Adler for instance, describes the
quest for technological autonomy in the areas of nuclear energy and computer
development in Argentina and Brazil.
120
He underlines the role of ideologically
motivated intellectuals—whom he calls “subversive élites”—and their institutions in

116
Miles Kahler, “External Influence, Conditionality, and the Politics of Adjustment,” in Haggard and
Kaufman eds., The Politics of Economic Adjustment, 124-125. Kahler’s analysis includes references
to Peru’s economic policy, but not with respect to the case that is object of the present study.
117
Stephan Haggard and Robert S. Kauffman, “Institutions and Economic Adjustment,” in Haggard
and Kauffman, The Politics of Economic Adjustment, 17.
118
Thomas Biersteker, “The ‘Triumph’ of Liberal Economic Ideas in the Developing World,” in
Global Change, Regional Response: The New International Context of development, ed. Barbara
Stallings, 180-186 (Cambridge and New York: Cambridge University Press, 1995).
119
Catherine Conaghan and James Malloy, Unsettling Statecraft: Democracy and Neoliberalism in
the Central Andes, (Pittsburg, PA: University of Pittsburgh Press, 1994). See also Luis Abugattas,
Catherine Conaghan, and James Malloy, “Business and the ‘Boys’: The Politics of Neoliberalism in
the Central Andes,” Latin American Research Review, 25, no.2, (1990): 3-27. These works refer to the
Peruvian case but not to the process of economic reform that is the object of the present study.
120
Adler, 327-328.
73

raising awareness and influencing policy makers. In addition to structural factors–
and sometimes in direct opposition to them–ideas, ideologies, and institutions can
motivate institutional and policy innovations.
121
Sikkink compares the contrasting
results of developmentalism in Argentina and Brazil during the 1950s and highlights
the impact that new ideas held by policy makers had in this regard. She notes that
while the implementation of a model of economic development implies that this has
become embedded in state institutions, its consolidation requires the emergence of a
high level of elite consensus as well as a broad-based societal consensus around it.
122

Within the ideational literature about neoliberal economic reform in Latin
America, Hira studies groups of experts that he calls “economic knowledge
networks” and creates a national-level model that explains the role of experts in
domestic economic policy decisions.
123
Biglaiser studies economic reform under
military rule in the Southern Cone and notes that the differences in policy-making
outcomes reside in the fact that some military regimes appointed more ideologically
committed neoliberal economists than others as a result of the diverse political
constraints existing in governmental or military institutions.
124

Despite their important contributions to the ideas-based research area, the
analyses by Hira and Biglaiser carry some limitations. For instance, both scholars

121
Ibid.
122
Sikkink, 2.
123
Anil Hira, Ideas and Economic Policy in Latin America. Regional, National, and Organizational
Case studies (Westport: Praeger Publishers,1998).
124
Glen Biglaiser, Guardians of the Nation? Economists, Generals, and Economic Reform in Latin
America, (Notre Dame, IN: University of Notre Dame Press, 2002).

74

study cases of neoliberal economic reform under military rule. At first sight, this
particular focus may not necessarily look like a weakness.
125
However, such an
analysis focused exclusively in the policy-making sector, given the concentration of
power in the executive that is characteristic of dictatorships, leaves aside important
issues that if taken into consideration could affect these authors’ conclusions.
Biglaiser argues that the ideas-institutions framework sketched in his work
about policy choices under authoritarian regimes is also applicable to cases under
democratic governments since in both, political survival strategies affect economic
policy-making appointments and a centralized executive authority is important for
introducing policy initiatives.
126
These assessments, however, are valid only to a
limited extent. It is obvious that a strong executive is necessary for the introduction
of certain policies. Likewise, as Biglaiser notes, like-minded economists are more
able to act as a coherent team, as otherwise “the ability of disparate policy makers to
persuade leaders to support neoliberal policies decreases as these policy makers
struggle with each other over policy choices.”
127
Nonetheless, additional factors
beyond those noted by Biglaiser and Hira have to be taken into consideration to
explain the influence of ideas in policy reform.

125
On the contrary, such a study may expose interesting insights regarding the influence of economic
policy ideas within a Latin American military context and thus extend the scope of the ideas-based
research program mainly focused on the analysis of policy ideas in developed countries under
democratic governments.
126
Biglaiser, “Guardians of the Nation?” 163.
127
Biglaiser, “Guardians of the Nation?” 17-18. Obviously, this assertion is also applicable to
economic reform programs under democratic regimes.
75

Although the introduction of economic reforms is a crucial step forward in
the transformation of the economy, it is just an initial one. The reforms have to be
implemented and supplemented with additional regulations. At these later stages, the
strength of the executive and the appointment of like-minded economists able to
work in a coordinated way are still important issues, but not the only ones.
To achieve effective economic policy change, more than the participation of
committed policy makers is necessary. Policy elites operate within a context that
affects and constrains not only the dynamic process of decision making but also the
application and consolidation of policies. Even when policy makers are very
committed, if there is strong opposition to the reforms formulated by them outside of
the policy making sector, that opposition might obstruct the process of policy
change. In the Peruvian case, for instance, during the second government of
president Belaunde (1980-85), the minister of finance counted on the participation of
a like-minded group of technical experts that shared similar policy ideas about the
need to liberalize the Peruvian economy. Moreover, the government counted on the
majority in the legislative branch. Nonetheless, in this case the mechanism by which
ideas shape policy highlighted by Biglaiser did not become as clear as he claims it
must do. As I explain in chapter 6, opposition within and outside government circles
curtailed the implementation of reforms introduced by the economic team.
In a recent work, Biglaiser and Brown explore the role of ideas in economic
policy making (specifically on tariff reform) focusing again on the policy-making
76

sector.
128
Using panel study data for fifteen Latin American countries including Perú
from 1981 – 1995, Biglaiser and Brown find that the presence of economists trained
in the United States who hold policy-making positions has the most consistent effect
on the determination of tariff rates. They conclude that ideas, as embodied in the
training economists receive, matter, and thus the focus on policy makers’ educational
experiences abroad is crucial.
The analysis sketched by Biglaiser and Brown is particularly novel and
definitely expands the scope of the ideas-based research area. It tests and points out
the limitations of mainstream approaches based solely on state autonomy, domestic
economic interests, external influence, and macroeconomic factors. Besides, it
applies a quantitative analysis—a methodology that has been rarely applied in the
ideas-based research area—and includes developing countries’ cases previously not
considered by ideational approach studies, an important effort in a research area
traditionally interested in the study of OECD nations. Furthermore, it undertakes a
cross-national study, another contribution for a research program characterized
mainly by single-country studies.
In the same line, Chwieroth’s analysis of the dramatic change in the size and
spending of the welfare state in Latin America sets out what he calls an ideational
theory of social spending. Chwieroth points out that a critical source of consensual
knowledge about economic policy making is professional training in particular

128
Glen Biglaiser and David S. Brown, “What’s the Big Idea? An ideational Explanation for Tariff
Reform in Latin America, 1981-1995. Paper presented at the annual meeting of The American
Political Science Association, Philadelphia, PA, August 27, 2003.
77

economic departments.
129
He applies a quantitative and comparative analysis (in
which the Peruvian case of reform is also included) and argues that social spending
policy decisions in Latin America are shaped in part by the diffusion of neoliberal
reforms and ideas that prescribe reductions in social spending. According to
Chwieroth, this diffusion is possible given the existence of a coherent economic team
that, able to produce consistent advice and use its power of persuasion.
130

In sum, the commonality among the works of Biglaiser, Brown, and
Chwieroth mentioned above, is their overwhelming focus on the role played by state
actors.
131
Their approach however seems insufficient to explain the particularities of
the Peruvian case included in their studies. Not only in the early 1980s, but also in
the 1990s, the respective governments of Belaunde and Fujimori counted on the
participation of highly qualified professionals trained in the United States on their
economic teams. These professionals were IFI-friendly and eager to apply
stabilization and structural market-oriented reforms. Furthermore, some of the same
professionals who had worked in the economic team during the earlier 1980s also did
so ten years later during the Fujimori government. In other words, the economic

129
Jeffrey M. Chwieroth, “Shrinking the State: Neoliberal Knowledge-Based Experts and Social
Spending in Latin America.” Paper presented at the annual meeting of The International Studies
Association, Honolulu, Hawaii, 1-5 March 2005.
130
Chwieroth, 16.
131
Although with important exceptions—such as the work of Sikkink and Adler, among a few
others—there is in the ideational literature that tackles economic policy a tendency to consider only
state actors/institutions as part of the process of ideational change. In studies about ideas and their
influence in the European Union’s policies, this trend is also common. In contrast, ideational literature
that tackles other issues (i.e., democracy) considers as part of the process of ideational change not
only state actors but also key academics, labor unions, and political parties. In this regard, see Sheri
Berman, The Social Democratic Movement: Ideas and Politics in the Making of Interwar Europe.
(Cambridge, MA: Harvard University Press, 1998).
78

teams were almost identical. During the earlier 1980s, despite their expertise and
belief in market-oriented reforms, the members of the economic team were not able
to persuade the president, members of the executive branch, and congress about the
viability of these reforms. Even less were they able to diffuse their knowledge
throughout the Peruvian society. During the late 1980s, on the other hand, experts
and supporters of market-oriented policy ideas who were not part of the government
and thus were not in key administrative positions were nonetheless able to initiate a
strong campaign for the diffusion of their policy ideas. They were able to persuade
and obtain the wider public’s support for the application of market-oriented policies
years before market-oriented technocrats would be appointed to the ministry of
finance and reforms along that line were implemented. If, as noted by Biglaiser,
Brown, and Chwieroth, policy makers who held foreign economics degrees primarily
from the United States are much more likely to implement neoliberal reforms, why
in nearly identical situations were the policy outcomes in Perú so different?
The works by Hira, Biglaiser, Biglaiser and Brown, and Chwieroth, all offer
important contributions to the advancement of the ideational literature. However,
they omit important aspects that deserve analysis. They begin from the same
premise: a high proportion of neoliberal economists in economic policy making
positions produces more orthodox economic policy choices along that line, and
permits the difussion of their policy ideas. Their conclusions do not consider the
effective role that non-state actors may play in the promotion of policy ideas, and the
fact that the extensive diffusion of certain policy ideas throughout society may be
79

done by non-state actors and prior to the application of economic reforms based on
those ideas. Hira himself recognizes the limits of focusing on expert policy makers,
but considers this as favorable to his general conclusions:
In focusing on the role of experts in political economy, the model does ignore
other political actors, such as the media and the bureaucracy. The reason for
this focus is not only to highlight experts’ role in the political decision
making process, but also because the role of the media and bureaucracy vary
widely across time and nation. In Chile, for example, the Pinochet
dictatorship closed down most of the media, rendering it a weak factor. . . . In
conclusion, the model should be seen as limited but valuable tool for
understanding and predicting economic policy.

Indeed, as Hira notes, ideas about economic development are provided by,
filtered through, and legitimized by experts also called technocrats.
132
It is also
obvious that in this regard the role of the so-called Chicago Boys was very important
in the Chilean case. They convinced President Pinochet and top military leaders who
by training and belief were oriented toward a national and statist direction of
economic policies about the need to initiate market-oriented reforms.
133
Their impact
on policy making is undeniable, especially taking into consideration that Chile was
the first country that applied a comprehensive and lasting reform program almost a
full decade before the wave of international adoption of neoliberal economics.
Nonetheless, it is important to bear in mind that the Chicago Boys’ participation in
economic policy change occurred under a military regime known for the savagery of
its repressive tactics in silencing the voices of the opposition. These neoliberal

132
Hira, supra note 30, 28-29.
133
Hira, 14.
80

economists put in practice their expertise at a time when the majority of Chileans did
not support their ideas (proof of this is that in 1972 Chileans had elected Salvador
Allende as their president). It was the military government that imposed the reforms
without having to respond to societal actors. Pinochet had a monopoly over the
means of communication and used it to dominate the direction of the political
discourse in society.
134

Taking into consideration the two aspects mentioned above—the peculiar
characteristics of the Chicago Boys and the repressive tactics of Pinochet’s military
regime—it may be appropriate in the Chilean case to focus an analysis of ideas and
economic policy change only on state actors. Nonetheless, it must be questioned
whether the analysis of other cases of economic reform can be focused only on
policy makers.
Supporters of neoliberal reforms praise and present these reforms as
unavoidable measures in addressing developing countries’ economic problems.
However, social actors generally do not take these assertions for granted. On the
contrary, neoliberal reforms are generally extremely unpopular among the public.
Since their benefits are supposed to come in the long term and their immediate
effects (such as cutting subsidies) are very harmful for the majority of the

134
When the military government intervened in the universities, militaries were appointed to the top
administrative positions and leftist academics were arrested or fired or had to abandon the country in
order to avoid political persecution. Likewise, the armed forces repressed organized labor;
neighborhood associations and trade unions were outlawed, and only organizations without any
affiliation with political parties were permitted. The Left was considered illegal for fifteen years.
81

population, their introduction can cause social unrest that may affect the process of
economic policy change.
Although social actors do not directly participate in the formulation of the
new regulations as do policy makers, their indirect participation with respect to the
implementation and especially with the consolidation of reforms is crucial. Non-state
actors may determine the route of an economic reform program or block its
introduction or implementation. Therefore, they should not be taken out of the
analysis of the influence of ideas in economic policy change. As stated by Conaghan,
“any ‘economist centered’ approach to explaining policy runs the risk of missing the
pivotal role played by other actors—the politicians, bureaucrats, interest groups, and
mass public.”
135
Likewise, Bltyh notes that one of the weaknesses of the ideational
literature is its propensity to see the transition from one policy paradigm to another
as an “essentially elite process:”
Insulated bureaucratic and political elites become the bearers of different
“policy paradigms.” Missing is the way such ideological schemas are used in
democratic systems to demobilize existing patterns of collective action. . . .
The elite game may tell us how the ideas get from the blackboard to the
party, but not how or why certain ideas come to be accepted over others. The
mechanism of translation from academic debate to popular consciousness
needs to be spelled out.
136

Attention to the role of state actors is essential for the study of policy ideas as
sources of economic policy change—after all, top policy makers are the ones who
predominantly exercise policy choice. However, it does not entirely capture the
82

actual dynamics of the process of reform. In particular, it does not explain what
makes it possible for social actors to support the reforms, an aspect that, this work
points out, is important during the phases of implementation and consolidation of
new policies, and even (as the Peruvian case shows) during their initiation.
In conclusion, with respect to the literature of the political economy of
reform, the present work, like the rest of ideational research, attempts to answer
puzzles that are not explained by mainstream approaches. Specifically, with respect
to the ideational literature, the present work adds important evidence and hypotheses
to the study of ideas and economic policy change in developing countries. In doing
so, it extends the scope of previous research in the ideas-based area that analyzes the
wave of neoliberal economic reforms in Latin America. Considering that in order to
see the impact of ideas in policy change, it is crucial to see state actors’ contribution
in perspective, I examine the social political context surrounding the pursuit of
specific economic reforms and address the role in this regard played by state and
non-state actors as well.
135
Catherine Conaghan, in Drake, 260. See also in this regard Peter Hall, “The Political Power of
Economic Ideas,” 8-10.
136
Blyth, Mark M. “Any More Bright Ideas?” 237.
83

CHAPTER 3: THE BUSINESS ELITE AND THE PERUVIAN PROCESS OF
ECONOMIC REFORM

In this chapter I probe the extent to which the interest group approach that is
commonly taken to the study of economic policy change is applicable to the analysis
of the economic reform program initiated in Perú in 1990. For explanations based on
this approach, the preferences and political pressures emanating from interest groups
are seen as the key determinants of economic policy. In this view, interest groups
demand that the government enact policies that exclusively benefit them and obstruct
the enactment of policies that may affect them negatively. Thus my focus here is
twofold. First, I specify the context in which the business elite opted to support
policy change. In this regard I compare the business sector’s stance towards the
various administrations that governed Peru from 1968 to 1995. Second, I focus on
the content of the policies applied in Perú during the early 1990s that were supported
by that same business elite. The objective is to determine if this group obtained direct
and exclusive benefits from the reforms it demanded, or if other factors drove its
support for the new economic policy framework.

The Interest Group Approach
Milner and Gourevitch argue that policy preferences are derived from the
actors’ structural position in the economy.
137
Export-oriented firms that are globally

137
Helen Milner, Interest, Institutions and Information (Princeton, NJ: Princeton University Press,
1997). Peter Gourevitch, Politics in Hard Times (Ithaca, NY: Cornell University Press, 1986).
84

competitive prefer free trade, they argue, whereas domestic market-oriented firms
that are less competitive prefer protection. In the same vein, Frieden asserts that a
given group’s preferences derive from the specificity of the assets held by its
members. Furthermore, he notes, this specific-factors approach can allow the
drawing of a a simple map not only of sectoral interests but of the state’s initiatives
regarding policy making, since policy makers respond to sociopolitical pressures
brought to bear upon them by interest groups.
138

The interest group approach for explaining which economic sectors might
support or oppose certain policies is very important. Nevertheless, it has some
shortcomings. For instance, there is an almost mechanistic logic attributed to the
relationship between interest group demands, the resulting economic policies, and
the assumed political and economic outcomes.
139
Arguments made from this
perspective begin by identifying the groups most likely to be favored by a certain
policy. It is then inferred that the policy is a result of these groups’ successful
pressure on the government.
140
This reasoning, however, overlooks the possibility

138
Jeffrey Frieden, Debt, Development and Democracy (Princeton, NJ: Princeton University Press,
1991), 5-7.
139
Ben Ross Schneider considers the terms of this approach “simplifying” deductions on preference
formation and collective action. See “Elusive Synergy: Business-Government Relations and
Development,” Comparative Politics, October (1998): 118. In the same line, Robert Wade notes that
coalitional logics is the “sloppiest reasoning” in the whole field of political science. See “East Asia’s
Economic Success: Conflicting Perspectives, Partial Insights, Shaky Evidence.” World Politics 44,
no. 2, January (1992): 308-309.
140
For instance, Frieden recommends that “Where we see policy favoring interest groups that logic
and theory tell us are most likely to bring pressure to bear on policy-makers, it is appropriate to infer,
at least provisionally, that there is a line of cause and effect that relates lobbying pressure to policy.”
Frieden, “Debt, Development and Democracy,” 11. See also James E. Alt, Jeffrey Frieden, Michael J.
Guilligan, Dani Rodrik, and Donald Rogowski. “The Political Economy of International Trade:
Enduring Puzzles and an Agenda for Inquiring,” Comparative Political Studies 29, no. 6, December
(1996): 709.
85

that this cause-effect relationship could also run in the opposite direction: groups that
benefit from specific reforms may not be the cause but instead the result of policy
choice.
141
More importantly, by giving explanatory primacy to material interests,
research following the interest group approach disregards the influence that other
variables might have had on guiding actors to evaluate and to select their economic
and political options. The economic policy-making process is simply more complex
than the result of the pressure exercised by interest groups. How governments
respond to that pressure depends on additional political, institutional, and cultural
factors, a reality that even Rogowski—a supporter of the interest group approach—
admits “this perspective so resolutely ignores.”
142

Nevertheless, as Haggard and others have pointed out, “popular analyses of
the politics of economic reform typically begin with the power of entrenched
interests, and a bias towards interest-group analysis is visible in the academic
literature as well.”
143
And indeed many analysts have explained the implementation
of market-oriented reforms in Latin America in these terms. For instance, in his
study of market-oriented policy reform in Brazil, Chile, and Mexico, Schamis

141
For instance, as I note below, that was the case of the economic reforms applied in Perú during the
first years of president Velasco’s military government. In 1968, rather than responding to the demands
of a specific elite, Velasco applied a dramatic economic reform formulated from the top that provided
the propitious terrain for the consolidation of the industrial elite. Likewise, during the 1990s the
reforms applied by the Fujimori government had clearly benefited foreign economic conglomerates
that at the time of the formulation of the reforms did not have any linkages with the government or
with domestic interest groups.
142
Ronald Rogowski, Commerce nd Coalitions: How Trade Affects Domestic Political Alignments
(Princeton,NJ: Princeton University Press, 1989), 20. According to Rogowski, sectoral models can
predict general patterns of cleavages, but not outcomes.
86

maintains that the state has been the agent of powerful economic groups as a result of
the collusion between political and economic powers that has permitted the
formation of distributional coalitions.
144
Likewise, Silva notes that in each of the
periods of gradual, radical, and pragmatic adjustment in Chile, a distinct capitalist
coalition helped to set the policy agenda that established privileged networks with
state institutions and actors
145

The above-mentioned studies that highlight the interest group approach in
concrete Latin American cases are not easily dismissed. Silva and Schamis both offer
striking evidence of the danger posed by powerful and organized capitalists who,
contrary to what neoliberals claim, can capture state agencies, even in market-
oriented contexts, in order to increase their own economic position. However, these
studies’ important conclusions do not necessarily have general applications with
respect to the reform programs implemented in other Latin American countries.
146

Nevertheless, some Peruvian analysts have also arrived at conclusions similar
to those offered by the interest group perspective. For example, it is said that instead

143
Stephan Haggard, Jean-Dominique Lafay, and Christian Morrisson, The Political Feasibility of
Adjustment in Developing Countries (Paris: Organization for Economic Cooperation and
Development, 1995), 21.
144
Schamis underlines that there is “a need to place consideration of societal interests at the forefront
of the field of political economy—something state centered approaches reject—irrespective of
whether the economy is closed or open—something neoclassical perspectives overlook.” Hector
Schamis, “Distributional Coalitions and the Politics of Economic Reform in Latin America,” World
Politics 51, no. 2 January (1999): 236-238.
145
Eduardo Silva,“Capitalist Coalitions, the State, and Neoliberal Economic Restructuring, Chile,
1973-88” World Politics 45, no. 1 (1993), 534.
146
Although Schamis initially refers to the Latin American reform experience as a whole, he himself
notes that whether or not interest groups will successfully lobby for policy change varies from country
to country depending on national economic structures, different factor endowments, sectoral
cleavages, and the organization of markets.
87

of the expected “trickle down” effect promised by the promoters of neoliberal
economic reform, there has been in Perú a “trickle up” that has permitted the
concentration of wealth and political power upwards
147
and the consolidation of a
new oligarchy.
148
Likewise, Tantaleán affirms that “the new economic liberalism as
an ideology, program, and action, is closer to and promoted by those that control the
economic power and have privileged places in the Peruvian economy.”
149

It cannot be denied that the costs of the economic reforms applied in Perú
during the 1990s have been distributed throughout society and the major benefits
concentrated among the few. However, it cannot be assumed from this resulting
situation that the exclusive interests of those groups that have benefited from the
reforms have determined economic policy change in Perú. Before offering an
alternative explanation, I will first review the context in which the Peruvian business
elite opted for demanding economic policy change and how this elite was affected by
the economic reforms applied during the early 1990s.

Interests and the Peruvian Experience of Economic Reform
This section describes the relationship between the business elite and the state
during the period 1968-1995. Its focus is on the particular stance taken at different
points in time by the business elite with respect to economic policy change.

147
Andrés Quispe, “El Gobierno y los Grupos de Poder Económico, El chorreo hacia arriba,”
Quehacer, January-February (1998): 37.
148
Carlos Reyna, “Oligarchs with New Faces,” NACLA Report on the Americas 30, no. 6, May/June
(1997): 32-33.
88

The Peruvian business elite and the state (1968-1990)
This section notes that the new business elite that flourished mainly as a
consequence of the inward-oriented economic policies implemented since 1968 by
the military government of Velasco, was until 1990 directly favored by the state. It
argues that although due to its large intervention in the economy the state created at
many instances serious obstacles for private capital, at the same time this latter
greatly benefited from the protection that the state granted to the domestic market.
As noted in chapter 1, General Velasco’s government (1968-75) eliminated
with the expropiation of lands and the nationalization of foreign firms the two main
pillars of the oligarchic era. However, Velasco’s drastical reforms of the economy
did not put an end to the dominance of the economically privileged in Peruvian
society. Domestic private capitalists (some of them former oligarchs or descendants
of the privileged oligarchy) bougth various nationalized firms, and thanks to the
stimulation of demand generated by ISI policies, these same elites evolved into a
more heterogeneous and modernized Peruvian bourgeoisie.
150

The government’s decisive support of this new elite led to the enactment of
policies that facilitated the accumulation of rents. The tariff policy was the best
example. Tariffs were significantly high and, combined with non-tariff restrictions,
were used as direct instruments of industrial protection. The resulting system

149
Javier Tantaleán, Prisioneros del Mercado. Una Critica al Neoliberalismo (Lima: Instituto de
Investigación, Promoción y Apoyo para el Desarrollo, 1992), 27.
150
Many of the former landowners converted agrarian bonds into capital for the installation of
companies, becoming modern entrepreneurs with combined investments in agriculture and
89

established numerous prohibitions and created domestic oligopolies. All imports that
could be replaced by Peruvian production were prohibited. Furthermore, a fixed
exchange rate permitted industrialists to import inputs and intermediate goods at
cheap prices, and the fixed interest rates allowed them to obtain favorable loans.
151

The government also established fixed prices and provided subsidized products to
urban industrial firms, permitting these to minimize costs and increase their sales.
152

In 1978, the military government of General Morales Bermudez (1975-1980)
began to change some of the policies enacted by his predecessor. Although important
for that time, these reforms were meant to liberalize only some sectors of the
economy. For instance, with respect to those policies that directly affected the
business elite, the majority of public subsidies were eliminated, the number of
prohibited imports was reduced from 1,313 to 9, and non-tariff restrictions were
reduced from 5,000 to 2,000.
153
However, in general the ISI framework continued.
In 1980, with the return of democracy Fernando Belaunde was elected to a
second presidential term. Due to the impact of the reforms applied after eleven years
of military government, Belaunde encountered a business elite quite different from
the one he had dealt with during his first government in 1960. The same can be said
for the economic and political challenges he had to confront.

manufacturing and with increasing links to the banking system. See Manuel Castillo, “Los hijos
privilegiados del mercantilismo,” Pretextos 3-4, December (1992): 222-240.
151
Carlos Parodi, Perú 1960-2000. Políticas Económicas y Sociales en Entornos Cambiantes, 109.
152
See Manuel Castillo, “Los hijos privilegiados del Mercantilismo,” 234.
153
Javier Iguiñiz, Rosario Basay, and Mónica Rubio. Los Ajustes. Perú 1975-1992 (Lima: Fundacion
Friedrich Ebert, 1993), 81.
90

Campodónico et al. note that at the beginning of the 1980s the Peruvian
economic elite had regrouped into two factions: the grupos de poder economico
(GPEs), or the economic conglomerates, and the gremios empresariales (GEs), or the
coalition of producers.
154
Each faction pursued diverse economic interests and
displayed a different capacity to adapt to economic reforms. Likewise, each
developed a particular approach toward the government in their efforts to maintain a
privileged position in the economy.
The GPEs had a high degree of portfolio diversification,
155
and their power in
the internal market was akin to that of an oligopoly. They had strong preferences for
sectoral policies that would promote new investment and the entrance into
productive sectors linked to the external market. Their diverse ties to foreign capital
(financial, technological, and commercial) and their ownership of the main Peruvian
banks gave the GPEs the financial capacity to capture credit and financial aid for
their companies in the productive sector.
Due to their diversified portfolio and financial backing, the GPEs were better
able to accept policies directed toward the deregulation of the economy and the
liberalization of the financial sector, but opposed the opening of the banking sector
to foreign investment. For instance, regarding the Banking Law of 1982, the GPE

154
Unless otherwise noted, the following paragraphs that refer to the characteristics and strategies of
the Peruvian economic groups is draw upon Hector Campodónico, Manuel Ochoa, and Andrés
Quispe, De Poder a Poder. Grupos de poder, gremios empresariales y politica macroeconomica
(Lima: DESCO, 1993).
155
These include agriculture, mining, fishing, manufacturing, construction and real estate,
commercial, storage, mass media, and especially control over commercial banking.
91

successfully pressured the Belaunde government to make it difficult for new foreign
investment to enter the banking sector.
The gremios empresariales (GEs) are business associations representing the
productive sectors. In comparison with the GPEs, the GEs carry a relatively smaller
weight in the economy, which makes it difficult for them to adapt to changing
economic circumstances. The GEs have actively organized seminars, debates, and
forums as their main channels of expression, lobbied the government ministries to
alter decisions that affect them; and at times gone directly to the media.
In 1980 Manuel Ulloa, the minister of finance during the two first years of
the Belaunde Administration, designed a reform program to liberalize especially the
trade sector. Tariffs were by Peruvian standards largely reduced. While in July of
1980 the average tariff was 39% and the maximum was 160%, by December of 1980
the average was 34% and the maximum was 60%, this latter restricted to a small
category of goods. Most other tariffs were cut to the range of 20–30%, and some
tariffs on intermediate goods were raised to reduce levels of effective protection.
156

Not surprisingly, the various entrenched business groups heavily opposed
these measures. The National Society of Industries (SNI) decried the tariff reductions
as a threat to national industry. Minister Ulloa was accused of being a neoliberal and
the government’s economic team was severely criticized for their dogmatic
adherence to economic theory. The president of ADEX the association of non-

156
Carlos Boloña and Javier Illescas, Politicas Arancelarias en el Perú, 1980-1997, Lima, Instituto de
Economia de Libre Mercado, 1997, 38.
92

traditional exporters criticized the government’s economic team for “its lack of
seriousness.”
157
The Textile Committee of the SNI commented that “the ‘theoretical’
way in which the tariff policy is being designed shows a complete ignorance of the
national reality.”
158
Alfredo Ferrand, president of the SNI as well his succesor and
other business leaders took several opportunities to claim that Perú would lose its
way economically if it departed from the road to industrialization:
This economic policy is the work of young inexperienced economists that are
playing as if they were the Chicago Boys. . . . The new functionaries at the
ministry of finance and the ministry of industry are laboratory technicians
that before assuming a government appointment should have worked in an
industrial firm in order to see first hand what means to do industry. (…) They
think that because they have studied in the United States or England they
should bring to us those realities (sic).
159

There is a remarkable incoherence between the reality that the industrial
sector has to face daily and the economic policy implemented by the
government… This policy is putting our market to the service of the
industrialized countries. It is obvious that there is here the hand of the World
Bank and the International Monetary Fund…This is anti-patriotic.
160

Initially the GPEs had adopted a wait-and-see position and did not confront
the government. Later, however, they also opposed the reforms. In November 1983,
two key business segments–bankers and mine owners–jumped on the “reactivation”

157
El Comercio, “El presidente de ADEX se muestra contrario a politica monetarista,”4, June 20,
1981.
158
El Comercio, “Se insiste en liquidar la Industria Textil?” Comunicado de la Sociedad Nacional de
Industrias, 6, October 17, 1980.
159
El Comercio, “El presidente de la Sociedad Nacional de Industrias criticó el Decreto que libera
aranceles,” 13, September 16, 1980.
160
El Comercio, “Existe incoherencia entre el sector industrial y política económica,” 11, July 3,
1981. Also see El Comercio, “Las Declaraciones del Sr. Vice Ministro de Industrias,” 15, July 20,
1981; El Comercio, “Política de Importaciones: Zona de Peligro,” Comunicado No. 2 Sociedad
Nacional de Industrias, 11, June 27 1983; and Comunicado No. 3 Sociedad Nacional de Industrias,
July 20, 1981.
93

bandwagon, seeking governmental relief from the renewed recession and in doing so
joined forces with industrialists.
161

Until 1983, most of the business community’s protests were carried out
without specific coordination. This situation changed when the economic crisis
deepened and the government persisted in its application of market-oriented policies,
thus provoking business groups to unify in their efforts to reverse such policies. In
November 1983, the annual meeting of business executives (CADE) demanded a
return to greater state protection. Furthermore, in 1984 CONFIEP (the confederation
of private entrepreneurs) was created as a representative umbrella institution that
could serve as business’s formal interlocutor with the government.
In 1985, a newly elected President Alan García promised that his government
would decisively support national industry. In fact, his government largely promoted
ISI, especially through high tariff rates, and increased public expenditure to
reactivate the economy and increase demand. The percentage of customs categories
subjected to import licenses grew from 60% in August 1985 to 100% by September
1987, and the list of prohibited imports grew to 10% of the total tariff lines in June
1987.
162
The manufacturing sectors enjoyed high levels of effective protection with
respect to external competition. (Table 28)

161
Francisco Durand, “Collective Action and the Empowerment of Peruvian Business” in Organized
Business, Economic Change, Democracy in Latin America, ed. Francisco Durand and Eduardo Silva,
263 (Coral Gables, FL: North South Center Press, 1998).
162
Julio Paz Soldán and María del Carmen Rivera, “La reforma comercial y de aduanas” in La
reforma incompleta, ed. Roberto Abusada, Fritz DuBois, Eduardo Morón y José Valderrama, 261
(Lima: Universidad del Pacifico, 2000).
94

In contrast, the primary exporting sector’s competitiveness was severely
hampered by the negative effective level of protection (-8.4% on average) due to the
excessive tariffs this sector had to pay for importing inputs and capital goods.
163
This
anti-exporting bias was partly compensated by the CERTEX, a system of transfer of
resources to the non-traditional exporting sector.
Table 28: Percentages of Effective Protection Rates to the Peruvian Manufacturing Sector
1973 1978 1981 1990
July (a)
1990
December(b)
Average 158 121 74 122.7 41.4
Processed Food 214 216 94 135.4 45.2
Beverages 284 140 88 197.2 62.6
Tobacco 684 281 55 197.2 62.6
Textiles 229 132 121 261.2 87.6
Garments 529 85 87 261.6 87.6
Shoes 529 177 89 134 59.3
Wood 158 71 52 132 46
Furniture 275 69 97 132 46
Paper 104 78 56 63.9 40.4
Printing 66 68 32 85.1 33.1
Leather 388 124 106 151.2 45.1
Rubber 90 64 44 88.7 35.9
Chemicals 35 47 27 100 26.6
Petrochemicals 77 58 75 66.5 20.8
Non-metalminerals 59 85 50 83.1 34
Basic metals 71 113 40 42 21.2
Metal products 65 41 66 89.3 50.2
Non-electric 32 41 31 30.2 21
Electric machinery 60 75 50 88 42
Transporting 49 44 27 61.8 28
Other manufactures 115 147 57 73.1 50.9
Source: Jorge Rojas, Políticas Comerciales y Cambiarias en el Perú, 1960-1995,
(Lima: Pontificia Universidad Católica del Perú. Fondo Editorial, 1996), 250.
(a) End of President García’s term.
(b) (b) End of first semester of President Fujimori’s administration.

At the beginning of his term, President García had approached the twelve
business representatives of the main GPEs to convince them to increase private
95

investment. Nevertheless, investment did not increase, and the negotiations between
García and the GPEs failed to arrive at any concrete agreement. In 1987, the 62 most
powerful industrial firms had reduced their investment by 28%.
164
The president
considered this a slap in the face, given the efforts his government had made to
provide special concessions and a protected market for the private sector. He
announced the nationalization of the banking sector on July 28, 1987, arguing that
the financial sector was the escape channel through which the elite sent private
profits abroad. This was a turning point in the relationship between the president and
the business elite. García’s spontaneous announcement provoked immediate
opposition from local economic groups and from the public.
165

The business elite and Vargas Llosa’s project of market-oriented reform
The present section refers to the coalescense of forces between the business
elite and Mario Vargas Llosa, a political independent that led the opposition to the
nationalization of the banking sector announced by President García. It notes that
although the strong support that initially the business elite gave to Vargas Llosa’s
demands for economic policy change was later affected by some discordant voices

163
The levels of negative protection were: textiles (-42%), mining extraction (-10.8), and petroleum (-
13.5%). Paz Soldán, 261.
164
Si, October 5, 1987, pp. 14-15. The National Institute of Planification in 1986 indicated that the 62
largest Peruvian firms that represented 25% of the GDP, invested only US$ 48 millions from US $113
million of profits.
165
Because of the importance of this event with respect to the conduct of the business groups, I refer
to it extensively in a later section of this chapter.
96

within some business sectors, in general from 1987 onwards the business elite
adopted a more open view regarding the liberalization of the market.
Indeed, after the frustrating experience with García, the business groups
agreed that they did not want an all-encompassing state. In 1987, in the context of
the nationalization of the banking sector, Vargas Llosa’s proposal for an open
economy seemed an appealing alternative for business leaders. Vargas Llosa created
the political group Libertad, which attracted the business elite as well as intellectual
and technocratic defenders of free market principles. Later, in order to put forth a
candidate for the presidential elections Libertad formed the political front Frente
Democratico (FREDEMO), which united two of the traditional political parties,
Accion Popular (AP) and the Partido Popular Cristiano (PPC).
As the elections of 1990 approached, the earlier position of strong unity
within the economic elite did not dissapear but diminished in some sectors. By 1989
a new association of business leaders had also emerged: the Sociedad Nacional de
Exportadores (SNE), which grouped exporters of traditional products with some non-
traditional exporters. Compared to the existing business associations such as the SNI,
ADEX, and especially CONACO (National Corporation of Commerce), the SNE had
a stronger interest in the liberalization of the market. In fact, CONACO and the
Instituto de Investigación para el Desarrollo Económico (IDIDEN), a minority group
within the business elite, defended the protection of the domestic market.
166

166
Letter from Gian Flavio Gerbolini, director of IDIDEN, published in Quehacer no. 61, October-
November 1989, 44-47.
97

The majority of business leaders however supported the application of an
adjustment program. Nonetheless, some demanded a cautious sequence in the
application of the adjustment reforms proposed by Vargas Llosa. For instance, the
president of the SNI argued that before the initiation of a gradual reduction of tariffs,
the next government would have first to reduce inflation, stabilize the economy, and
confront the advancement of terrorism. ADEX supported some economic shock
proposals but wanted to retain the promotional benefits (CERTEX) inherited from
former governments–perks that were antithetical to a liberal economic agenda.
167

Later, when Vargas Llosa presented FREDEMO’s economic plan, some business
leaders especially within the GEs (SNI, ADEX, and CONACO) questioned his
aggressive proposal of liberalizing the market. Some even described Vargas Llosa’s
proposal as “the repetition of the neoliberal scheme attempted during 1980-82 under
President Belaunde’s government.”
168

Despite some disagreements, during the next years the business leaders
represented by CONFIEP openly supported Vargas Llosa’s candidacy to the
presidency of Perú and his reform project that included the application of a radical
program of stabilization and structural reforms directed to liberalize the Peruvian
economy.

167
For instance, Carlos Neuhaus from PPC and economic advisor of ADEX claimed that the
CERTEX was necessary in order to compensate for the inefficiencies of the system such as the
inappropriate infrastructure to develop export businesses. Likewise, Ricardo Vega Llona (ex-
President of ADEX and CONFIEP) and Marco Garrido, expressed their support for an open economy
but clearly opposed the elimination of CERTEX. See “A paso liberal?” and “Candidatos
exportadores, sudando la camiseta,” both in Caretas, March 5, 1990: 13, 30.
98

The business elite and the Fujimori government
The present section describes the somewhat tense relationship between the
business elite and President Fujimori during the first years of his government. It
notes that the main economic groups found themselves out of the picture and
completely lacking the connections they traditionally had had with former
governments. Nonetheless, as this section also points out, during the early 1990s the
business elite assumed a different and more responsible stance than that exercised
during previous years in which the various business groups used to oppose to all the
policies that did not directly promote their particular interests.
The triumph of Alberto Fujimori, an unknown candidate without any
organized party backing or business ties, in the presidential elections held in July
1990 was a unique opportunity in the Peruvian political arena. It was the first time
that a newly elected President had not had previous contact with business groups.
169

Carlos Boloña, Peruvian minister of finance from 1991-1993, notes that the
honeymoon period that any new president is handed during the first months of his
term to initiate reforms independently of the influence of interest groups had a
special connotation in the government of President Fujimori.
170
Since his opponent

168
Humberto Campodónico, “FREDEMO: tampoco recibe mandatos claros de los empresarios”
Quehacer no. 64, May-June (1990): 27.
169
In the IV Congress of the Private Enterprise held in October 1990, it was evident that the business
sector did not know much about the new Peruvian president. In fact, the private sector summit had
been held by CONFIEP in order to enable the business leaders to be introduced to President Fujimori
and his ministerial team (six months after the first round of elections and three months after Fujimori
had assumed power). Manuel Castillo, “IV Congreso Nacional de la Empresa Privada: Señores la
pelota esta en su campo” Quehacer no. 67, November-December (1990): 38.
170
Personal interview, Lima, October 19, 1999. See also Carlos Boloña, Cambio de Rumbo: El
Programa Economico para los 90 (Lima: Instituto de Libre Mercado, 1993), 20.
99

Vargas Llosa had been the favorite candidate of Peruvian business groups and their
two allied political parties, “the new government had precious time independently of
the economic elite to initiate a program of radical economic change.”
171

Indeed, in contrast to previous presidential administrations, when Fujimori
assumed power he was not beholden to any specific economic interest groups.
During the electoral campaign, the business leaders had not only refused to support
Fujimori but had directly attacked him.
172
As he felt he did not owe them anything,
Fujimori did not solicit their participation in the design of the stabilization program
and the reforms issued during his first administration.
During the electoral campaign, Fujimori had rejected the politics of shock
presented by his adversary Vargas Llosa.
173
Nonetheless, once in power and to the
surprise of all—especially the business elite—he adopted a stricter position in
economic policy than that portrayed by Vargas Llosa. The program of stabilization
launched as the first step towards the implementation of deep market reforms did not
include any sectoral policy nor, for that matter, was there any debate between the
business elite and the government over specific policies that were chosen.
174

171
Ibid.
172
The president of CONFIEP, Jorge Camet, had explicitly campaigned against Fujimori, arguing
against his “irresponsible improvisation” for not having a government plan in contrast to the serious
work of Vargas Llosa and FREDEMO that had carefully prepared a plan for more than a year and a
half. Manuel Castillo, “Realinamientos, sorpresas y responsabilidades en la clase empresarial”
Quehacer no. 66, September-October (1990): 47.
173
This does not mean, though, that Fujimori during his campaign had supported the status quo in
Peruvian economics. He had called for reforms, but declared he was opposed to a one-time draconian
fiscal adjustment, the so-called “shock.”
174
Efrain Gonzales de Olarte, El Neoliberalismo a la Peruana, Economia Politica del Ajuste
Estructural, 1990-1997, (Lima: Consorcio de Investigación Económica- Instituto de Estudios
Peruanos, 1998), 107.
100

This alienation of business groups by Fujimori especially regarding the
formulation of the reforms, contrasts with other Latin American cases in the 1990s.
For instance, in Argentina, Chile, and especially in Mexico, the directors of leading
conglomerates and the representatives of key business associations were directly
involved in government policy formulation.
175
In Perú, those tasks were delegated to
the technocratic team. It was only years after having initiated the reform program
that Fujimori included some business leaders in his cabinet.
176

During the first months of the Fujimori government, the business elite had a
mixed reaction of optimism, fear, and expectation. On the one hand, the government
was reducing the state expenses and cutting salaries, reforms that the business elite
strongly supported. On the other hand, however, Fujimori was not granting special
concessions in favor of the business elite. For instance, he made it clear that he
would not protect an industrial sector “accustomed to importing cheap inputs and
selling final goods in the domestic market at prices over those prevailing in the
international market.”
177

It is worth noting that despite the fact that the first reduction of tariffs applied
by the government did not coincide with the project presented by the SNI, this latter

175
See William Smith, Authoritarianism and the Crisis of the Argentine Political Economy, (Stanford,
CA: Stanford University Press, 1989), Sylvia Maxfield, Governing Capital: International Finance
and Mexican Politics, (Ithaca, NY: Cornell University Press, 1990) and Eduardo Silva, Op. Cit.
176
For instance, Jorge Camet, former President of CONFIEP, participated in the cabinet as Minister of
Finance, but only three years after the initiation of Fujimori’s government.
177
“My government wants for this country a competitive industry, therefore I am only going to give
you a little deadline.” With these words President Fujimori turned down the demands made by the
representatives from the SNI. Caretas, August 27, 1990.
101

accepted that policy.
178
Besides, in October 1995 CONFIEP organized its fourth
annual congress under the slogan “Toward a National Recovery” in which the
majority of business leaders showed optimism with respect to the economic program
initiated by the Fujimori government.
179

In February 1991 the government appointed Carlos Boloña as minister of
finance and charged him with designing a rigorous structural reform that as noted in
chapter 1, was based on liberalization, privatization, and deregulation of the
economy. According to Boloña, although the GEs led by the SNI attacked the
reduction of tariffs through the media, the toughest opposition did not come from
them but from those political parties that were not backed by the business elite and
constituted a minority in Congress.
180
Indeed, during this period, 90% of the public
communiqués, mainly from business associations, issued through the media
supported the new economic program.
181
Furthermore, opinion polls conducted
among the business elite sector indicate a large support for the reforms. (Table 29)

178
“Tariffs: The SNI and BCR Arrive upon an Agreement,” Caretas, September 3, 1990, 37.
179
Polls conducted at that summit by the consulting firm Cuanto S.A. indicated that to the question
“Do you think that the economic program is the most adequate to come out of the crisis?” 87.3%
answered yes (with some reservations) and only 4.9% answered that it was not adequate. To the
question “What do you think about the economic crisis?” 66% thought that the worst had passed and
the recovery was coming, and just 9.7% thought that the crisis would continue. Manuel Castillo and
Andrés Quispe, Reforma Estructural y Reconversion Empresarial: Conflictos y Desafios (Lima:
Cuadernos DESCO, no. 21, 1996), 44.
180
These were APRA, the political party of former president Alan García, and parties of the Left.
However, their attempts were not successful. Personal interview with former minister of finance
Carlos Boloña, Lima, October 19, 1999.
181
José Gonzales-Vigil, El Programa de Ajuste y los Agentes Económicos y Sociales. Una
Aproximación a partir de sus Pronunciamientos Institucionales (Lima: Universidad de Lima Serie
Investigaciones no. 9, 1993), 31-33. For instance, the Chamber of Commerce of Lima and the
Association of Banks emphatically applauded the so-called “reinsertion” of Perú into the international
financial system.
102

Table 29: CONFIEP’s support for Fujimori’s economic policy (As of June 1, 1991)
June 1991 1 2 3 4 5 (*)
Stabilization Program 16 74 1 6 - 3
Exchange Rate Policy 12 63 6 15 3 1
Tax Policy 11 43 9 30 3 4
Tariff Reform 29 55 5 9 - 2
Financial Reform 34 52 8 4 - 2
Labor Policy Reform 35 54 4 5 - 2
Reinsertion to financial
community
33 56 4 6 - 1
1 = Totally agree
2 = Agree
3 = Indifferent
4 = Disagree
5 = Totally Disagree
(*) Answer is not precise or clear.
Source: Perú Económico XIV, 6, June (1991): 12

From April to December 1992, the range of the reform program broadened.
Various business associations opposed some of the new policies, among them the tax
policies implemented between January and March 1992, and demanded a reduction
in the sales tax (IGV) and a more favorable exchange rate.
182
Likewise, businessmen
from various sectors of the economy recognized the accomplishments of the
government in controlling inflation, but complained about new macroeconomic
distortions that had increased the cost of production—for example, the high price of
financial and public (energy and oil) services.
183
Furthermore, they were
dissapointed with the lack of access to the higher spheres of government, in contrast

182
Carlos Boloña, “The Viability of Alberto Fujimori’s Economic Strategy,” in The Peruvian
Economy and Structural Adjustment: Past, Present and Future, ed. Gonzales de Olarte, 247-253.
183
The complaints came from both industrial and exporting sectors. On July 22 1992, the Asociación
de Pequeños Productores Mineros, Sociedad Nacional de Minería y Petroleo, Sociedad Nacional de
Pesquería, Asociación de Exportadores (ADEX), and Cámara de Comercio de Arequipa y Sociedad
Nacional de Industrias (SNI) made a common communiqué. On August 22, the Sociedad Nacional de
Exportadores also published a communiqué in this line. José Gonzales-Vigil, 41-42.
103

to the preferences given to foreign investors, and with what they saw as the
contemptuous treatment received from the executive branch and the technocratic
team who called them “mercantilists.”
184

The effects of market-oriented reforms on the Peruvian business elite
The present section highlights the fact that all, the GPE and the GE, were
seriously affected by the reforms applied by the Fujimori government. Likewise it
notes that in contrast to their counterparts in other Latin American countries, the
Peruvian business groups were not granted special treatment to cope with the
economic hardships proper to the initial phase of the reform program.
With respect to the GPE, the reduction of tariffs, the removal of non-tariff
barriers, and the elimination of transfers from the state to the private sector such as
subsidies, tax exemptions, and easy credit modified the previous system of industrial
privilege. Especially the initial trade liberalization, one of the most drastic of its
kind anywhere in Latin America, hit the manufacturing sector especially hard.
185

As a result of opening trade, competition from imported goods rose
abruptly.
186
Furthermore, the increase in production costs and the tax burden (which
represented 24% of the gross costs of production in the industrial sector) squeezed

184
Julio Cotler, Los empresarios y las reformas económicas en el Perú, Documento de trabajo no. 21,
Serie Sociología y Política (Lima: Instituto de Estudios Peruanos, 1998), 13.
185
Abugattas, 63.
186
For instance, imports of consumer goods increased more than fivefold from 338.3 million dollars
in 1990 to 1.85 billion in 1996. Abugattas, 65.
104

profit margins.
187
Especially the industrial sector criticized the trade reforms arguing
that added to the excessive tax burden, they diminished Peruvian firms’
competitiveness and discouraged new investments, especially given the strong
support offered by other countries to their national producers.
188

Nonetheless, despite their objections, the industrialists did not condemn the
whole new economic model. Rather, they demanded a higher and more differentiated
system of trade tariffs than those proposed by the policy team.
189
Likewise, in 1995
CONFIEP leaders confirmed that although their relationship with the government
was still distant, they continued supporting the core of the economic program.
190

With respect to the GPE, these were also largely impacted by the market-
oriented reforms. Since the majority of these had a significant part of their
investment portfolio in the industrial sector, the elimination of the model of
accumulation based on ISI caused them serious economic problems. By 1994 many
GPEs were on the brink of bankruptcy. Some industrial GPEs had to merge with
foreign companies to avoid going under completely, while others switched gears
altogether, abandoning industry to become importers.
For instance, the GPE Nicolini had for decades controlled the flour and pasta
industry and the Banco Sudamericano. However, as of September 1993, due to
constant delays in its payments, Nicolini was considered a “second-class” customer

187
Abugattas, 64-65.
188
Cotler, “Los empresarios y las reformas económicas en el Perú,” 22.
189
Caretas, November 11, 1991.
105

in the banking system and had to abandon industrial production and begin
importing.
191
The GPEs Raffo and Brescia had dominated the Peruvian textile
industry prior to 1990. The flood of imports, however, seriously undermined the
viability of their textile firms, making it impossible for them to meet their economic
obligations. The GPE Raffo continued operating but suffered significant financial
losses and had to leave the board of directors of the Banco de Crédito. Its main
textile firm, Tejidos San Cristobal, had to merge with others in order to survive.

As
for the GPE Brescia, its main firm, Tejidos La Unión (the head office upon which
other productive commercial assets depended economically), declared bankruptcy
and had to be liquidated because it could not adapt to the exigencies of the new open
market environment. Brescia was able to regroup because it retained control of some
of the country’s key mining companies, whose profits permitted it to reinvest its
capital in the Peruvian economy. The GPE Lanatta, whose major investment was in
the beer industry, lost an important share of the national market and had to open its
Compañía Nacional de Cerveza family-based shareholding system to other investors.
It also lost control of the Banco Mercantil. Even the main firms of the two most
important GPEs, Romero and Wiese, regardless of their leading position in the
banking sector, generated considerable losses. As of 1999, many GPEs were in

190
For three years, CONFIEP had been demanding the elimination of a special 2% tax on assets. It
was not until 1995 that the government agreed to lower this rate to 1.5%. See Durand, “Collective
Action and the Empowerment of Peruvian Business,” 272.
191
Unless otherwise noted, the information about the GPEs in the present paragraph is based upon
Pablo Sifuentes, “Dos años de la Reforma Financiera” Actualidad Económica 143, September (1993):
8-10.
106

trouble, had lost their position in the economy, or were in imminent risk of closing.
Among these were the GPE Picasso, Olaechea, and Galsky.
192

In contrast to their counterparts from other Latin American countries, the
Peruvian GPEs did not actively participate as buyers in the privatization process.
While in Mexico, Chile, and Argentina the national economic conglomerates bought
state-owned companies,
193
in Perú as noted in chapter 1, foreign buyers were the
main participants in that process. In some exceptional cases, private national capital
participated but in association with foreign investors, the latter being the largest
shareholders in these partnerships.
Because of their access to capital, those GPEs that owned banks were
certainly better placed than those that did not. Nevertheless, it was precisely their
significant links to the main Peruvian banks what exposed them to additional
adjustment costs when the Fujimori government issued financial reforms. As noted
in chapter 1, the new financial legal framework thoroughly deregulated financial
markets. This reform was initially well received by banking entrepreneurs because it
simplified the rules of the game, enhanced investor confidence in the banking
system, and promoted market transparency. Moreover, since the deregulation of the
Peruvian economy and the process of privatization affected the state-banking sector,
the number of banks fell from 23 to 17 in 1993. This situation benefited the private
banking sector, permitting the concentration of capital by Banco de Crédito and

192
Durand, “El 2000 y las opciones empresariales” Quehacer, no. July-August (1999): 41.
107

Banco Wiese, which together by 1994 managed 51% of banking deposits, compared
to 32% registered at the end of 1990.
194

However, the financial reforms also opened the market to foreign investment,
granting similar treatment to both national and foreign banks. Peruvian bankers did
not welcome this opening since they wanted to exclusively profit from the
speculative capital that the financial liberalization was attracting into this sector.
195

This time in contrast to the ease with which their particular interests prevailed during
the Belaunde government in the 1980s,
196
the GPEs linked to the main banks
unsuccessfully lobbied the Fujimori government to obtain changes in the bank
legislation that could better serve their own interests. The opening of the financial
sector to foreign investment brought an unprecedented level of competition for the
Peruvian banks.
Furthermore, the new banking law introduced the system of consolidated
supervision that had a particular effect on the GPEs. Prior to 1990, in an attempt to
confront distortions in the banking system and cope with hyperinflation, the Peruvian

193
See Schamis, Op. Cit. He states that privatization in Chile and Mexico was the key mechanism for
reshaping and consolidating private economic groups. Only large firms could buy state-owned
enterprises, and they even managed to appoint their own executives in certain policy making posts.
194
Pablo Sifuentes, “Balance y Perspectivas de la Contrarreforma,” Quehacer no. 90, July-August
(1994): 38.
195
Manuel Castillo, “Los empresarios, la doble lógica y las pugnas en el poder,” Quehacer no. 85,
September-October (1993): 41.
196
As mentioned earlier, in 1982 the GPE linked to the main banks had successfully lobbied the
Belaunde government and deterred the entrance of the foreign capital into the banking sector. In 1993
the Association of Banks (ASOBAN) lobbied the government to delay the new banking law that was
programmed to be enacted in October of that year. ASOBAN then tried to negotiate with the new
minister of economy Jorge Camet, to draft a new banking bill. However, the Peruvian bankers could
not delay the entrance of foreign banks. The government approved the “Ley de Instituciones
Bancarias, Financieras y de Seguros” (Decreto Legislativo 770) on October 30. Castillo, Ibid.
108

banks had used their branch offices to channel deposits to their own firms in other
sectors through the granting of special loans.
197
The new banking law, however, put
an abrupt end to such strategies, limiting the amount banks could lend for different
operations and the conditions under which the credits are granted.
198

In general, the radical version of economic neoliberalism that underpinned
the Peruvian reform process largely contrasts with the pace and magnitude of other
Latin American experiences. For instance, trade liberalization was carried out at high
speed, without a time frame that could permit individuals to adjust: in less than one
year compared with six years in Chile, four years in Mexico, and a longer and more
coordinated process in Colombia. With respect to sectoral policies, as Gonzales de
Olarte notes, they virtually do not exist in Perú. Even when in 1995 the government
established measures to promote certain sectors, these were not effective:
From 1995-1998 the government spent an average of 6.6% of the annual
budget for sectors that produce more than the 50% of the GDP. Such a
minimal budget does not permit the development of effective programs of
support to equilibrate the rigor of the macroeconomic policy in sectors less
productive and less capitalized, or the promotion of exporting sectors. The
lack of sectoral policies is equivalent to the lack of an export strategy towards
development.
199

In Mexico, however, the government created sector-specific programs that
bolstered the position of a small coalition of large exporting internationalized

197
According to Morris, until the end of the 1980s, the Peruvian financial system had been affected by
a series of distortions such as limits to the interest rates, freezing of deposits in foreign currency, and a
series of taxes to the financial mediation. Morris, 314.
198
Morris, 318-319.
199
Gonzales de Olarte, El Neoliberalismo a la Peruana, Economía Política del Ajuste Estructural,
1990-1997, 123-124.
109

firms.
200
Selected Mexican firms were sheltered both from true exposure to free trade
and domestic competition.
201
Likewise, in Brazil the state coordinated the economic
restructuring process and tried to remedy the consequences of the economic crisis.
202

Brazilian President Cardoso maintained selective support for vulnerable sectors and
tried to coordinate the influence of international and national capital.
203
In contrast,
in Perú the business elite was exposed to international competition without an
explicit strategy that could shape the transition to an open market system of intense
foreign competition.
In sum, previously and during the application of the main structural reforms,
the business elite did not have direct access to the Fujimori government. Any
pressure for protection by particular interests was ineffectual, as were efforts to
directly intervene in the policy-making process. Furthermore, many of the economic
reforms had adverse effects for the business elite. The privileged position that prior
to 1990 business leaders had occupied in the Peruvian economy, was restricted—and
in some cases totally eliminated—by the market reform program.

200
See in this regard Miguel Angel Centeno, Democracy within Reason: Technocratic Revolution in
Mexico, Op. Cit; and Manuel Pastor and Carol Wise, “The Origins and Sustainability of Mexico’s
Free Trade Policy,” International Organization no.48, Summer (1994): 466.
201
Schamis, Op. Cit.
202
Karla Lemanski-Valente, “The Cardoso Administration and Brazil’s Transition to the Third
Millenium” in Miraculous Metamorphoses: The Neoliberalization of Latin American Populism, ed.
Jolle Demmers, Alex Fernandez Jilberto, and Barbara Hogenboom (New York: Saint Martin Press,
2001), 99.
203
Initially Cardoso privileged MNCs generally and the auto industry specifically; later he actively
worked to include larger segments of the industrial community. See Peter Kingstone, Crafting
Coalitions for Reform: Business Preferences, Political Institutions, and Neoliberal Reform in Brazil
(University Park: Pennsylvania State University, 1999).
110

The Peruvian business elite’s reaction to the application of market-oriented
reforms
The present section evaluates whether the various Peruvian business groups
acted in line with the behavior portrayed in the literature on rent-seeking or instead
responded to the challenges imposed by the opening of the economy. I conclude that
in contrast to the system prevailing in previous decades, during the early 1990s the
business groups realized their gains in a context in which the economic policy
framework had not been formulated to satisfy their exclusive interests and demands.
During the early 1990s, the deregulation of the market, the simplification of
administrative procedures, and economic outcomes such as the dramatic decrease in
inflation and the stabilization of the economy, provided a more favorable context for
business transactions, new investment, and the expansion of existing projects.
Nevertheless, this situation cannot be used as evidence to inductively conclude that
the business elites directly benefited from their influence over policy change in Perú.
Krueger, Tullock, and Buchanan define rent-seeking as a series of activities
in which the resources devoted to influence public policy outcomes do not create
value beyond personal gains and thus constitute a deadweight cost and a waste of
resources.
204
In contrast, competitive profit seeking or entrepreneurship is productive
because it creates value materialized in new and improved products and hence
contributes to overall capital accumulation. An individual who invests in something

204
Ann Krueger, “The Political Economy of the Rent-Seeking Society,” American Economic Review,
64 (1974): 291-303. See also James Buchanan, Robert Tellison, and Gordon Tullock, Towards a
Theory of Rent Seeking Society (College Station: Texas A & M University Press, 1980).
111

that will not improve productivity but will raise his income because it gives him a
special position or monopoly power, is termed a rent seeker.
205

In Perú, the application of the ISI model was initially meant to promote the
development of incipient national industries. However, growing intervention of the
state in the economy granted public functionaries the power to make arbitrary
decisions that favored particular interests in the business sector. This system
encouraged business groups to lobby and fraternize with political leaders and
bureaucrats in order to obtain privileges and accelerate the administrative procedures
for defending their own interests.
That situation constituted a vicious circle that did not contribute to the
betterment of the economy or the improvement of productivity. Instead of acting as
an investment group, Peru’s business elite constituted “a pressure group”
206

accustomed to lobbying the government for special bylaws that permitted them to
profit from the transfer of gains from other sectors of the economy. Furthermore, the
majority of Peruvian businessmen did not invest the revenues obtained from their
privileged position so as to enhance the quality of their products and services.
Research conducted on the period from 1970 up to the mid-1980s suggests that the
majority of business elites did not show interest in modernizing and diversifying

205
Gordon Tullock, “Rent Seeking as a Negative Sum Game,” in Buchanan, et. al., 17.
206
Manuel Castillo and Andrés Quispe in Reforma Estructural y Reconversión Empresarial:
Conflictos y Desafios, Cuadernos DESCO, no. 21 (Lima: DESCO, Consorcio de Investigación
Económica, 1996), 28.
112

their firms toward industries with advanced technology or higher value-added.
207

Those sub-sectors that received disproportionate access to development loans from
the state performed poorly in terms of output and productivity growth.
208

Peruvian analysts representing diverse viewpoints agree that the way in
which the ISI model was implemented in Perú stimulated the search for favors and
personal wealth instead of productivity. As early as 1981 Richard Webb, a prominent
Peruvian economist and then director of the Central Reserve Bank, had observed that
“Perú is an economy with a high component of rent, from the top to the bottom.”
209

Later, during the end of the 1980s, Boloña proposed to privatize the private sector,
arguing that the ability of private firms to obtain profits was so strikingly dependent
on the state that they were functioning almost as public enterprises themselves.
210

Likewise, according to intellectuals from the Left the state had been captured by
private interests and weakened in its capacity to pursue collective national
objectives.
211
Others suggested that in order to have a truly free market economy, the
state would have to be de-privatized.
212

The market-oriented reforms implemented in 1990 abolished the special
concessions previously granted by the state. Analysts have found, however, that a

207
Denis Sulmont and José Távara, “Economía y Sociología de la Empresa en el Perú,” Lima October
1994, in El Perú frente al siglo XXI, ed. Gonzalo Portocarrero y Marcel Valcarcel, 255 (Lima: Fondo
Editorial Pontificia Universidad Católica del Perú) 1995.
208
For a detailed explanation, see Italo Muñoz, Development Finance Policies in Colombia and Peru
during the 1970s and 1980s, Ph.D. Thesis, University of California, Los Angeles, 1997.
209
Richard Webb, “Perú: Economia Rentista,” in Democracia y Economia de Mercado, 173-188
(Lima: Instituto Libertad y Democracia, 1981).
210
Boloña, Lecciones de Economía, 96.
211
Javier Iguiñiz, “En medio del volcán” Quehacer, no. 73 (1991): 18-24.
113

sizeable sector of the business elite rose to that challenge by pursuing
entrepreneurial strategies in the management of their firms.
213
In fact, during the
1990s many businessmen opened their firms to new investments, introduced
organizational flexibility, and assumed a more professional leadership role.
214

Parallel to these processes of capitalization, some firms opted for a strategy of
restructuring (reconversión productiva), which meant closing certain production
departments and becoming specialized in others where they had a comparative
advantage, or at least the possibility of building one.
215
Likewise, through mergers
and acquisitions, various economic groups tried to obtain a strategic position in the
market through specialization in only one or two cutting-edge sectors. Finally,
instead of sending their savings abroad (a common practice during previous
decades), Peruvian businessmen repatriated capital to invest in their own firms.
Much of the new investment (from repatriated capital and that obtained as a result of
mergers and acquisitions) was utilized in the acquisition of new technologies,
contributing to increase productivity.
216

Even though the reforms issued during the 1990s implied an uneasy process
of adjustment, industrial entrepreneurs appreciated the fact that, after 1990, instead

212
José Maria Salcedo, “Estado, Privatización, Democracia,” Quehacer no. 80, November -December
(1992): 50.
213
See Julio Cotler, 1998, Los Empresarios y las Reformas Económicas en el Perú, Documento de
Trabajo no. 91 Serie Sociología y Política. (Lima: Instituto de Estudios Peruanos, 1998); and
Teobaldo Pinzás, Respuestas empresariales al proceso de reformas en el Perú. Documento de
Trabajo no. 27 Serie Economía (Lima: Instituto de Estudios Peruanos, 1996).
214
Cotler, 1994, 14.
215
Ibid.
216
Personal interview with Luis Abugattas, Director of the Institute of Economic and Social Studies,
National Society of Industries. Lima, November 1999.
114

of concentrating their efforts on bureaucratic affairs, they could pay more attention to
the development of their firms.
217
Cotler’s research notes that in the new
macroeconomic context, Peruvian businessmen became more confident about the
possibilities of modern technology and determined to pursue the opportunities
offered by the global market.
218

With respect to the primary exporting sector, its growth during the period
1993-1997, stands out. For instance, the sector of metal mining, which grew 48.5%,
rebounded after seven consecutive years of decreased production, and fishing
boomed during 1993 - 1994 in 56%.
219
Export prices of the mining and fishing
industries rose considerably. However, this fact was determined by a favorable
international context of growing demand for primary products and not directly by the
Peruvian government. Although in 1992 the government did grant specific tax
incentives to the mining sector and this sector’s profits increased towards 1993, it
cannot be ignored that in 1993 the prices and demand for metals were significantly
high in the international market. It is also important to bear in mind that due to the
opening of the economy, foreign direct investment was mostly drawn to the mining
sector, which brought new technology and management that contributed to the
expansion of productivity.
220
With respect to the fishing sector, in addition to high

217
Personal interview with Drago Kisic, President of IPAE (Peruvian Institute of Business
Administration). Lima, September 22, 1999.
218
Cotler, “Los empresarios y las reformas económicas en el Perú,” 15- 18.
219
Felix Jimenez, El Modelo Liberal Peruano: Límites, Consequencias Sociales y Perspectivas,
Documento de Trabajo no. 184, (Lima: Pontificia Universidad Católica del Peru, CISEPA, 2000), 2.
220
José de Echavé, “Minería Peruana en 1993: Reactivacion con Crisis,” Actualidad Económica no.
51, Febrero (1994): 11.
115

international demand, there were climatic conditions that permitted the expansion in
production and thus in exports.
221
As noted by Jimenez, the increase in this sector
would have not been possible without the external factors aforementioned.
222

Consequently, the profits obtained by the primary exporting sector in the
early 1990s were mainly the result of favorable conditions linked to the international
market. As a matter of fact, in 1998, due to the impact of the Asian crisis that began
in 1997, after four years of unprecedented growth, Peruvian total exports decreased
by 16.1%. Those sectors most affected were the traditional exports, which fell by
22%.
223
Perú, like Chile, took a double hit from the Asian shocks, as these markets
consumed at least 20% of each country’s primary exports at the time.
It cannot be denied that still there were lobbies for state favors from some
business groups during the period 1990-1997. The SNI questioned some tariff
policies, and ADEX complained about high real interest rates, exchange rate
appreciation, and onerous taxes. The SNE (the traditional export sector) and
CONFIEP took an eclectic position, supporting the tariff reforms but making similar
demands for a more competitive exchange rate and lower taxes.
224

As noted by Haggard and Kaufman, “consensus does not imply stasis or the
absence of conflict: distributive struggles will always arise over policy.”
225
The
business elite is not a monolithic force, and thus divisions about economic policy

221
Jimenez, 12.
222
Ibid.
223
Jimenez,13.
224
Manuel Castillo and Andrés Quispe, El Estado Post-Ajuste, Institucionalidad, Estado, Actores y
Conflictos Empresariales, (Lima: DESCO, 1997), 118-124.
116

may always exist.
226
Nevertheless, the majority of Peruvian businesses abided by the
new rules. Their demands addressed only specific policy adjustments. Furthermore,
the government did not respond to their demands. It was not until 1997 (six years
after the issuing of the first wave of reforms) that in the context of financial
contagion from the Asian crisis, the government enacted policies that permitted
Peruvian firms to restructure their patrimonial debts, reduce some of their excessive
costs, and launch new commercial operations. However, the main thrust of the
economic program of reform was not modified.

Analysis of the business elite support for the Fujimori government’s economic
program
The present analysis seeks to scrutinize what motivated the majority of
Peruvian businessmen to support the application of market-oriented reforms. In this
regard it is crucial to ask how interest groups perceived the different strategies
available to them at this point in time. There is no doubt that business elites in Perú
supported the application of market-oriented reforms with their own economic
interests in mind. To deny this would be to expect too much from a social segment
whose main objective is to obtain economic gains. However, I conclude that a salient
point to consider regarding the conduct of the Peruvian business elite is that its

225
Haggard and Kaufman Ed, “The Politics of Economic Adjustment,” 36.
226
At the end of the 1990s, with the outbreak of economic recession, there were tensions between the
government and business and within the business group itself. See Moisés Arce, “The Sustainability
of Economic Reform in a Most Likely Case, Perú,” Comparative Politics April (2003): 335-354.

117

support for the reforms implemented during the 1990s was motivated by more than
particular and exclusive interests. I argue that the impact of the nationalization of the
banking sector (announced in 1987 by the García government) was the most critical
juncture for changing the attitudes of Perú’s business elite.
Especially since mid-1987 and Perú’s first bout with hyperinflation, business
elites had redefined the kind of policy framework that would best fit their interests
and acknowledged it was time to work in a different way than that to which they had
been accustomed. They realized that to succeed in the longer run, it was necessary to
give up benefits they had exclusively enjoyed and to accept policies that promote the
stabilization and restructuring of the economy.
With respect to those economic groups that from 1987 onward demanded
policy reform and supported the opening of the Peruvian economy, the obvious
questions are several. Why did a majority of the business elite opt to support a model
of economic development different from that one it had supported for decades? Why
did demands for change take so long to surface? Why did this happen at that specific
point in time? Long before the Fujimori government, the GPEs had had diversified
assets and could have succeeded under a market-oriented framework. Instead, the
GPEs pushed the governments of Belaunde and García to engage in clientelistic
relations and demanded policies that protected them from international competition.
It could be argued that the economic crisis was such at the end of the 1980s
that it led the business elite to retreat from their demands for protection. However,
the 1983 debt shocks that were suffered during the Belaunde government and the
118

economic crisis in Perú were also significant and considered equally extreme.
Nevertheless, the Peruvian GPEs did not demand a change in the fundamental
economic model of development at that time, nor did they actively oppose the
intervention of the state in the economy. On the contrary, as noted above the
business elite openly confronted what they named the neoliberal technocrats of the
Belaunde administration and demanded a reversal of the market reforms attempted at
that time. The complaints of some businessmen were so dramatic, particularly in
their demand for the establishment of an adequate industrial policy, that many
entrepreneurs in 1985 voted for Alan García, whose campaign had promised to
defend the internal market and to protect the national industry.
The fact that business elites opposed a softer version of market-oriented
reforms during the crisis-ridden Belaunde government only to accept much harder
measures in the 1990s makes it difficult to accept that economic crisis at the end of
the 1980s alone determined change in their policy preferences. In short, we are still
left to wonder what made the business elites decide that this particular policy –
market oriented reform-was the best available choice to combat the crisis.
In this regard it is necessary to take into consideration the impact that the
announcement of the nationalization of the banking sector had on the business elite.
The government’s decision to nationalize provoked a twofold reaction among the
whole business sector. First, it ignited hostility against the president and his political
party, APRA. Second, the business elite issued demands for policy change that went
119

beyond the devolution of the banks to their owners and were markedly different from
those that it had traditionally supported.
Although the nationalization directly affected both bankers and the insurance
companies, they were not alone in demonstrating against the government. Never
before had the business elite reacted against a government policy that did not affect
them directly with the degree of vehemence or cohesiveness that was deployed
during 1987 in their intense campaign against the nationalization of the banking
sector. The economic elite as a whole, represented by CONFIEP, were united in their
efforts with the Association of Private Banks (ASOBAN) to deter what was
considered to be an attack from the government not only against the bankers, but
against the system of private property in general.
From July 29, 1987 onward, the leading newspapers and magazines
published news about or communiqués from a variety of business and professional
organizations that opposed the nationalization of the banking sector and criticized the
government for its “intrusive stance” in the economy. Consider, for instance, the
following claims from some of these communiqués:
We are not a bank, a financial or broker firm, we are a media firm that
believes in free competition and political pluralism. We think that the
financial monopoly in the hands of the government would not be a guarantee
but a danger. . . . (Panamericana Television Channel 5, El Comercio, August
1, 1987)

The National Society of Industrial Fishing expresses its strongest rejection to
the nationalization of the banks, finance firms, and insurance firms. We
remind the public opinion that Perú lost its internationally recognized first
ranked position as a fishing country precisely because of a nationalization
120

measure like the one the government now wants to approve. (National
Society of Industrial Fishing, Oiga, August 10, 1987)

Absurd Nationalization. . . . There is not any mechanism in the whole world
that could give the people more assurance and tranquility than the private
insurance. . . . The agreement is based on the confidence given by the
insurance firm. Isn’t it absurd the nationalization of confidence? (CONFIEP,
Caretas, September 21, 1987)

To nationalize the banking sector means to concentrate more power in the
hands of the inefficient state bureaucracy, and exposes the country to a
dangerous risk, making that the Damocles sword will be over all the private
sector. (Association of Cargo Transportation, El Comercio, September 3,
1987)

Many other institutions published similar communiqués in the written
press,
227
and the outcry inspired a number of business groups to incorporate their
membership into CONFIEP. On October 15, 1987, CONFIEP approved the
incorporation of eight business associations, each of which represented numerous
firms, and publicly announced and described this incorporation as a sign of the unity
of the business sector against the government’s interventionist policies.
228

227
Among them, there were, for instance, the Industry of Cement, and the National Corporation of
Commerce. See La República, August 9, 1987. Even during the next months, more associations
continued adhering to the bold criticism against the government’s decision to nationalize the banking
sector. For instance, some of these were the Chamber of Commerce of Lima, the Confederation of
Commerce and Production of Perú, and the Peruvian Chamber of Construction, as well as the
Peruvian Association of Hotels, and the Society of Mining and Petroleum. See El Comercio, October
17, and October 21, 1987.
228
See El Comercio, “La Unidad Empresarial Crece,” October 17, 1987. The new members were the
Auto-motor Association of Perú (AP), Association of Civil Engineers of Perú (AIC), Peruvian
Chamber of Real State (CPBR), Peruvian Association of International Shipping Agents (APACIT),
Peruvian Association of Insurance Companies (APEPROSE), Peruvian Association of Poultry
Producers, National Association of Pharmaceutical Laboratories, National Association of Owners of
Pharmacies and Related Businesses (ANPROBIFP).
121

In contrast to previous experiences during which business groups had
approached the government regarding specific policies that directly affected them, in
1987 the business elite demanded larger macroeconomic reform. For the first time it
questioned the ISI model of economic development, demanding a new order
centered in the reduction of the state, the liberalization of the economy, and the
reinsertion of Peru into the international financial community.
The market-oriented economic ideas that had already been circulating in Perú
in some intellectual, business, and political circles since the end of the 1970s played
an important role in the new position assumed by the business elite in 1987.
229
In
fact, as explained in more detail in chapter 6, long before the nationalization of the
banking sector, some individuals and institutions had begun an assiduous campaign
promoting free-market ideas. At the outbreak of the nationalization, the criticism that
the promoters of market-oriented policy ideas had been making against the
intervention of the state in the economy was immediately embraced by the business
elite under the leadership of Vargas Llosa. As noted by Grompone, “For the first
time in Peruvian history the businessmen acquired an ideological project.”
230

It could be argued that the business elite’s ideological conversion to the free
market was ephemeral and strategically used solely to oppose the García
government. Certainly, as noted earlier, it was evident during the presidential

229
In following chapters I extensively discuss the deterioration of the national institutions and the free
space such a context left for the positioning of market-oriented policy ideas.
230
Romeo Grompone,“Al día siguiente: el Fujimorismo como proyecto inconcluso de transformación
política y social,” in El Fujimorismo, ascenso y caída del regimen autoritario, ed. Julio Cotler and
Grompone, (Lima: Instituto de Estudios Peruanos, 2000),102.
122

campaign of Vargas Llosa that the support for his market-oriented program was not
uniform among the members of the business elite. Nevertheless, the agreements were
more solid and encompassing than the disagreements. Most of the discord was
related to the pace and timing of the reforms, not to the core issues such as the retreat
of the state from the economy and the liberalization of the market. On balance, from
1987 onward, business leaders through CONFIEP supported economic liberalization.
Indeed, years before the application of market reforms by the Fujimori
administration, the business elite’s discourse was characterized by a particular
concern for much sounder macroeconomic policies and by the continuous praise of
the free market. For instance, the general manager of the Chamber of Commerce and
Industry of Arequipa had declared in 1988 that the structural cause of the crisis had
been “the failure in the conception and execution of the import substitution model of
development initiated during the 1950s.”
231
This line of argument continued in a
letter written by the SNI to the President of the Ministerial Cabinet: “It is not
possible to ignore the free market law, this is not invented by anyone but has a
permanent applicability because of the order that it implies.”
232
In his inaugural
speech, the new president of CONFIEP in 1989 claimed that there was in the
business sector a “deformation” that had subsisted since the years of the military
government and consisted of a great dependence from the state. He noted, “We have

231
Declarations by Stanley Simons to El Comercio, April 17, 1988.
232
El Comercio, “Carta Abierta al Presidente del Consejo de Ministros,” July 27, 1988.
123

to initiate a process of change that would permit us to become a modern free market
economy, which is the axis for a fair and free society.”
233

Moreover, during 1989 the CONFIEP’s office of research, together with the
consulting firm Apoyo, prepared a series of weekly reports under the title
“CONFIEP Propone: Una Visión para el Cambio” (CONFIEP’s proposal: a new
vision for change) that were published by the press. In these reports, Peruvian
businessmen raised pro-market arguments. For instance:
In contrast to the statist model of economic development there is that based
on personal freedom and individual creativity. . . . It guarantees an efficient
economy. The individual preferences of the citizens are raised in the market,
expressed in the supply and demand of goods and services. The result of the
free interaction of these forces is the production of the items people value the
most, because those are the ones people want to buy.
234

The forces of the market are the most efficient mechanism for the adequate
distribution of resources.
235

Likewise, as explained in chapter seven, CONFIEP, together with other
national and international institutions sponsored research by the Peruvian think-tank
Grupo de Analisis para el Desarrollo (GRADE) to design an economic policy
proposal for a sweeping program of stabilization and the reactivation of growth
based on market-oriented reforms. Although the reforms applied by Fujimori were in
many aspects harsher than the ones the business elite and Vargas Llosa had
proposed, the initial support of the business elite for policy change held steadily.

233
Discourse of Reynaldo Gubbins published in El Comercio, January 22, 1989.
234
Department of Communications, CONFIEP; Apoyo S.A.; Department of Reseach, CONFIEP;
Lima, 1989; also published in Caretas February 13, 1989.
124

CONFIEP continued working for consensus building and assumed a proactive policy
stance during the implementation and consolidation of market reforms.
236

Concluding Remarks
In this chapter I have argued that the conditions predicted by the interest
group approach were not present in the context of the dramatic economic policy
reforms implemented in Peru during the 1990s. First, the traditional access that the
economic elite had with former governments was blocked by the special
circumstances surrounding the election of President Alberto Fujimori in 1990. Once
in power and before he issued the structural adjustment program, Fujimori shunned
any special negotiations with business leaders and any other interest group. Second,
the economic reforms put an end to the special treatment that various administrations
had granted to privileged economic groups since 1960.
Given these anomalies, a simple conclusion might be that private interests did
not play a significant role with respect to policy change, or that the business
community passively accepted the imposition of economic reforms. However,
neither of these adequately captures the Peruvian reform experience. Especially
towards the end of the 1980s, as a consequence of the reaction against the

235
Department of Communications, CONFIEP; Apoyo S.A.; Department of Reseach, CONFIEP;
Lima, 1989; also published in Caretas February 20, 1989
236
In fact, Fujimori was reelected in 1995 with the almost unanimous vote of the businessmen.
Furthermore, this trend continued beyond Fujimori’s second term. Previous to the 2000 elections (in
which due to an illegal maneuver, Fujimori could launch himself as a presidential candidate for the
third time) the majority of the business sector believed that Fujimori offered the best guarantee for the
125

nationalization of the banking sector, a coalition between the business elite and
public opinion was very active in demanding change with respect to the intervention
of the state in the economy. Various economic groups raised the need to apply
market-oriented policies.
Thus, while business interests are an indispensable part of the explanation for
the adoption of economic reform measures, these were not the typical sectoral or
factional interests described by the interest group approach. Rather, the business
elite’s demands were related to the protection of private property rights and the
reorientation of the economy toward a more hospitable investment climate. But such
demands were not submitted through collusion between the reform team and
business leaders. Special circumstances in the Peruvian context at the end of the
1980s—related but not limited to economic crisis—oriented and prompted business
groups to reconsider their interests, and to seek new channels to push their demands.

continuity of the economic policy and for the country’s political stability. See Francisco Durand, “El
2000 y las Opciones Empresariales” Quehacer 119, July-August (1999): 38.
126

CHAPTER 4: ECONOMIC CRISIS AND ECONOMIC REFORM IN PERU

The aim of this chapter is to analyze the applicability of the reform-after-
crisis argument for explaining the Peruvian case of neoliberal economic reform. The
first section discusses the literature that addresses the issue of economic crisis and its
effects on economic policy change. Within this discussion particular attention is
given to the issue of inflation since many analysts considered this as the main cause
of policy reform. Furthermore, inflation was effectively a major problem affecting
the Peruvian economy during the late 1980s. In the second part, I analyze
specifically the reaction of several consecutive Peruvian administrations—from 1968
to 1992—to economic crisis. I highlight the fact that although the variable of
economic crisis has been present throughout this period, the various governments
responded with different policy remedies, turning to radical market-oriented reforms
not until August of 1990. I conclude that in the Peruvian case, the economic crisis
variable although important did not directly lead to the application of these reforms.

The Economic Crisis Argument
Political scientists define economic crisis as a situation of large-scale public
dissatisfaction or fear stemming from wide-ranging economic problems.
237

Gourevitch argues that hard times prepare the terrain for reform because they expose

237
For a comprehensive survey of economic theories of crisis and reform, see chapters 10 and 12 of
Allen Drazen, Political Economy in Macroeconomics (Princeton, NJ: Princeton University Press,
2000).
127

the weakness of current policies to scrutiny, motivating people to challenge these
policies and thus making it possible to construct new regulatory frameworks.
238

Similarly, Keeler points out that the size of the window of opportunity for
successfully acting on public policy initiatives is determined by the mandate that a
reformist government enjoys during an election and by the severity of the crisis
affecting the nation.
239
Drazen and Grilli posit that crises can in fact be beneficial
because they have the potential to increase the government’s willingness to attempt
remedial measures and to rally the public’s tolerance for them.
240

These positions have an important factual basis, as often the need for reform
does not become an issue unless current policies are not working and the related
problems impose more than the usual constraints. Furthermore, there is some
concrete evidence that reforms tend to follow crises. However, there are also cases
where serious economic crises have not generated the application of reforms,
especially reforms in line with a neoliberal framework. Moreover, in cases in which
reforms have been made, it is not always clear if there is a direct path between both
events and if the existence of crisis is sufficient for the initiation of reforms. Thus the
extent to which this crisis-based argument pertains has to be questioned.
As Haggard and Webb observe, the concept of crisis and its effects is much
more elusive than may first appear: “Not all countries recognize the same crises, and

238
Peter Gourevitch, Politics in Hard Times: Comparative responses to International Economic
Crises (Ithaca, NY: Cornell University Press, 1986), 9.
239
John T.S. Keeler, “Opening the Window for Reform. Mandates, Crises, and Extraordinary Policy-
Making,” Comparative Political Studies, January (1993): 436.
128

no theory has yet identified a crisis threshold that all nations would recognize.”
241
In
this regard, Perú is a case in point. Gonzales de Olarte has analyzed the economic
policies followed by this country from 1963 to 1990 and concludes that, regardless
of the high level of economic instability that characterized this period, the various
administrations applied economic adjustment policies with an average delay of one
and a half years.
242
Colombia presents an interesting contrast to Perú in this respect.
During the mid-1980s, Colombia was a low-inflation country,
243
and its external debt
was smaller than that of its neighbors and thus did not have to struggle as they did to
fulfill its obligations with the IFIs. Nonetheless, Colombia responded preemptively
to warning signals and economic difficulties, undertaking serious economic
adjustment measures.
244

Even when governments decide to initiate reforms, that alone does not
necessarily determine that those measures will fall within the neoliberal framework.
Krueger argues, for instance, that it took the debt crisis to convince many developing
country policymakers and economists of the inherent difficulties of reliance on ISI as

240
Allan Drazen and Vittorio Grilli, “The Benefit of Crises for Economic Reforms.” American
Economic Review 83 (1993): 598–607.
241
Haggard and Webb, “What Do We Know About the Political Economy of Policy Reform?” in
Modern Political Economy and Latin America: Theory and Policy, ed. Jeffry Frieden, Manuel Pastor
Jr., and Michael Tomz (Boulder, CO: Westview Press, 2000).
242
Efraín Gonzales de Olarte and Liliana Samamé, El Péndulo Peruano, Política Económica,
Gobernabilidad, y Subdesarrollo. 1963-1990 (Lima: Instituto de Estudios Peruanos, 1994),106.
243
See table of classifications by Stephan Haggard and Robert R. Kaufman, “The Political Economy
of Inflation and Stabilization in Middle-Income Countries,” in The Politics of Economic Adjustment,
ed. S. Haggard and R. Kaufman, 282 (Princeton: Princeton University Press, 1992).
244
See Barbara Stallings, “Politics and Economic Crisis,” in Economic Crisis and Policy Choice: The
Politics of Adjustment in the Third World, ed. Joan M. Nelson (Princeton: Princeton University Press,
1990), 149.
129

a growth strategy.
245
During the 1980s, however, few Latin American countries
attempted to apply some adjustments, and even fewer embarked on neoliberal
reforms.
246
Bolivia and Perú, for instance, had borrowed heavily during the 1970s
and encountered servicing problems in the latter part of that decade, years before the
rest of Latin America.
247
However, neither of these two nations, early casualties of
the so-called lost decade, abandoned the ISI model of economic development. It was
not until the mid-1980s that Bolivia directly tackled its economic crisis through
neoliberal reforms, while Perú took a totally opposite macroeconomic path under the
García government (1985-1990).
Furthermore, crises may sometimes constitute a serious obstacle for the
implementation of corrective reforms. On the one hand, they may prevent
governments from applying stabilization and adjustment programs that fall under the
neoliberal rubric; on the other hand, they may induce governments to reverse such
reforms that are already in place. Venezuela since the departure of Carlos Andres
Perez in the early 1990s aptly illustrates this latter point. Likewise, as described in
the following section, in Perú in 1983, the severity of the economic crisis ignited
protests from all levels of society against the mild market-oriented reforms the
Belaunde government had pursued since 1980. This situation shifted the possibility

245
Ann Krueger, Trade Policies and Developing Nations (Washington, DC: Brookings Institution,
1989), 33.
246
See John Williamson, “Latin American Adjustment: How Much Has Happened?” in The Political
Economy of Policy Reform, ed. John Williamson (Washington, DC: Institute for International
Economics, 1994).
247
See Manuel Pastor Jr., Inflation, Stabilization, and Debt: Macroeconomic Experiments in Perú and
Bolivia (Boulder, CO: Westview Press, 1992).
130

of extending these reforms and marked the beginning of the president’s lame duck
status. Belaunde had to reverse the reforms and his governement succumbed to a
damaging stint of policy gridlock.
Even among those analysts that have found evidence that crisis precedes
neoliberal reforms, there is no consensus regarding its relative importance. For
instance, although Nelson posits that crisis is a factor that may facilitate the shift to
neoliberal reforms, she questions its contribution to sustainability.
248
Likewise,
Remmer’s analysis of ten South American nations (Perú included) concludes that
although these had launched neoliberal reforms under circumstances of unusually
weak economic performance, higher average rates of inflation, and low levels of
international reserves, economic issues alone fail to account for the decision to
introduce the reforms.
249

An interesting issue related to economic crisis and the application of reforms
is that of inflation. Based on a war of attrition model,
250
some scholars maintain that
the costs and deteriorating effects of high inflation prompt faster agreements among
interest groups than would have occurred in its absence.
251
Thus, these scholars

248
In Williamson, The Political Economy of Reform, 472-473.
249
Karen Remmer, “The Politics of Neoliberal Economic Reform in South America, 1980-1994,”
Studies in Comparative International Development, 33, no. 2 (1998): 16.
250
According to Alesina and Drazen, the significant distributional implications of stabilization (e.g.,
tax increases to eliminate a large budget deficit) may prompt socioeconomic groups to shift the
burden of stabilization onto others. This process becomes a war of attrition in which each group
attempts to wait the others out. In this scenario, stabilization occurs only when one group concedes
and bears a disproportionate share of the burden. Alberto Alesina and Allan Drazen, Why Are
Stabilizations Delayed? American Economic Review, 81: 5 (December 1991): 1170-1188.
251
Drazen and Grilli arrived to the same conclusion when they extend the war of attrition model
emphasizing the possible benefits of economic crises. See Allan Drazen and Vittorio Grilli, “The
Benefit of Crises for Economic reforms,”American Economic Review 83, No. 3 (1993) 598-607.
131

argue, people accept the application of hard stabilization measures and perceive
these not as high costs, but rather as a route towards a better situation.
252

With respect to Latin America, some analysts have pointed to the high levels
of inflation as the impetus for the neoliberal reforms applied in the region. However,
the track record also shows that this is not always the case. In addition to the external
debt problem, during the period of 1980-1986, Argentina, Brazil, and Perú
confronted runaway inflation, which exploded into historically high rates in all three
countries, averaging 326.2%, 157.1%, and 100.1%, respectively.
253
However, none
of these countries at that time applied radical adjustment and neoliberal reforms
Since inflation has a tremendously negative effect on the economy, especially
on salaries and consumption, one might assume that an increasing inflation rate
would teach social actors about the dangers of the government’s fiscal profligacy and
uncontrolled money emissions. Yet as logical as this outcome may seem, it does not
always come about. The experience of hyperinflation in Perú during the 1980s
clearly demonstrates that.
Hyperinflation in Perú did not come suddenly, but took continuously rising
levels of high inflation and persistent application of erratic policies to occur.
254
The

252
Laban and Sturzeneger establish a two-period discrete-time model and argue that the larger
deterioration of the economy makes poor and rich agree to unfavorable terms derived from the
application of stabilization measures, terms that are worse than those they had rejected in the earlier
period of the economic crisis. Both rich and poor accept the application of the reforms due to the net
benefit relative to that of no reform. Cited by Allan Drazen, Political Economy in Macroeconomics,
(Princeton, NJ: Princeton University Press, 2000), 419-422.
253
Haggard and Kaufman, “The Political Economy of Inflation and Stabilization in Middle-Income
Countries,” 282.
254
As noted by Kiguel and Liviatan, the hyperinflation era was linked to excessive money creation in
1985 and 1986, which eventually led to an explosion in inflation starting in 1988. Likewise, the
132

common citizens were affected in that daily their salary was worth less at the end of
the day. Analysts discussed in specialized circles and in the media the dangerous
effects of increasing inflation and repeatedly pointed out that the way to combat it
was by reducing the fiscal deficit.
255
Despite the warnings, Perú experienced more
than one episode of hyperinflation during the late 1980s. Hyperinflation hit Perú in
the third semester of 1988 reaching a level of 2,615%. In August 1988, the BCR
issued reports stating that the high levels of inflation were intrinsic to government
policy during 1986 and 1987.
256
The president and his economic team did not pay
attention to these reports. In the fourth semester of 1988, hyperinflation reached
8,501% the highest point in Perú’s history to that time.
257

The outbreaks of hyperinflation did not prompt the Peruvian government to
change its expansive policies. On the contrary, the government emphasized these
policies even when Bolivia, a neighbor country that had initiated stabilization and
structural reforms within a neoliberal framework, was making news for quickly
bringing down hyperinflation from 8,170.5% in 1985, to 66% in 1986, 10.7% in
1987, and 11% in 1989.
258
The Bolivian authorities received not only the accolades
of the IFIs but also significant new credit flows. Nevertheless, Peruvian

hyperinflation outburst of 1990 was preceded by a large increase in seigniorage. Miguel A. Kiguel
and Nissan Liviatan, “Stopping Three Big Inflations (Argentina, Brazil and Perú)” World Bank Policy
Research Working Papers WPS 999, October (1992): 25.
255
For instance, in Perú various articles on this topic were published in the daily El Comercio as early
as May 1988. Since the first week of September 1988, analysts were already talking about
hyperinflation. See El Comercio, “En las puertas de la hiperinflación,” September 4, 1988; El
Comercio, “Hiperinflación y crisis fiscal se incubó en el 87,” September 5, 1988.
256
See Memoria Annual 1987, Banco Central de Reserva del Perú. Also see Revista “Moneda”
published by the Banco Central de Reserva del Perú, August 1988.
257
Kiguel and Liviatan,18.
133

policymakers during the mid-1980s did not attempt to emulate Bolivia’s reforms.
Some adjustments were attempted, but the expansive policies were not eliminated.
Hyperinflation continued its accelerating trend, hitting 3,398% in 1989.
259

Granted, hyperinflation is not the only concern of governments. Opting for
the application of policies that directly attack hyperinflation is not an easy decision.
Consumers and governments do not like inflation, but the fear regarding the
application of adjustment measures plays an important role in deterring policy
change. Hence, hyperinflation does not seem to be the direct cause for the acceptance
of neoliberal reforms. Additional factors have to be taken into consideration. Bruno
and Easterly, who have found a strong association between high inflation and the
application of stabilization programs in developing countries, suggest that although
economic reforms applied during the late 1980s and 1990s look like the children of
high inflation, further paternity tests should be in order.
260

Nevertheless, studies of the politics of economic reform point to economic
crises experienced in Latin American countries as the reason for their turn towards
neoliberal reform. Tommasi and Velasco have referred to “reform-after crisis” as
“the new conventional wisdom.”
261
Rodrik notes that the argument that crisis has
been the instigator of reform is so common in the political economic literature, that

258
See Manuel Pastor Jr., Inflation, Stabilization, and Debt, 6.
259
Following that trend, the inflation rate as of the end of 1990 was 7,650%. Carlos Boloña, Cambio
de Rumbo (Lima: Instituto de Economia de Libre Mercado, Lima, 1993), 65.
260
Michael Bruno and William Easterly, “Inflation’s Children: Tales of Crises that Beget Reforms,”
NBER Working Paper, no. 5452 (1996): 6.
261
Mariano Tomassi and Andres Velasco,”Where Are We in the Political Economy of Reform?”
Journal of Policy Reform, 1 (1996): 197.
134

when there have been cases in which an economy in crisis has delayed the
application of reforms, the frequent explanation has been that the crisis had not yet
become severe enough.
262

The study of the Peruvian case has not been an exception in this scholarly
trend. For instance, Iguiñiz notes that “the skyrocketing inflation, high
unemployment, and sheer chaos that were the legacy of the García administration
produced a 180-degree turnaround in public opinion across Perú’s social stratum.”
263

Even the technocrats who were in charge of the design and application of neoliberal
reforms during the first government of Fujimori stated that after the García
government, the point of departure was dire and thus there was no other viable
solution.
264
Boloña, former finance minister during the Fujimori government, notes
that “any significant progress attained in this area was due to the great economic,
social, and political crisis that the country experienced between 1988 and 1990.”
265

In fact, since the reforms in Perú were applied in 1990 in the wake of the
most severe stage of economic crisis, one might conclude that Perú’s jumping onto
the neoliberal bandwagon confirms the thesis about the direct influence of economic
crisis on policy change. Using the metaphor of Bruno and Easterly,
266
the neoliberal
reforms applied during the 1990s may be identified as the child of economic crisis.

262
Dani Rodrik, “Understanding Economic Policy Reform,” in Modern Political Economy and Latin
America: Theory and Policy, ed. Jeffrey Frieden et. al., 66 (Boulder, CO.: Westview Press, 2000).
263
Javier Iguiñiz, “The Difficult Moments of the Fujimori Economic Strategy,” in The Peruvian
Economy and Structural Adjustment: Past, Present and Future, ed. Gonzales de Olarte, 267.
264
Personal interview with former members of the economic team, Fritz Du Bois (Lima, November 3,
1999) and Octavio Chirinos (June 19, 2001).
265
Carlos Boloña, “The Viability of Alberto Fujimori’s Economic Strategy,” 247.
135

However, after a closer look at Perú’s economic performance during the twenty
years prior to 1990, one can conclude that this is not the case. If any family
comparison is applicable, these reforms might be considered the economic crisis’s
putative child but not its natural offspring.

The Peruvian Experience with Crisis and Reform
In the present section there is an account of Perú’s economic conditions that
prevailed during the period 1970-1990. It shows that as of 1990 President Fujimori
was hardly alone in confronting a deeply deteriorating economic situation. At the
time he assumed power “economic instability in Perú had become the norm.”
267

Likewise, this section highlights the fact that during this period economic crisis did
not ignite economic policy change towards the establishment of market-oriented
reforms, but instead the application of policies that disregarded fiscal discipline and
largely allowed the intervention of the state in the economy.
In fact, during the period 1970-1990, Perú not only had a high degree of
economic instability (one of the highest among South American countries)
268
and
increasing external debt that further complicated the management of its economy.
This unstable economic situation was also reflected in higher levels of political
instability. McClintock and Lowenthal note that, “For many years Perú has been a
country that perceives itself, and is perceived, as a country of unusually complex

266
Bruno and Easterly, 1996
267
Ibid, 106.
136

political, economic, and social problems—problems to which successive regimes
have proclaimed bold new solutions.”
269

Following some economic crisis arguments, it could be said that although
Perú had been adversely affected by economic crises since the 1970s, “none of these
had been severe enough” for any Peruvian government to opt for vast market-
oriented reforms until 1990. Though this argument may sound compelling, it is
worth considering that policymakers or the wider public may not be able to
accurately determine when the crisis is at its severest point.
Indeed, the analysis of the period under study shows that each president had
to confront an economic situation that, by Peruvian standards at that particular point
in time, was considered to be the worst crisis compared to those of previous years. At
each earlier juncture it was not surprising to find books, academic articles, and
editorial news describing the given period as without precedents when referring to
issues such as the fiscal or external gap, unemployment, inflation, and so forth. The
worries and expectations echoed by analysts and policymakers underlined the need
for an emergency plan to face what then was considered to be “the recent and worst
crisis.” However, it was not until 1990 that there was a substantial departure from ISI
and a vast neoliberal program was issued.

268
Efraín Gonzales de Olarte, El Péndulo Peruano, Politicas Economicas, Gobernabilidad y
Subdesarrollo, 1963-1990, (Lima: Instituto de Estudios Peruanos Lima, 1991), 107.
269
Cynthia McClintock and Abraham Lowenthal, foreword to The Peruvian Labyrinth: Polity,
Society, Economy, ed. Maxwell A. Cameron and Philip Mauceri (University Park: Pennsylvania State
University Press, 1997).
137

Economic crisis and ill-fated market-oriented reforms (1975-1985)
The worldwide oil crisis of 1973-74 had an adverse effect on Perú, which by
then was a net importer of petroleum. Public finances hit a dangerous disequilibrium:
the deficit of the non-financial public sector increased from 6.9% of GDP in 1974 to
9.8% in 1975.
270
The magnitude of the fiscal deficit was such that it had to be
financed not only with external loans but also internally. As a result, the inflation
rate accelerated, costing the BCR half of its international reserves in 1975 alone.
271

These economic problems brought about the increase in poverty and
marginality. Since wages had fallen, in the middle of economic crisis the labor sector
reacted vehemently. The number of strikes increased significantly compared to the
year 1968. The economic problems, combined with rising social conflict and tension
within the armed forces (there was an increasing factionalization with respect to the
political trend pursued by General Velasco) motivated Prime Minister General
Francisco Morales Bermudez to carry out a coup that put an end to the Velasco era.
The Morales Bermudez administration (1975-1980) began in the midst of
high fiscal deficit, growing external gap, accelerating inflation, and unprecedented
levels of unemployment and underemployment. Despite Perú’s deep economic crisis
and social turmoil, Morales Bermudez did not put an end to the economic strategy
established by his predecessor. Meanwhile, the inflation rate rose constantly: 24% in

270
Carlos Paredes and Jeffry Sachs, eds. Estabilización y Crecimiento en el Perú, (Lima: Grupo de
Análisis Para el Desarrollo GRADE, 1991), 86.
271
Paredes and Sachs, 88.
138

1975, 44.4% in 1976, and 73.7% in 1978.
272
Employment decreased from 54.1% in
1974 to 45.9% in 1978, while unemployment and sub-employment rates increased
from 4% to 7.2% and 41.9% to 46.9%, respectively.
273
Moreover, continuous
demonstrations culminated in July 1977 in the first national strike since 1919.
A significant change in economic policy would only start in the middle of
1978. Then the newly appointed minister of finance, civilian Javier Silva Ruete,
combined measures to reduce public expenditures and re-negotiate the external debt.
The non-financial public sector deficit was reduced from 9.7% of GDP in 1977 to
6.1% in 1978, and the inflation rate fell to 41.8% by late 1978.
274

By the end of the military regime in 1980, the economy improved due in part
to the adjustment measures but also because of the mineral price boom of 1978-
1979. Perú had by then become an exporter of petroleum, and between 1977 and
1979 revenues for the export of this product increased by 254% annually.
275
Besides,
the increase in the price of Perú’s primary product exports reached its peak. Net
international reserves grew, improving the balance of payments and public finances.
What happened during this period could be interpreted as a confirmation of
those studies that link economic crisis to policy change. It might seem that as of
1978 the severity of the economic crisis was such that it made the government
change previous policies and apply stabilization and adjustment reforms to confront

272
Banco Central de Reserva del Perú, Memoria 1982, 91.
273
Daniel Schydlowsky and Juan Julio Wicht, Anatomía de un Fracaso Económico, Perú 1968-1978,
(Lima: Universidad del Pacifico, Centro de Investigación, 1982), 42.
274
Paredes and Sachs, “Estabilización y Crecimiento en el Perú,” 92.
275
Ibid.
139

that crisis. However, the cause-and-effect relationship between crisis and reforms is
not that simple. Before arriving at any conclusions regarding the consequences of the
economic crisis of the late 1970s, there are important issues that have to be taken
into consideration.
First, the reforms implemented from 1978 to 1980 tackled only some aspects
of the economy (fiscal expenses and trade tariffs). The ISI economic framework was
not modified. Second, as explained below, the next administration initially sought to
extend the scope of these reforms, but it was precisely the advent of an economic
crisis that provoked a major detour toward the reinstallation of policies that
emphasized the intervention of the state in the economy.
In July 1980, the second government of Fernando Belaunde (1980-1985)
began facing a special window of opportunity. First, after twelve years of military
dictatorship Perú was undergoing a democratic transition in which the electorate
gave the new president and his political party a huge popular mandate. Belaunde
obtained 45.4% of the valid votes, which secured him a majority bloc in Congress.
Second, his election had a special connotation: since Peruvians had elected as
president the man who in 1968 had been expelled from power by the military coup,
this election meant Belaunde’s vindication and a victory for democracy.
Initially, the Belaunde government adopted an economic program that was
meant to open the economy. However, at the end it resulted in a mix of varied
policies. On the one hand, the discourse of the minister of finance outlined the
urgency of reducing inflation, liberalizing price controls, and opening the
140

economy.
276
In this regard, the government liberalized the internal and external
markets, promoted small-scale private ownership and increases in productivity, and
lifted the restrictions on direct foreign investment, especially in the energy sector.
On the other hand, however, in practice the government applied an expansive
fiscal policy. The cycle of foreign borrowing continued in order to support public
infrastructure projects that Belaunde considered his priority, such as low-income
housing, road construction and repair, and projects of development. Although the
president returned the press firms that had been taken by the military government to
their private owners, he did not privatize the hundreds of state-owned enterprises
created during the Velasco era. The initial projects regarding the modification of
policies in agriculture, the closing of development banks, and the removal of the
system of controlled prices were left alone by the president.
277

Belaunde had inherited a relatively ordered macroeconomic situation. Due to
the exporting boom and the adjustment reforms initiated in 1978, Perú had as of
1980 an important availability of international reserves and a positive current
account in the balance of payments. However, the inflation rate was increasing and
the public external debt had doubled compared to that of 1975.
278
In 1983,
exogenous and internal factors contributed to the advancement of a full-blown
economic crisis.

276
See for instance, declarations by Minister of Finance Manuel Ulloa in “Un País en Crisis
Económica Recibe el Nuevo Gobierno,” El Comercio, August 28, 1980, A1; “Liberación de Aranceles
No Tiene Influencia Negativa en Industria,” El Comercio, September 16, 1980, 13.
277
Personal interview with Roberto Abusada, Lima, July 2, 2003.
141

On the external front, the outbreak of the debt crisis and the international
recession of the early 1980s resulted in an abrupt cut of flows from international
institutions. This outcome made overwhelmingly difficult for the Belaunde
government to cover the constant external gap that had usually been covered through
external financing. Besides, since the prices for mineral exports plummeted in the
international market, the exporting boom that had partially benefited the Peruvian
economy in preceding years was over.
279

In the domestic arena, the combination of market-oriented reforms with
expansive policies gave rise to macroeconomic problems such as fiscal deficit, a
negative balance of payments, and an accelerating inflation rate. In 1983, inflation
hit 111.1%, and the GDP fall in 12%. (As seen in Table 9) Moreover, during 1982-
1983, flooding in the north area of the country and drought in the south damaged
domestic agriculture and fishing production, causing enormous economic losses.
With the eruption of the economic crisis in 1983, both labor and business
opposition increased. The economic problems, as well as the adjustment policies
applied to confront them, caused social strife. Popular frustration was reflected in
continuous demonstrations and strikes, and at the ballot box. In the 1983 municipal
elections for the mayor of Lima, the electors punished the government’s political

278
Roberto Abusada, “La Reincorporación del Perú a la Comunidad Financiera Internacional,” in
Abusada, et al., “La Reforma Incompleta,” 121.
279
The falling international prices of metals cost the country US$400 million in lost export revenue in
1982. With respect to manufactured goods, in November 1982 the United States imposed a 30% tariff
on imports of Peruvian Textiles. This effectively closed the U.S. market to Peruvian exports. Martin
Honeywell, The Poverty Brokers: The IMF and Latin America (London: Latin America Bureau,
1983), 84.
142

party by casting only 17% of the popular vote for Accion Popular.
280
Political
tensions within the government and its political party resulted in new appointments
in the ministry of economics, who reversed the mild market oriented policies.
Despite the various efforts to contain the effects of the economic crisis,
Perú’s economic performance did not improve. Furthermore, the external debt grew
considerably from nearly 9 billion dollars in 1980 to nearly 14 billion dollars at the
time Belaunde left office in 1985.
281
As noted by Saba, “Almost all sectors of the
Peruvian society–from the poor through the working and middle classes to national
entrepreneurs–were suffering as never before.”
282

In addition to the economic crisis and the related popular protests was the
problem of growing violence associated with the terrorist activities of the extremist
communist group known as the Shining Path (Sendero Luminoso). Since 1980, this
terrorist group had initiated what would be the bloodiest decade in Perú’s history. As
of 1985, over 10,000 people had died in the struggle, and, as a result, twelve
provinces had been completely militarized. Furthermore, the terrorist attacks against
infrastructure (roads, bridges, electric towers, and buildings) caused huge economic
losses. The economic crisis and the increasingly dangerous terrorist incursions put
Perú in social and economic chaos.
In sum, the experience of economic reform during Belaunde’ second term
can be described as the very opposite of those arguments that maintain that

280
Electors in Lima handed the victory to the candidate of the leftist party Izquierda Unida.
281
Felipe Ortiz de Zevallos, The Peruvian Puzzle (New York: Priority Press Publications, 1989), 15.
143

neoliberal reforms follow economic crises. During the first two years of this
administration, when there was relative economic stability and inflation was not yet a
critical issue, some market-oriented reforms and adjustment measures were
emphasized. Yet these reforms were mild, despite the fact that President Belaunde
initiated its term with a special window of opportunity and majority in Congress. As
of 1984, when the economic crisis was running out of control, the government
reversed such policies. Thus in this case, the economic crisis variable did not result
in the application of market-oriented policies but in their reversal.

García government’s economic policy: The worst the crisis, the more the
intervention in the economy. (1985-1990)
The huge economic crisis that marked the end of Belaunde’s term and the
large support the Peruvian electorate gave to Alan García and his political party
APRA in the 1985 elections opened for this government a particular window of
opportunity. According to the postulates stated by the political economy literature
that emphasize crisis as the cause of reform, as of 1985 the Peruvian context was
ready for the initiation of change in the direction of free market. Effectively, Perú did
in fact shift tracks at this time, but not in that venue.
García and his advisers thought that the reforms directed toward liberalizing
the economy applied by the governments of Morales Bermudez and Belaunde were

282
Raul Saba, Political Development and Democracy in Peru: Continuity in Change and Crisis
(Boulder, CO: Westview Press, 1987), 74.
144

the explanation for the deterioration of the economy. Therefore, one of the first
objectives of the new economic program was that Perú would revert to the more
radical inward-looking policies of 1971-75. Furthermore, between August 1985 and
December 1986, the García government applied and emergency plan that as noted in
chapter 1, was intended to expand demand through the increase of public spending,
fixed interest rates and prices, and a multiple exchange rate system. This plan
initially had good but artificial results that became evident as early as at the end of
1986. Although GDP increased, the policies associated with the expansion of
demand resulted in an increase in the fiscal deficit which in the absence of external
financing was financed by the BCR. International reserves diminished from
US$1383 million in 1985 to US$866 million in 1986.
283

During 1988, the government applied hard adjustment measures (so–called
paquetazos), that severely hit Peruvians, but did not attack the main problem, which
was fiscal deficit.
284
As a consequence, the economic situation worsened. By the end
of 1988, the negative indicators were alarming, in public investment (–32%), private
consumption (-7.9%), and exports (-8.8%). Besides, the external gap was 7% of the
GDP and the already diminished international reserves fell to US$60 millions.
285
The
social situation was in turmoil (in the second semester of 1988, there were 275

283
Parodi, 211.
284
For instance, the government reduced the subsidies to food products such as bread, oil, and rice,
that were consumed by the majority of the population. However, it did not reduce the expenses of the
state especially those of the state-owned firms, many of which were not profitable and during the
government of García had largely increased the number of their workers with members of his political
party. For instance, between 1986-1988, the number of workers in only 31 of the 224 state-owned
firms increased 20% (from 87,701 to 105,090). In this regard see Perú Económico, May (1990): 10.
145

strikes, the highest number since 1982), and the terrorist attacks of Shining Path
increased in number and cruelty. As of the end of 1989, the Peruvian economy was
in ruins. Inflation reached an annual rate of 3,398%. President García never
considered market-oriented reforms and a stabilization program in the line of the
IMF as a possible solution to the economic crisis. On the contrary, his government
attempted to face this crisis with the imposition of greater control over the economy.

Fujimori’s first presidential term: the application of staunch market-oriented
reforms (1990-1995)
Given the negative results of the García government in the economy, when
Alberto Fujimori assumed the presidency, crisis was undermining the possibilities of
the nation. However, his predecessors also had to face relatively similar challenges.
Nevertheless, as explained in detail in chapter 1, Fujimori initiated a strict program
of stabilization and market-oriented reforms.

Concluding Remarks
At face value, the chronological order of severe economic crisis in 1990 and
the application of radical neoliberal reforms from 1990 to 1993 would seem to be
causally related. However, a jump in economic policymaking of the magnitude that
occurred at the outset of Fujimori’s government, from one end of the policy

285
Parodi, 219.
146

continuum to the opposite one, does not automatically render economic crisis the
main independent variable. An obvious example of this is the fact that Perú has
experienced consecutive episodes of economic crisis, especially since the coup-
provoking turmoil of 1967-1968. Nonetheless, the variety of policy responses to
economic crisis shows that this variable did not have a uniform effect. The different
adjustment programs and related reforms issued over time were all over the policy
map, so to speak. Furthermore, in 1983, midway through the second Belaunde
administration, and from 1985-1990, during García’s government term, economic
crisis and outrageously high levels of inflation afflicted Perú, but such a situation did
not make these presidents or their constituencies support neoliberal reforms.
Furthermore, on occasion it was precisely the series of problems brought about by
the severity of the economic crisis–such as social unrest or political opposition—that
caused governments to retreat from the application of neoliberal reforms and
motivated the application of expansive policies. These facts confirm that although
economic crisis is an important condition for the application of neoliberal reforms, it
is simply not by itself enough.

147

CHAPTER 5: IFIs’LEVERAGE AND ECONOMIC REFORM IN PERU

The present chapter examines whether the economic reforms initiated in Perú
in 1990 responded mainly to the international financial institutions’ (IFIs) leverage
or reflected Peruvian policy makers’ own willingness to pursue market-oriented
reforms and to thereby agree with and apply the IFIs’ policy recommendations. To
address this question, the first section discusses some political economy literature
that considers the effect of the IFI’s leverage on developing countries’ policy choice.
Likewise, it briefly describes the loan agreements issued by the World Bank and the
International Monetary Fund. The second section gives a historical account of the
relationship between Perú and the IFIs during the period 1975–1990. The third
section focus on the Fujimori government’s stance with respect to the IFIs. It takes
into consideration the events that preceded both the application of economic reforms
by the Fujimori government and the signing of agreements with the IFIs. The
objective of the comparative analysis of the various Peruvian governments’ reaction
to the IFIs’ leverage in the present chapter, is to see if there is a distinctive factor that
could have motivated or impeded these governments’ following the IFI's’ policy
guidelines. Based on my observations, I conclude that although leverage was an
important factor in the Peruvian experience of economic reform, leverage alone did
not directly determine economic policy change. Furthermore, IFIs’ leverage did not
determine the pace and scope of the programs of stabilization and structural reform
of the economy applied by the Fujimori government.
148

Perspectives Concerning IFIs’ Leverage and Economic Reform in the Political
Economy Literature
With respect to the impact of IFIs’ leverage on economic reform the political
economy literature offers three perspectives. One affirms that the pressure of the IFIs
has held sway in stabilization efforts in developing countries. Another casts serious
doubts in this regard. A third position underlines the role played by domestic actors
and institutions, and affirms that without these actors’ firm decision to reform, the
IFIs cannot persuade the governments of indebted countries to apply the IFIs’ policy
proposals. In order to determine which position better describes the Peruvian
experience of economic reform, the present section reviews first the definition of
“leverage” and that of the main policy loan agreements issued by the IFIs. It
concludes that in the study of the Peruvian case it is necessary to take into
consideration domestic issues in the government’s option for policy change.
Stallings defines leverage as the direct use of power by means of a promise of
reward (or a threat of punishment) for carrying out (or not) a desired policy.
286
Since
leverage is most effective when resources are scarce, creditors are unified, and the
incentives they offer are credible, the best-known examples are the terms imposed by
the International Monetary Fund (IMF) and the World Bank (WB) in their loan
agreements.
287
These entail not only advice regarding economic policy, but also

286
Barbara Stallings, “International Influence on Economic Policy: Debt, Stabilization, and Structural
Reform,” in The Politics of Economic Adjustment, ed. Haggard and Kaufman, 55.
287
Ibid
149

conditions on targets and deadlines to which, given the lenders’ powerful position, it
is assumed the borrower countries will have to submit.
The IMF lends money to member countries with balance-of-payments
problems with the aim of stabilizing these countries’ currency and strengthening
their trade relations.
288
The Standby Arrangement (SBA) is short-term assistance
(typically twelve to eighteen-month period) that allows the member country the right
to draw money (provided the performance criteria are met) and make repayment
within three to five years. In 1974, the IMF introduced medium-term lending with its
Extended Fund Facility (EFF), which provides assistance usually for three years and
larger amounts than those allowed by the SBA. It is designed to correct balance-of-
payments difficulties resulting from structural problems. In 1986 the IMF added the
Structural Adjustment Facilities (SAF) and in 1987 the Enhanced Structural
Adjustment Facilities (ESAF), both which emphasize macroeconomic and structural
reforms, although the latter is specifically provided to low-income countries.
In general, the IMF-supported programs emphasize certain key aggregate
economic variables–domestic credit, public sector deficit, international reserves, and
external debt–and crucial elements of the pricing system–including the exchange rate
and interest rates–that significantly affect the country’s public finances and foreign
trade and the economy’s supply response. Along with its request for a loan, the
potential borrower has to present a plan of reform, including policies that, according

288
The present description of the IMF’s loan agreements is drawn from International Monetary Fund,
What is the International Monetary Fund?, in Lawrence J. McQuillan and Peter C. Montgomery, eds,
150

to the IMF, will eradicate the source of the payments difficulty. The IMF monitors
the application of the reform program.
289

With respect to the WB loans, initially these promoted long-term
development via project funding. However, at the onset of the debt crisis affecting
developing countries the WB’s role shifted from project-based lending to structural
adjustment.
290
In 1980, the WB created the Structural Adjustment Loan (SAL) to
support economic reform and in 1983 added the Sectoral Adjustment Loans
(SECAL), which are provided in return for specific reforms, such as privatization.
The WB conditionality includes measures to remove what the WB sees as
harmful state interventions in the markets for agricultural produce, energy, credit,
and foreign exchange. Generally, the WB makes SALs conditional on countries
having agreed to a stabilization program with the IMF. While the IMF’s conditions
tend to be quantified and are restricted to macro-economic targets, the WB’s are
more qualitative and negotiable, and since these deal with reforms in specific sectors
of the economy, the WB can influence policy making in more detail.
Various analysts believe that the IFIs, taking advantage of the Latin
American countries’ desperate need for funds, have forced these countries to
undertake strict adjustment programs and pursue market-oriented reforms. It is said
that the IMF and the WB have established the timing, scope, and content of the

The International Monetary Fund--Financial Medic to the World? A Primer on Mission, Operations,
and Public Policy Issues (Stanford, CA: Hoover Institution Press, 1999), 70.
289
Ibid.
290
The following description is based upon Paul Mosley, Jane Harrigan, and John Toye, Aid and
Power, The World Bank & Policy Based Lending, (London: Routledge, 1991, 32-45.
151

corresponding economic reform programs. For instance, George and Sabelli claim
that the IFIs’ unelected technocrats can effectively dictate much of a country’s
economic policy, “however much their rhetoric may try to disguise it.”
291
According
to Ugarteche, the application of structural adjustment policies based on neoclassical
theory of market perfection can be directly attributed to pressure from international
organizations.
292
Kahler points out that far more important than international
constraints (or “sticks”) are the inducements (or “carrots”) that IFIs offer to
reformers: external financial support constitutes an essential incentive for the
sustainability of reforms.
293

On the other hand, some analysts cast serious doubts upon the efficacy of
IMF conditionality in determining economic policy change in Latin America. For
instance, Remmer has found a negative linkage between IMF involvement in the
initial phases of reform and program durability. She argues that leverage measured in
sums of money flows, exercises a weak influence on the probability of initiating
market-oriented reform programs.
294
She notes that the most durable South American
reform programs— among which is the Peruvian one initiated in 1990—were
introduced independently of IMF conditionality agreements.
295

291
Susan George and Fabrizio Sabelli, Faith and Credit: The World Bank’s Secular Empire (London:
Penguin 1994), 161.
292
Oscar Ugarteche, The False Dilemma of Globalization: Opportunity or threat? (New York: St.
Martin's Press, 2000), 125.
293
Miles Kahler, “External Influence, Conditionality, and the Politics of Adjustment,” in Stephan
Haggard and Robert B. Kaufman, 89-135.
294
Karen Remmer, “The Politics of Neoliberal Economic Reform in South America, 1980-1994,”
Studies in Comparative International Development 33, no.2 (1988): 19.
295
Remmer, 23.
152

Finally, another position maintains that the large record of borrower
countries’ non-compliance with the IFIs’ policy-based agreements reflects these
institutions’ failure in enforcing their policy recommendations.
296
According to
Bandow, “Financial assistance is unlikely to be enough to persuade governments to
reform without the will to do so.”
297
Even analysts who severely criticize the IFIs’
lending policies and note the struggles these have caused in poor countries, have
arrived at similar conclusions. For instance, according to Green, structural
adjustment has not been imposed from outside on a passive Latin America; rather,
the important role played by the IMF would have never been possible without the
support of local economists and politicians and the perceived lack of alternatives.
298

With respect to the Peruvian case of economic reform implemented during
the 1990s there is the generalized opinion that the IFIs firmly committed to the
neoliberal agenda, have had unusual power and enjoyed a dominant position due to
this nation’s desire to return to the international financial community.
299
For
instance, Chossudovsky asserts that the IFIs forced the application of neoliberal

296
According to Bandow and Vasquez, “How else can one explain 17 different arrangements with
Perú between 1971 and 1977? . . . If a country violates its agreement with the IMF, the organization
may simply grant a waiver, modifying the previous conditions, or the Fund may suspend the loan,
only to later negotiate a new agreement, money will start to flow again, and the process will begin
anew. . . .” Doug Bandow “The IMF: A Record of Addiction and Failure,” in Perpetuating Poverty:
The World Bank, the IMF, and the Developing World, ed. Doug Bandow and Ian Vasquez
(Washington, DC: Cato Institute, 1994), 21.
297
Ibid. Also see Tony Killick, IMF Programmes in Developing Countries, Design and Impact
(London: Overseas Development Institute, Routledge, 1995), chapter 3.
298
Duncan Green, Silent Revolution: The Rise of Market Economics in Latin America (London: Latin
American Bureau, Research and Action, 1995), 23. Also see Teivo Teivainen, Enter Economism, Exit
Politics: Experts, Economic Policy and the Damage to Democracy, (London: Zed Books, 2002), 45.
299
See for instance, Shane Hunt, “The Current Economic Situation in Long-Term Perspective,” in The
Peruvian Economy and Structural Adjustment, Past, Present, and Future, ed. Efraín Gonzales de
Olarte, 59-120 (Coral Gables, FL: North-South Center Press: 1996); Teivainen, 112-123.
153

reforms and notes that after his meetings with the IFIs president Fujimori became
“An unbending supporter of strong economic medicine.”
300

I argue that although there were agreements through which the IFIs provided
policy guidelines and the promise of future disbursement of funds for Perú,
(depending on this latter’s economic policy) to affirm that the economic adjustment
was applied because the IFIs “forced” the government to do that is an overstatement.
Implicit in the affirmation that establishes leverage as the direct cause of economic
reform is the notion that the government and domestic social actors would prefer not
to follow the IFIs prescriptions but had to do so in exchange for economic rewards or
to avoid economic punishments.
301
Such a notion implies, first, with respect to the
government sphere, that President Fujimori did not want to follow those
prescriptions, and second, that regarding the social sphere, there was unified
opposition toward the IFIs’ prescriptions and the government had to impose pro-
IFIs’ economic reforms against popular demands. These assumptions, however, do
not correspond to the context prevailing in Perú prior to the application of those
economic reforms. The following analysis helps to put these issues in perspective.
302

300
Michael Chossudovski, The Globalization of Poverty. (London; [Atlantic Highlands] N.J.: Zed
Books; Penang, Malaysia : Third World Network, 1997), 200.
301
This premise is popular not only on mainstream political economy literature but also in analyses of
foreign policy of dependent states. In these latter it is known as “compliance notion.” Compliance
theorists formulate their hypotheses within the realist tradition of international relations and anticipate
that dependent states will develop foreign policy within the context of asymmetrical economic
relationships. Economic instruments from the core (for instance: trade, aid, investment, and credit)
and foreign policy behavior from the periphery are seen as bargaining chips with the hegemon-client
relationship. See a critic of this view in Jeanne A. K. Hey, “Foreign Policy in Dependent States,” in
Neack et. al. Foreign Policy Analysis, 201- 213.
154

Perú’s Economic Policy and the IFIs (1975-1990)
The present section notes that although during this period the IFIs pressure
for economic policy change was a recurrent constraint for Peruvian governments, it
did not determine these governments’ policy choices. In fact, during 1975-1990 Perú
and the IFIs held negotiations at various times, and it was precisely because the
various governments did not want to submit their policy decisions to the guidelines
set by the IFIs that in many opportunities these negotiations did not progress to the
signing of agreements. Other negotiations did and authorized important loans in
favor of Perú, attached to the application of specific economic policies. The various
Peruvian administrations, however, breached these agreements. Finally, in an
exceptional case in 1986, the confrontation with the IFIs negated the possibility of
new negotiations for four years. Although as of the end of his government President
García approached the IMF, he did not allow the application of economic reforms in
line with the IMF prescriptions.
Continuous breach of agreements with the IFIs (1975-1985)
During the Velasco administration (1968-75), net long-term Peruvian foreign
debt grew from US$737 million to over US$3 billion.
303
In 1975, as explained in the
previous chapter, the newly de facto administration of Morales Bermudez (1975-
1980) had to confront worrisome economic indicators. In such a context, the minister

302
I describe the position of the non-state actors in Perú with respect to the IFIs in chapter 7.
303
Thomas Scheetz, Perú and the International Monetary Fund (Pittsburgh, PA: University of
Pittsburgh Press, 1986), 126.
155

of finance received an unofficial visit from the IMF at the beginning of 1976 to
investigate the possibilities of negotiating a SBA.
Although Perú did receive a US$61.5 million special drawing rights loan
from the Export Compensatory Financing Facility,
304
the unofficial IMF visit did not
result in the signing of an SBA. At that time the IMF had required the application of
a stabilization program of very short duration (shock treatment) and opposed the
large expenses on arms the government was undertaking.
305
The Peruvian authorities
rejected such conditions and instead prepared a stabilization program that did not
include the IMF shock treatment but less rigid reforms directed toward gradually
stabilizing the economy. The private banks approved a loan agreement based on the
Peruvian proposal. Thus the government obtained the needed funds and avoided
having the IMF undercut the social reforms the military had applied since 1968.
306

Furthermore, the government on two more opportunities rejected the
recommendations of the IMF functionaries.
307

In 1977, however, the international private banks refused to refinance the
public external debt unless the IMF participated in signing a SBA with Perú. The
IMF required a drastic reduction of government deficit. Perú would have to eliminate
all subsidies, raise prices on commodities, reduce the budget deficit by cutting public

304
This is a low conditionality facility that provides financing to a member experiencing a balance-of-
payments need related to a temporary shortfall in export earnings.
305
Military imports had highly increased, representing 10% of imports in 1976 and 20% in 1977. Ibid.
306
The reversal of many of the policies established by Velasco if applied the adjustment prescribed by
the IMF had been one of the major reasons for the failure of the negotiations with the IMF staff
mission in early 1976. Scheetz, 135.
156

sector investment and selling off some public enterprises, increase taxes, eliminate
import restrictions, and limit wage increases. The Peruvian government did not
accept the IMF’s prescriptions, and thus the negotiations failed.
By August 1977, Perú reopened negotiations and finally arrived upon a SBA
in November of that year. Perú was supposed to increase revenues and decrease
expenditures in the midst of what at that time was considered “the worst depression
of the century.”
308
However, the conditions set by the IMF were overwhelmingly
difficult. The Peruvian government could not put into practice the agreed-upon
terms. With the exception of the ceilings on short and medium- term foreign debt,
the quantitative targets specified in the agreement were complied with for only a
three-week period in December 1977.
309

The inability of the Morales Bermudez government to follow the IMF’s harsh
prescriptions, added to the resistance by the ministerial cabinet to reduce defense
spending, made it impossible to control Perú’s fiscal deficit. In February 1978, the
IMF visiting staff mission declared Perú in large violation of the SBA.
In May 1978, without a specific agreement with the IMF, the Peruvian
government launched a major stabilization program directed at significantly reducing
the fiscal deficit. This austerity program was later supported by negotiations with the
IMF mission that concluded in the signing of a SBA. In contrast to what had

307
For a detailed description, see Augusto Alvarez Rodrich, La Experiencia Peruana en las
Negociaciones Internacionales, (Lima: GRADE, 1990).
308
Scheetz, 141.
309
See Adolfo Diz, “Economic Performance under Three Stand-by Arrangements: The Case of Perú,
1977-1980,” in IMF Conditionality, ed. John Williamson (London: MIT Press, 1982).
157

happened in prior negotiations, this latter agreement included the demands set forth
by the Peruvian government. In the words of former minister of finance, Silva Ruete,
We denounced the agreement with the IMF [signed in 1977] because given
Perú’s economic situation, it was impossible to follow its prescriptions. . . .
We elaborated our own economic program. Then upon this basis we
negotiated the agreement with the IMF [in September 1978]. At that time,
Perú was the only country facing an extreme debt crisis in Latin America,
and there was not yet in the region the solidarity that emerged during the
1980s when all the countries were experiencing the debt problem.
Consequently, it would have been a bad decision to break relations with the
IMF. However, we initiated negotiations maintaining our own diagnostic and
proposals.
310

In fact, while in 1977 the IMF had negotiated agreements that reflected its own
prescriptions, setting highly difficult conditions that Perú could not deliver, in 1978
the basis for the negotiations was the financial program drafted by the Peruvian
authorities.
311
The negotiation with the IMF concluded successfully with the
inclusion of terms very favorable for Perú.
312
Scheetz, who has criticized the role of
the IMF in its negotiations with Perú, recognizes, however, that there was “a
surprising turnaround in the Fund’s approach to Perú between May and August of
1978.”
313
The terms agreed to in 1978 were softer than those of previous agreements,
especially regarding the percentages and deadlines for fiscal deficit reduction.
314

Likewise, at the end of 1978 the periodical Perú Económico noted that

310
Personal interview with Javier Silva Ruete in Lima, October 27, 1999. Also see Javier Silva Ruete,
“1978-1988: Entre las Crisis,” Debate X, no. 5, May – June (1988): 8-10.
311
Alvarez Rodrich, 1990, 64.
312
Personal interview with Javier Silva Ruete in Lima, October 27, 1999. Information in this regard
can also be found in his book Yo asumí el activo y el pasivo de la Revolucion, (Lima: Centro de
Documentación e Información Andina, 1981).
313
Scheetz, 144.
314
Ibid.
158

When the contemporary economic history of Perú will be written, 1978 will
be reported as the year in which it was possible to avoid the default in the
payment of the external debt, an outcome that at moments seemed to be
imminent. . . . The agreement with the IMF constituted a success. The main
negotiators—the President and the General manager of the Central Reserve
Bank—achieved something that until that opportunity had been impossible to
achieve: they convinced the IMF team of the need for a gradual
adjustment.
315

In 1980, due to the exceptionally favorable international prices of Perú’s
mineral exports, Perú had, after four years of deficit, a positive trade balance.
Nonetheless, the newly elected Belaunde government opted for enhancing the
market-oriented framework initiated by his predecessor in 1978. This was not in
response to the pressure of the IFIs, but a deliberate attempt by the minister of
finance, Manuel Ulloa, and his advisory team to reduce the intervention of the state
in the economy and permit the free flux of goods and capital.
316

Despite the exporting boom, the external debt service constituted a serious
problem. It had climbed to US$9 billion and represented 37.1% of the export
income. Furthermore, since interest rates were rising, servicing the external debt was
consuming 55% of export revenue, bringing about an increasing external
unbalance.
317
In early 1982, at the very outset of the debt crisis, and when the
exporting bonanza was ending the Peruvian government approached the IMF and
negotiated an EFF agreement. Perú could not accomplish the agreed-upon targets.

315
Cited by Scheetz, Ibid .
316
Personal interviews with former members of Ulloa’s economic team Roberto Abusada (Lima, July
2, 2003) and Maria Jesús Hume (Lima, July 2001).
317
Paredes and Sachs, 92.
159

In 1984, Perú desperately needed funds but could not renegotiate the EFF
program it had breached. As a result, it had to negotiate a SBA with the IMF that
required the application of strict adjustment measures. The government initially
abided to the IFI’s recommendations. However, the Peruvian fiscal gap created by
the external debt service constituted an insurmountable obstacle for the application
of the SBA terms. Besides, the economic program agreed to with the IMF had
brought about discontent within and outside the government. Congress decided to
freeze some prices, the BCR applied a rate of devaluation below the level established
in the IMF program, and the interest groups who were supported by members of the
executive and the president’s political party strongly opposed the adjustment policies
applied by the government’s economic team.
318
Pressured by these domestic
constraints, President Belaunde retreated from the application of the IMF
requirements and declared a unilateral moratorium on Perú’s external debt.
319

Open confrontation with the IFIs and breaking of institutional relations (1985-1990)
In this period, the government of Alan García adopted a confrontational
position with the IMF. In his inaugural presidential speech on July 28, 1985, García

318
Furthermore, Belaunde himself did not restrict his decisions to the conditions set by the IFIs.
Despite the fact that the agreement with the IMF that Minister of Finance Rodriguez Pastor had
negotiated in 1984 demanded budget cuts, Belaunde invested external funding on projects of long-
term maturation and dubious profitability. APOYO, “Cinco errores para no repetir,” Perú Económico,
August 1985.
319
This made it difficult to the Belaunde administration to re-finance Perú’s external debt with the
commercial banks or with the official agencies of the OCDE countries. Part of the external debt went
unpaid and led to an accumulation of arrears. Drago Kisic, “Negociaciones Financieras Externas del
Perú,” in Entre la Heterodoxia y el Ajuste, Negociaciones Financieras Externas de America Latina
(1982-1987), ed. Roberto Bouzas, 259. (Buenos Aires: Grupo Editor Latinoamericano, 1988).
160

severely criticized the IMF and announced that his government would not accept
impositions in economic policy making from functionaries of a “cold international
institution.”
320
Furthermore, he unilaterally limited the service payments of Perú’s
medium- and long-term public debt to no more than 10% of annual export earnings.
President García defined the external debt as an expression of the last stage of
dependency in the relationship between rich and poor countries. According to
García, in contrast to previous dependency stages in which the poor countries
exported material goods to the rich countries, during the external debt phase the
credits obtained by the poor countries were used only to pay past loans. Thus, he
affirmed, the circulation of that money only produced fictitious interests not related
to any work or production of material value, but to financial rentism, the
unproductive phase of the unfair dependency poor countries had been submitted to.
García’s decision to delay and reduce the payment of the external debt had a
twofold objective linked to his aspirations in the international and domestic arenas.
He wanted to have a protagonist role in the non-aligned countries’ movement that
was pressuring the IFIs to grant more favorable terms for the payment of these
countries’ external debt. Likewise, he aimed to avoid having the external debt
payment as an impediment for his plan to reactivate Perú’s economy.
In contrast to Belaunde, who had presented the moratorium as an involuntary
suspension of the debt payments, García deliberately declared this as an essential

320
The following description of García’s position regarding the developing countries’ external debt is
based on Alan García, El Desarme Financiero (Buenos Aires: Ediciones BSA, 1989), 43-74.
161

part of his economic policy and of his political objective “against occidental
imperialism.” He postponed the payment of the public external debt until February
1986
321
and deliberately set priorities that discriminated among creditors with an
evident disregard for the IMF. For instance, not all the external creditors were
included in the 10% limit, but only those that according to García had imposed on
Perú more strict conditions than average, or those that were not considered
strategically important.
322
Furthermore, in July 1986, García included some of the
obligations that the BCR had with the IMF under the 10% limit he previously had set
for the payment of the external debt
323
and unilaterally suspended Perú’s payments to
this institution. As a result, the IMF declared Perú inelegible for new credits.
In the various actions that followed, the Peruvian government pervasively
continued in its confrontational position with the IMF without taking advantage of
the somewhat favorable context that the country had in the external front. In fact,

321
The payment of the external debt was later postponed in February 1986, and again on two other
occassions.
322
For instance, the debt owed to the Socialist countries was serviced. As noted by Ugarteche, those
countries provided an important part of the floating of airplanes and tanks for the Air Force and the
Army. Therefore, in order to maintain the provision of such products, it was important to pay the debt
owed to these countries punctually. Oscar Ugarteche, “El Perú: La Deuda y el Ajuste,” in Deuda
Externa, Renegociación y Ajuste en América Latina, e. Stephany Griffith Jones, 201 (Mexico D.F.:
Fondo de Cultura Económica, 1988). With respect to the commercial loans, the reduction of payments
was severe. From 1985 to 1988, without the 10% limit from the total debt of US$14.000 million,
Perú would have had to pay 9.000 million. Instead, Perú paid only US$1.865. Regarding the
syndicated loan owed to commercial banks, during those forty months Perú would have had to pay
US$3.000. Instead, only 17 million were paid. Alan García, El Desarme Financiero, 19-20.
323
As explained by Drago Kisic, due to their peculiar nature, technically the acquisitions the BCR had
to do in order to pay obligations it had with the IMF were not part of Perú’s external debt. They did
not correspond to the public sector, and for their execution they did not require a specific account in
the public budget. Nevertheless, García included these acquisitions in the 10% limit, and as a
consequence the BCR could not fulfill its obligations with the IMF. Not surprisingly, the IMF
declared Perú inelegible for the use of the IMF’s general account resources. Personal interview with
162

despite the confrontational attitude García had assumed against the IFIs, the U.S.
government had motives to give special consideration to the Peruvian government.
Besides the increasing guerrilla problem in Perú, the sensitive issue of Perú’s first
democratic presidential succession in forty years, in which García was one of the
main two protagonists, was an important factor contemplated by the United States.
324

Nevertheless, the García government did not ponder this situation. In the opinion of
analysts of Peru’s external debt problem, if there had been a propitious time in which
the García government should have negotiated with the IFIs, it was probably the
1986 annual IMF-World Bank meetings.
325
However, that opportunity was lost
because the Peruvian delegation in these meetings reiterated the president’s debt
stance with the use of ample anti-imperialist rhetoric.
326

In 1987, the government not only suspended payments to the IMF, but also
those owed to the World Bank and those related to Peru’s medium- and long-term
private debt. Furthermore, Perú’s economic policy could not be more distant from
that prescribed by the IMF. García openly rejected the austerity measures included in
the agreements that prior to 1985 Perú had signed with the IMF, and increased fiscal
deficit and trade restrictions. He declared that he would not tolerate the reduction of
salaries and public investment as a solution to Perú’s economic problems.
327

Drago Kisic, Lima, September 22, 1999. For a detailed explanation of this matter, see Drago Kisic,
“Las Negociaciones Financieras Externas del Perú en el periodo 1982-1987.” Op. Cit.
324
Carol Wise, Reinventing the State: Economic Strategy and Institutional Change in Perú, 184.
325
Personal interview with Drago Kisic, Lima, September 22, 1999, and Richard Webb, Lima, August
5, 2003. Also, see Carol Wise, Reinventing the State, 184.
326
Ibid. Also see Kisic, 260.
327
El Comercio, May 22, 1988.
163

In its attempt to act independently from the IMF, during 1988 the government
applied three economic adjustment programs. These were not negotiated with the
IMF, and thus did not contemplate drastic reduction of the fiscal deficit, but included
some of the IMF standard adjustment measures such as increase in prices and some
cuts in government expenditure. As noted in chapter 4, despite the tremendous
sacrifice for the population, these partial adjustments did not have positive effect in
the economy. Regardless of the failure of its own tailored adjustment programs, the
government did not initiate an official approach to the IFIs.
President García maintained its confrontational attitude with the IMF despite
the fact that as of 1988, this latter had approved a strategy of cooperation directed to
help countries extremely delayed in their external debt payment. The condition set by
the IMF was that these countries agreed to apply adjustment programs and structural
reforms under this institution’s policy guidelines. Countries such as Vietnam,
Guyana, Zambia, and Somalia had accepted that initiative, and Poland had initiated
negotiations with the IMF to do the same. During the annual meeting held by the
IMF in Berlin in 1988, Abel Salinas, the Peruvian minister of finance, made some
informal arrangements to participate in the strategy of cooperation. Together with
functionaries from the IFIs, ECLAC, and independent economists from Perú, Salinas
worked in the elaboration of an economic program along the lines of the IMF’s
prescriptions. However, García and his closer advisors blocked the possibility of
pursuing formal negotiations. They modified the project elaborated by Salinas since
they believed it included drastic measures that implied a high social—and political—
164

cost.
328
Minister Salinas resigned and was replaced by Carlos Rivas Davila, an
economist who shared García’s position regarding the IFIs.
From 1988 onward, the IFIs
329
as well as Peruvian analysts and politicians
continuously warned the government of the perils of applying gradual economic
adjustments and of the need to reinitiate negotiations with the IFIs.
330
Even some
members of APRA, the political party of the president, and the vice president himself
believed the moment had come to approach the IFIs.
331
In January 1989 during the
visit of the newly appointed Peruvian minister of finance to the IMF, this institution
required an economic program and a plan to initiate Perú’s delayed payment of its
external debt.
332
However, President García did not deliver the requested program.
He persevered in his initial position, claimed that he was proud of being a “solitaire
gladiator for Latin America,” and blamed the Latin American right and the IFIs “for
lying about the real causes of Perú’s economic problems.”
333

328
El Comercio, January 20, 1989.
329
According to World Bank functionaries, Perú’s fiscal and quasi-fiscal disequilibrium that ascended
to 18% of the GDP was intolerable. See “Hiperinflación puede ser el precio de aplazar el ajuste.” El
Comercio, November 1, 1988.
330
For example, that was the opinion expressed by Congressmen Sandro Mariátegui from the political
party Acción Popular in “Medidas Económicas fracasarán sin ayuda financiera externa” and Luis
Heysen from APRA in “La reinserción del Perú en el mundo financiero demanda diputado L.
Heysen,” El Comercio, September 6, 1988. Also see Guido Pennano, “Qué pasará después de los 120
días?” and Luis Bedoya, “Implantan plan estricto económico,” in El Comercio, September 8, 1988.
Senator Lastenio Morales, “Hay consenso para volver al FMI,” El Comercio, December 4, 1988.
331
Senator Lastenio Morales claimed that the APRA congressmen agreed on Perú’s return to the
international financial community and to the IMF. El Comercio, December 4, 1988. Likewise, Vice-
President Luis Alberto Sanchez stated that he supported the application of an economic program with
“shock” corrective measures such as those prescribed by the IMF. El Comercio, January 28,1989.
332
Perú’s arrears to the IMF, the World Bank, and the Interamerican Development Bank (BID) rose
respectively to more than US$ 700 million, more than US$ 400 million, and to US$ 20 million.
“Rivas vuelve con las manos vacias” El Comercio, January 20, 1989.
333
“Alan García afirma que continuará con ajuste gradual,” El Comercio, January 26, 1989; and
“Presidente García dice que hay programa económico,” El Comercio, January 28, 1989.
165

During December 1988 and February 1989, Anjur Sengupta, special assistant
to the manager director of the IMF, visited President García to talk about the
possibility of Perú’s participation in the special program created for helping debtor
countries pay their debts to the IMF. However, the conversations did not end in any
specific project.
334
Later, an official communiqué of the ministry of finance
announced that Perú would not apply the IMF’s adjustment measures and blamed the
country’s economic problems on the developed countries’ policies oriented toward
covering their fiscal deficit at the expense of the less developed countries.
335

Given the fact that the Peruvian government continued pursuing its unilateral
decision of non-payment adopted in 1985, the IMF, following its statutes, initiated
the process to expel Perú from this institution. In order to avoid this plausible
outcome, in December 1989 the García government took the first step to normalize
its relationship with the IMF, effectuating the payment of US$ 42 million.
336
The
IMF offered to make the necessary arrangements with potential lenders in order to
facilitate a bridge loan in favor of Perú if the government would apply an economic
program to correct the fiscal deficit and establish structural reforms to liberalize its
economy. Even though at this point García had accepted to pay part of Perú’s
external debt, he did not initiate market-oriented reforms.

334
El Comercio, August 29, 1989.
335
Official communiqué of the Minister of Finance, April 29, 1989. El Comercio, April 30, 1989.
336
The US$42 million corresponded only to the payments not effectuated during the period of
September-December 1989. The total sum owed to the IMF was approximately US$800 million. As
166

The Fujimori Government: Reforms Beyond IFIs’ Expectations
The present section describes the relationship between the Fujimori
government and the IFIs, and pays special attention to the important decisions taken
by Fujimori as soon as he was elected president. The findings show that even before
Fujimori formally began his presidential tenure and previously to his approaching the
IFIs for economic support, he had opted for the application of reforms that coincided
with the IFIs’ guidelines. Likewise, the analysis highlights that Fujimori’s
willingness to reform was crucial in determining Perú’s economic policy change.
The search for an economic policy program
When Fujimori came in second place in the elections held in April 1990, he
did not have an economic program. Then he recruited economists such as Santiago
Roca and Adolfo Figueroa, among others, who shared a neo-Keynesian approach. In
less than one week they prepared a rough outline that Fujimori opportunely utilized
as his policy agenda to present himself as the candidate of the no-shock approach in
a public debate with his electoral adversary Vargas Llosa at the end of May 1990.
337

Once Fujimori was elected president in the second round of elections held in
June 10, 1990, he had to elaborate a more detailed and comprehensive economic
program. The available proposals varied regarding the kind of adjustment and the
pace in which this should be applied. One was the proposal of Fujimori’s initial team

of 1988, Perú’s total external debt ascended approximately to US$167,493 million. El Comercio,
December 13, 1989.
337
Personal interview with Santiago Roca, Lima, July 30, 2003.
167

of neo-Keynesian economic advisors, which recommended a gradual adjustment and
stabilization without recession, thereby combining a solution to hyperinflation while
protecting workers’ purchasing power.
338
On the other hand, there was the proposal
prepared during 1989 by the think tank GRADE. Although closer to the IMF’s
framework, GRADE’s proposal prescribed measures more gradual, flexible, and
softer. It also included a project of social support for the less-favored economic
sectors in order to alleviate the harsh effects of the adjustment.
339
There were also
proposals prepared by academics from the Universidad Católica that demanded the
application of gradual reforms and a less interventionist but more responsible
participation of the state in the economy.
340

Nonetheless, soon it became clear that from the available options, Fujimori
would not pay attention to any of the proposals of gradual adjustment. Six days after
the run off, Fujimori declared to the press that he would not follow the García policy
of confrontation with the IFIs, and instead would travel to the United States, Europe,
Japan, South Korea, and Taiwan to make arrangements for Perú’s reinsertion into the
international financial system.
341
Furthermore, Esteban Hnylicza, one of Fujimori’s
advisors, presented to the press a draft of an economic program that had an
orientation different from the anti-shock pledge that Fujimori had announced during

338
Ibid.
339
Personal interview with Carlos Paredes, leader of the GRADE team that designed this economic
adjustment proposal. Lima, July 24, 2001.
340
Personal interview with Javier Iguiñiz and Alan Fairlie, economists and professors at the
Universidad Catolica del Perú.
341
“Comentarios de la semana,” El Comercio, June 16, 1990.
168

his electoral campaign.
342
Soon after the run-off, “Fujimori was already leaving
behind the image of the populist and heterodox candidate.”
343

Fujimori’s choice of advisors supporters of the IFIs’ prescriptions
Immediately after the first round of elections in April 1990, Fujimori had
approached Hernando de Soto, a renowned advocate of market-oriented policy ideas,
and asked for his advice.
344
After the runoff, the meetings with De Soto were held
more often and acquired singular importance regarding the decisions that the elected
president would take with respect to the IFIs. For instance, De Soto advised the
president-elect to immediately travel to the United States to meet the representatives
of the main IFIs. In contrast, the advisors of Fujimori’s transition team had proposed
delaying meetings with the IFIs’ leaders until after the gradualist stabilization
program would be underway.
345
Fujimori followed De Soto’s advice and authorized
him to organize the meeting with the IFIs. This decision and the detour that Fujimori
was taking regarding the economic program made the economist Oscar Ugarteche,
an expert in the external debt problem, resign from Fujimori’s economic team.
346

De Soto also suggested building a team of Peruvian advisers with renowned
international experience and able to participate in discussions with the functionaries

342
See “El Ajuston del 29 de Julio.” Interview with Fujimori’s advisor Esteban Hnylicza, in Caretas,
June 25, 1990, 15-19.
343
Resumen Semanal, June 22-27, 1990. Even foreign diplomats were aware of these changes. The
Argentine minister of foreign relations commented, “Fujimori’s program is looking every day closer
to that formulated by FREDEMO.” Caretas, June 25, 1990, 13-14.
344
Personal interview with Hernando de Soto, October 1999. Also see Caretas, May 21, 1990.
345
Personal interview with Santiago Roca (July 30, 2003) and Oscar Ugarteche (August 6, 2003).
169

of the IFIs.
347
He and Fujimori chose Carlos Rodriguez Pastor, international
consultant and former minister of finance under President Belaunde, as the leader of
that team.
348
It was widely known in Perú that in 1984 Rodriguez Pastor had been
forced by domestic pressure to resign because his policies in the line of the IFIs were
considered excessive by the opposition and by the Belaunde government itself. After
accepting his appointment as an independent consultant, Rodriguez Pastor, who at
that time resided in the United States, sent economic policy recommendations to
Fujimori that were in line with the IFIs.

Approaching potential international lenders
De Soto had arranged that Javier Perez de Cuellar— national from Perú and by
then General Secretary of the United Nations—hosted a particular meeting in New
York. Perez de Cuellar personally invited Michel Camdessus, the IMF director;
Enrique Iglesias, the president of the IDB; and Barber Conable, the president of the
World Bank, to have a meeting with the newly elected Peruvian president. In that
meeting, Fujimori, based on the recommendations Rodriguez Pastor had sent to him,
presented the framework of the economic program his government would follow:
reinsertion into the international financial community, stabilization, and structural

346
Personal interview with Oscar Ugarteche, Lima, August 6, 2003.
347
Unless otherwise noted, the information in this paragraph about the participation of De Soto is
taken from my personal interview with him in Lima, October 1999.
348
Initially De Soto had suggested the naming of Manuel Moreyra, a renowned economist in Perú.
However, Moreyra had had contacts with FREDEMO, and thus Fujimori rejected him. Fujimori
argued, “If I include Moreyra in my team, the people would say that I had stolen Vargas Llosa’s
program.” Personal interview with Hernando de Soto, Lima, October 1999.
170

reforms. Fujimori communicated to Camdessus that he was ready to design a new
package of austerity measures along IMF lines.
349

After his stay in New York, Fujimori continued his trip, going next to Japan
to hold meetings with the Japanese emperor and government authorities. It seems
that his Japanese hosts told Fujimori that if he wanted cooperation from Japan, it was
necessary that Perú arrive upon an agreement with the IMF.
350
Even if this would
have been the case (and without diminishing the weight that such an important
recommendation might have had in Fujimori’s plans),
351
it is important to take into
account the aforementioned facts. The conversations with the Japanese government
might have been the conclusive factor that reinforced Fujimori’s decision to switch
from the vague economic proposals presented during his electoral campaign towards
a more aggressive stance regarding severe adjustment measures. However, the detour
had already started as soon as he had been elected president in June 1990 (and
probably, as discussed below, even long before).
When Fujimori returned from Japan, he stopped in Miami to hold a meeting
at Rodriguez Pastor’s request with economist Carlos Boloña, who convinced him of
the need to apply a severe stabilization program immediately. After having heard

349
Personal interview with Hernando de Soto, Lima, October 1999.
350
Adolfo Figueroa, who had traveled with Fujimori, declared, “After his meeting with the First
Minister Tokishi Kaifu, who indirectly suggested the possibility of financial aid from Japan only if
Perú solved his debt problem with the IMF, Fujimori began to think about the application of the
economic shock.” La República, July 22, 1990, 4.
351
Fujimori was the first nikkei (first generation born of Japanese immigrants) who had been elected
president in a foreign country, and during his electoral campaign he had promised that Japan would
give financial aid to Perú.
171

Boloña’s proposal and the rebuttal by Adolfo Figueroa, one of the neo-Keynesian
advisors who had suggested gradual adjustments, Fujimori replied,
While it is true that I don’t know anything about economics, I have a sharp
intuition. That is why I have won the elections. I don’t believe that your
proposal, Adolfo, could stop inflation. However, I think that what Dr. Boloña
has presented can work.
352

Indeed, weeks later Fujimori would offer the ministry of finance to Boloña,
who however rejected this proposal. Notwithstanding, during the first six months of
Fujimori’s government, Boloña would continue to be in contact with the president
and give his advice in specific economic policy issues.
353

The evidence described above indicates that as soon as Fujimori had won the
elections, he had actively searched for advisors who were renowned for their market-
oriented ideas and their ties to international financial circles. Likewise, it indicates
that weeks before his trip to New York to meet the IFI leaders, he publicly
announced that his government would apply a hard stabilization program and
additional measures closer to those usually prescribed by the IFIs.
Nonetheless, various analysts refer to the first meeting held with the IFIs’
representatives in June 1990 when positing that external political pressures produced
a shift in Fujimori’s economic policy direction in favor of an IMF-sponsored
program. For instance, Daeschner affirms that Fujimori’s change of attitude with
respect to the economic shock program was the result of his trip to New York and

352
Personal interview with Carlos Boloña, Lima, October 1999. Also see by Boloña, Cambio de
Rumbo, 24.
353
Ibid.
172

Japan after elected president.
354
Adolfo Figueroa (a member of Fujimori’s initial
economic team who also attended the first meeting with the IFIs) also claims that the
pressure exercised by the IFI leaders was overwhelming in determining Fujimori’s
decisions regarding Peru’s economic policy.
355

It is difficult to accept that the admonitions of the IFIs leaders exerted so
much pressure in the elected president that he felt obligated to change his own
economic plans. First of all, the recommendations that the IFIs leaders gave to
Fujimori in New York did not come as news for him or for his economic advisors.
Indeed, the IFIs’ guidelines were not news even to the Peruvian people. Given Perú’s
economic crisis, its accumulated external debt, and its inclusion in the IMF’s
blacklist, Peruvians expected that the IFIs would continue the recommendations that
they had included in their loan agreements since 1978.
Secondly, as described above, the IFIs had also warned the three preceding
administrations about the consequences of not applying economic reforms. However,
none had followed the IFIs’ prescriptions. Considering that background of repeated
non-compliance since the end of the 1970s, it is evident that the initiation of
conversations between Fujimori and the IFIs’ leaders was not enough to guarantee
the application of the recommended policies. The pursuing of these policies
depended to a high degree on the stance taken by the president and his policy
advisors. Given the severity of the IFIs’ policies and the high social costs these

354
Jeff Daeschner, La Guerra del Fin de la Democracia. Mario Vargas Llosa versus Alberto Fujimori
(Lima: Perú Reporting, 1993), 290.
355
Cited by Stokes, Mandates and Democracy: Neoliberalism by Surprise in Latin America, 70.
173

implied, it is hard to accept that someone not convinced of their likelihood to bring
about economic development could have consistently applied them as Fujimori did.
Former Peruvian governments, whose priorities were not reflected in the
application of policies in line with the IFIs’ recommendations, were incapable of
delivering economic programs that suited these institutions. Since Fujimori was until
1990 a political outsider, his political-economic priorities at that time were not yet
clear. However, looking back it is now evident that Fujimori tended to hide his plans
until it was time to act as he considered necessary.
During his electoral campaign, Fujimori had not said anything concrete with
respect to economic policy, only that he would not apply an economic shock. Later
he discarded the economic program his initial team of economic advisors had
prepared. He had also said that he had a great respect for the Constitution.
Nonetheless, he later closed Congress
356
and promoted the approval of a new
constitution that permitted him to run for a second term, at the end of which, again
by non-democratic maneuvers, he ran for a third term.
Given that trayectory it is possible that even before being elected president,
Fujimori had thought that the eventual course of his policies would follow those
prescribed by the IFIs, but as a political strategy decided to hide such plan during the

356
Fujimori closed Congress on April 11, 1992 blaming the legislative branch for not being
cooperative with his government. However, it is possible to think that such an attack against
democracy had been in his plan long before acting in this direction. Indeed, as early as November
1990, just three months after the beginning of his presidential term the Peruvian newspapers were
already commenting the negative tone the president was utilizing to describe the members of congress
in his declarations to the press. See La República, “Los Primeros Cien Días de Fujimori,” November
5, 1990, 12-13.
174

electoral campaign. Research done by Stokes suggests that this might explain
Fujimori’s policy switch, and that Fujimori saw the economic proposals made by his
initial team of advisors “more as electoral tools than as a blueprint for policy.”
357

Likewise, Ugarteche, a member of Fujimori’s initial economic team, notes that “We
appeared as the modern good center-leftist team that had innovative ideas and were
closer to the people. Fujimori used us to obtain the votes of those that supported
center-left policies.”
358
In fact, when Fujimori became a statesman, he dismissed the
members of his initial team of advisors. Ten days before the presidential
inauguration, he announced to them that he would not apply the economic program
they had designed. Given that warning, these advisors immediately resigned.
359

It is undeniable that Fujimori’s first meeting with the IFIs was a very
important event. Nevertheless, it was not a formal meeting, and the dialogue between
Fujimori and the IFIs leaders was basically the presentation of good intentions
without any mandatory arrangements.
360
Nevertheless, having only the informal IFIs’
promise to start future negotiations if he applied austerity measures, Fujimori
initiated reforms that went far beyond what was normally expected of an indebted
country as a condition for the re-negotiation of its external debt.
361

357
Susan Stokes, “What Do Policy Switches Tell Us about Democracy?” in Democracy,
Accountability, and Representation, ed. Adam Przeworski and Bernard Manin. (Cambridge:
Cambridge University Press, 1999), 105
358
Personal interview with Oscar Ugarteche, Lima, August 6, 2003.
359
Personal interview with Santiago Roca, July 26, 2003.
360
This was the first time in which the IFIs’ leaders met simultaneously due to the personal invitation
of the General Secretary of the United Nations to talk with an elected president about Peru’s
reinsertion in the international financial community. Caretas, July 2, 1990, 15.
361
Former minister of finance Boloña, members of his economic team, and even analysts opposing
market-oriented reforms agree in describing Fujimori’s economic policies as stricter than the
175

Special Agreements
After their meeting with Fujimori in New York in 1990, the IMF
functionaries announced that Perú could be one of the first countries in the world to
participate in a new kind of agreement to receive financial assistance: the “Shadow
Program.”
362
This program would permit Perú to reschedule its payment to this
institution of US$802 million in arrears accumulated since 1984, and thus would
help it to normalize its relations with the IMF prior to the development of a
stabilization program approved by the IMF.
Due to the extraordinarily high amount of the Peruvian arrears, it was
difficult for Perú to receive a bridge loan from various foreign governments to clean
up its back debt with the multilateral agencies.
363
In order to solve this problem, the
IFIs proposed ad hoc financial programs. On September 12, 1991, the IMF approved
a Rights Accumulation Program (RAP) that permitted a country to earn rights toward
future financing from the IMF through the implementation of a comprehensive
economic program with macroeconomic and structural policy standards associated to
ESAF.
364
The World Bank also put in practice a new approach adopted by its board
in May 2, 1991. Three loans were authorized for specific objectives: commercial
reform, structural adjustment, and reforms for the financial sector. The loans would

conditions required by the IFIs. Personal interview with Carlos Boloña, Lima, October 1999. Also
see Chossudovski, 202.
362
New York Times, June 28, 1990.
363
As of June 30 1991, Perú owed 25% of the total arrears of all countries working with the IMF.
With regard to the World Bank, Perú owed 48% of the total of arrears on principal and interest
payments of all countries. Campodónico, 71.
364
IMF, 1991, 70.
176

be approved, but the Bank would hold the funds during a pre-clearance performance
period in which it would monitor the progress of the reforms. The amounts needed to
pay the arrears would accumulate in IMF and World Bank accounts during the
period 1991-1992. If Perú fulfilled the goals established by these institutions, then it
would be a debt holder of the IFI’s disbursements.
In March of 1993, the Peruvian government managed to pay the arrears to the
IMF and the World Bank, and an EFF arrangement was signed with the IMF for a
period of three years. Likewise, the Bank approved the three shadow loans that had
been signed with Perú toward the end of the Reference Program in December 1992.
In sum, the ad hoc programs proposed by the IFIS required the application of
the economic policies prescribed by these institutions. However, did this leverage
exclusively determine economic policy reform in Perú? In order to answer this
question, two aspects deserve further examination.
First, the IFIs settled the ad-hoc programs in favor of Perú a long time after
the Peruvian government had initiated the stabilization and structural adjustment
reforms. The IFIs had declared in 1990 that they would study the possibility of
issuing special financing facilities, but it was not until September 1991 that the
content of the ad hoc programs was specifically determined, and not until March
1993 that these began to be implemented by the IFIs. Secondly, since the approval of
the ad-hoc financial programs by the IFIs did not imply the immediate disbursement
of loans, during 1990-93 the application of the economic reforms was done in Perú
in the midst of economic crisis and without receiving any funds.
177

Even if we accept that Fujimori’s objective was to obtain future financial
assistance, leverage alone cannot explain how an entering president, with no majority
in Congress, would chose to strictly apply the reforms in the middle of such an
outrageous economic distress, and in the act risking his own political viability.
Someone who had not previously opted for these reforms and thought that their
application was a priority could not have applied them with the speed and persistence
with which Fujimori did. The same can be said about the economic advisors who
supported those reforms and were key in their design and application. Rodriguez
Pastor, De Soto, and Boloña had supported economic proposals in line with those of
the IFIs for more than fifteen years prior to Fujimori’s meeting with those
institutions. Also, various members of Boloña’s economic team were well-known for
long time in Perú for their allegiance to the free market.
365

Taking into consideration the pattern of conduct followed from 1976 to 1990
by the various Peruvian governments with respect to the IFIs and the contrasting
attitude assumed by the Fujimori administration, it is difficult to conclude that the
latter applied reforms only because it was forced by the IFIs to do so. The factual
evidence suggests that even in cases of severe economic crisis, former Peruvian
authorities had followed their own decisions regarding economic policy making and
distanced themselves from the IFIs’ prescriptions. In contrast, Fujimori opted for
economic shock therapy and structural adjustment policies that not only went beyond

365
I expand this discussion in the following chapter, which deals with ideas and economic policy.
178

the IFIs’ policy recommendations, but also were applied according to Deveroux and
Connolly, “at a pace that even IMF officials found excessive.”
366

Fujimori and his economic team did not consider the high political and social
cost of the reforms as a high priority in their thinking. If so, they might have
catalogued the IFIs’ recommendations as extreme or politically dangerous, as had
previous presidents and their respective administrations, and therefore rejected them
or moderated their application. However, Fujimori and his economic team centered
their attention instead on the other potential effects they attributed to the application
of the economic reforms: external financing, and especially economic development.
That may explain why Fujimori and his advisors, after initiating the reforms and
risking the harsh consequences they implied, did not attempt any alternative
negotiation with the IFIs to soften their terms.
As of 1990, Perú’s economic situation was probably more complex and dire
than that faced by former presidents, and due to the confrontational attitude assumed
by García in 1987, Perú was on the IMF blacklist and had become an international
pariah in the financial international community. Nevertheless, this status was also a
negotiating chip, as Perú’s amount of arrears with the IFIs was the largest in the
region,
367
and in relation to other debtor countries, Perú was an extreme case for the
IFIs.
368
It was thus in the IFIs’ interest to assist this country in paying up its debt.

366
John Deveroux and Michael Connolly, “Economic Reform and the Real Exchange Rate in Perú,”
289.
367
According to Richard Conable, president of the World Bank, as of January 1991 Perú owed this
institution 957 million dollars in back payments alone, the highest historical record reached by any
country. Likewise, the total of the delayed payments with respect to all the multilateral institutions
179

Technocrats and economists with experience in international debt agree that
there was effectively the possibility of negotiation with the IFIs.
369
In fact, during the
period 1975-1985, the IFIs had attempted to negotiate terms more achievable by Perú
for the sake of sustaining their various loan agreements. The IFIs had been willing to
renegotiate the agreed terms, and even permitted the application of economic
policies different from those initially prescribed. The exception was in 1987, when
President García defiantly set limits for the payment of Perú’s external debt, strongly
opposed the IFIs policies, and breached obligations with the IMF.
370

Even if the external debt was an enormous problem and an unbearable
burden for Perú, the Fujimori administration was not obligated to apply hard
measures beyond the IFIs’ expectations. However, it did, and the quickness and
depth with which the Fujimori government applied the stabilization and adjustment

was 2, 200 million dollars. “Banco Mundial dice que Perú requiere trato excepcional,”El Comercio,
April 7, 1991, 1.
368
David Mulford, Sub-Secretary for International Affairs of the United States Office of Treasure,
declared, “Perú’s debt problems and delays with the IFIs is the most important and the most complex
in the last times.” El Comercio, April 9, 1991, B8.
369
Personal interview with Richard Webb (Lima, August 5, 2003) and with Oscar Ugarteche (Lima,
August 6, 2003). Richard Webb believed that if in 1992 Perú had not arrived into an agreement with
the World Bank, this institution would have had a huge loss. Only the interest of the Peruvian
payment gave the WB the equity for that year. The WB could not thus disregard Perú’s special
situation. It did not have that pressure over Perú because it needed this country to pay. Oscar
Ugarteche, expert on debt negotiations who had helped various developing countries in this regard,
has the same opinion. Economist Daniel Schydlowsky affirmed that although it was necessary to
apply a serious adjustment, given Perú’s dire economic situation, the IMF would have understood the
need to apply an economic program not as radical as the one proposed by Hernando de Soto and
Rodriguez Pastor. “The IMF would have understood. The IMF is lately showing more flexibility in
cases like the Peruvian one.” La República, July 20, 1990. Likewise Manuel Moreyra, former
president of the Central Reserve Bank who in 1978 negotiated with the IMF an agreement that was
favorable to Perú, noted that in 1990 it would have been possible to obtain terms less hard for Perú.
He criticized the fact that president Fujimori rushed to Washington to have an interview with
Camdessus and Conable. See La República, “Los Primeros Cien Días de Fujimori,” November 5,
1990, 12.
180

programs—prior to the signing of a loan agreement and before reaching an
agreement to re-schedule the external debt—left little to negotiate.

Concluding Remarks
From the mid-1970s to 1990, two aspects remained constant in the
relationship between Perú and the IFIs. First, even during periods of economic crisis
in which the IFIs’ assistance was badly needed, the various governments followed a
pattern of non-compliance: a reluctance to pursue the economic policies prescribed
by the IFIs. Second, despite that pattern of non-compliance, the IFIs followed a
pattern of re-negotiating breached agreements or negotiating new agreements.
The negotiation outcomes during the period (1978-1990) demonstrate that
despite the economic crisis issue, the external debt problem, and the pressure
exercised by the IFIs, the strict submission to these latter’s prescriptions is not
always the way out for the borrower country. If the government does not agree with
the conditions set by the IFIs, or if given domestic political-social constraints the
government believes that it cannot accept the conditions set by the IFIs, it may
simply retreat from their application or alternatively may try to negotiate more
favorable terms for its country. Thus, although the IFIs’ leverage constitutes a
significant external constraint, leverage alone cannot determine economic policy
change. In this regard the stance taken by the government is crucial.

370
Furthermore, even during the García government, as of July 1988 the IMF was analyzing plausible
solutions for the “ineligibles,” among whom were Perú, Vietnam, Guyana, and Liberia.
181

The dramatic extent and fast pace of the economic reforms applied during the
early 1990s could have not been possible if the Fujimori administration would have
not had the willingness to apply these policies. These reforms implied a high social
cost for the Peruvian population and potentially a high political cost for the
president. Nevertheless, Fujimori applied them in strict allegiance to IFIs’
performance criteria prior to the signing of a high-conditionality loan agreement and
the effective disbursement of loans. This outcome, without precedent in Peruvian
affairs, makes evident that although the IFIs set conditions regarding economic
policy, Fujimori’s economic program was not the direct result of the IFIs’ leverage.

182

CHAPTER 6: SUBSTANTIVE PREDISPOSITIONS WITH RESPECT TO
MARKET –ORIENTED POLICY IDEAS IN THE PERUVIAN SETTING
(1978-1987)

The present chapter and the following one compare ideas and policies in two
different periods: chapter 6 covers the period from 1978 to 1987 and chapter 7 from
1987 to 1993. In each chapter, I focus on the impact of the variable policy ideas in
economic policy making, observing the ideational context that accompanied the
application of specific economic policies by each of the administrations that
governed Perú during the period under analysis. I pay attention to what Odell
describes as the “jerky process:” that one in which the impetus to cognitive change
by some actors is restrained by the weight of substantive predispositions that
discourage the learning of fundamentally new orientations. In such a process, Odell
points out, cognitive changes that effectively affect policy making will not happen
until market or political conditions become extreme, some vivid event occurs, or
there is a major failure of past policy.
371

This chapter notes that before becoming the main trend in Peruvian economic
policy making, market-oriented policy ideas had to go through a long jerky process.
This process began during the late 1970s when some non-state actors publicly
discussed ideas that questioned the intervention of the state in the economy and the
protection of the domestic market. Subsequently, in the early 1980s some few state
actors would also embrace market-oriented policy ideas. Despite their eventual
183

importance, during this period these ideas could not replace conventional wisdoms.
The weight of substantive predispositions in the then current political discourse made
it impossible for market-oriented policy ideas and their advocates to have any direct
or meaningful impact on policy making.
In order to explain the main characteristics of this jerky process, in the first
section of the present chapter I define the objects of study, identifying which state
and non-state actors are included in the present analysis and why. Sections second
and third focus on the governments of Morales Bermudez and Belaunde respectively.
The fourth section analyzes the period 1985 to 1987, corresponding to the first two
years of García’s term as president. The period of analysis covered by the present
chapter ends at mid-1987, because at that specific time singular events occurred in
Perú’s political arena that constituted a turning point regarding the wider diffusion of
market-oriented policy ideas. Given the importance of these events, they are
analyzed in depth in the following chapter.

Definition of the Objects of Study
The same ideas do not have the same impact in all settings. The context
surrounding the diffusion of new policy ideas (or ideas opposed to the prevailing
political discourse) and the extent of this diffusion determine the influence that these
may have in social and policy making sectors. I argue in the present section that the
role that certain actors – state and non-state actors as well - play as interpreters,

371
Odell, 367- 371.
184

carriers, and advocates of new policy ideas is crucial for the diffusion and impact of
these latter.
With respect to state actors, policy makers seem to be the obvious point of
reference. However, the concept of policymaker deserves some clarification. Usually
in the Latin American experience of economic reform, the legislative branch has
delegated to the executive part of its function, which is to legislate issues that fall in
the category of economic affairs. That has been the case in Argentina, Bolivia, and
Perú, to mention a few. As a result, technocrats working in the executive’s economic
team have become significant players in policy making.
Nonetheless, if congress does not approve the reforms elaborated by the
executive, this impasse might obstruct their application. In order to prevent this
outcome, the executive branch has maneuvered political coalitions to obtain
congressional support. In Bolivia, for instance, during the mid-1980s the application
of the neoliberal policies laid out by presidential decree was possible because of the
crafting of a pact between the government’s political party and the principal
opposition party,
372
which enabled the executive to control threats from the National
Congress and from organized labor.
373
In Argentina at the outset of the reform
program, the minister of finance Domingo Cavallo received harsh criticisms, but

372
Eduardo Gamarra, “Crafting Political Support for Stabilization: Political Pacts and the New
Economic Policy in Bolivia,” 105-127.
373
In 1986, under the government of Paz Estenssoro, the “Pacto por la Democracia” was between the
ruling Movimiento Nacional Revolucionario and the Accion Democratica Nacionalista, the principal
opposition party. In 1990, under the government of Paz Zamora, the “Acuerdo Patriotico” was
between the ruling Movimiento Izquierda Revolucionaria and the Accion Democratica Nacionalista.
Gamarra, ibid.
185

president Menem could neutralize opposition within and outside his party after
forging alliances with center-right and provincial parties in the Chamber of
Deputies.
374
Cavallo himself declared that, more than technical acumen, stabilization
packages were a “political problem” that required political backing, or “political
savoir-faire.”
375
Consequently, although the economic team working in the executive
plays a significant role in economic policy making, in order to better analyze the
process of economic reform it is necessary to observe the context in which that team
works. Therefore, the present analysis also pays attention to other state actors such as
the president and leading members of congress.
With respect to the study of non-state actors in economic policy making,
extensive research (that focuses mainly on material and sectoral interests as the
source of economic policy making) includes only specific organized interest groups
such as the exporting sector, import-competing industrialists, and the respective
sectors of organized labor. The underlying logic of such studies is that these
organized interest groups are more exposed to international trade and investment
than other groups. Thus, it is assumed that it is only these organized groups that are
mobilized to support or to block the implementation of trade and investment policies.
By the same token, these studies tend to dismiss the participation of non-organized
or non-sectoral groups, such as the middle class. In this case, the assumption is that

374
Carlos Acuña, “Politics and Economics in the Argentina of the Nineties,” in Democracy, Markets,
and Structural Reform in Latin America, ed. Smith, Acuña, and Gamarra, 25-26.
375
Cited by Javier Corrales, “Why Argentines Followed Cavallo,” in Technopols. Freeing Politics
and Markets in Latin America in the 1990s, ed. Dominguez, 64.
186

these groups are not directly affected by those policies, and therefore they will not be
motivated to demand policy change.
Such a restrictive perspective lays aside the fact that the regulations that
restrict trade and investment are not isolated policies but form part of an economic
framework that in the Latin American experience, and specifically in Perú, has
implied a complex intervention of the state in the economy. Sometimes through
excessive controls and regulations whose main effect has been higher prices and
intricate administrative proceedings, the state has affected the common citizen, non-
sectoral interest groups. These groups may also oppose the intervention of the state
in the economy especially when they become aware that the way in which that
intervention operates is not contributing to the solution of the economic problems
strangling the nation. Non-sectoral groups’ dissatisfaction with interventionist
economic policies may acquire significant relevance when these groups attempt to
pressure for economic policy changes through their vote or other means (e.g.,
demonstrations, initiatives to force referendums).
Thus the present work includes an overview of the influence of some non-
sectoral groups in economic policy change.
376
I attempt to explore how and why in
the Peruvian case the pro-market ideological climate that emerged during the late
1980s appealed to non-trade and trade-sectors as well, and how the support that these

376
In their analysis of neoliberal policy shifts in Latin America (specifically in Argentina, Brazil, and
Mexico) Horowitz, Heo, et al. also pay attention to the largest of the dispersed interest groups in the
non-trade sector. However, they do not explain the process through which ideational policy trends
brought attention to the costs of postponing macroeconomic and structural adjustment reform. See
187

sectors gave to the implementation of market-oriented reforms contributed to the
consolidation of these policies in the Peruvian arena.

The Morales Bermudez Administration and the Weight of Substantive
Predispositions Against Market Oriented Policy Ideas (1978 – 1980)
In 1978, for the first time after one decade of the strict application of an
inward-oriented model of economic development that largely supported ISI, the
intervention of the state in the economy, and expansive policies, the military
government led by Morales Bermudez adopted some economic reform initiatives. In
this regard the government counted on the expertise of civilian technocrats able to
implement some important adjustments to the economy. Nonetheless, the present
section argues, there were outside the government substantial predispositions against
the reform of the economic framework inherited from the Velasco era. These
predispositions would eventually determine that the timid reformist trend initiated
during the Morales Bermudez government would not during the following years
evolve into a vast market-oriented structural reform of the economy. In order to
understand this situation the present section analyzes the political and intellectual
climate prevailing in Perú. Special attention is given to that in the two most
prestigious academic departments of economics in Perú -located in the Universidad
Católica and the Universidad del Pacífico-, and in the still incipient think-tank arena.

Shale Horowitz and Uk Heo (eds.). The Political Economy of International Financial Crisis, Interest
Groups, Ideologies and Institutions, Lanham, MD: Rowman and Littlefield, 2000).
188

State actors
In June 1978, after various failed attempts to solve Perú’s increasing
economic problems, General Morales Bermudez appointed two renowned civilians
to crucial posts in his administration: Javier Silva Ruete as minister of finance, and
Manuel Moreyra as the head of the Central Reserve Bank. These technocrats had to
face strong opposition within and outside the government to the application of
adjustment measures. In the words of Silva Ruete,
Within the circles more or less informed on economic issues the suggestions
varied considerably: from the unilateral moratorium of the external debt, to
the automatic increase of salaries adjusted to the rate of inflation; from the
rationing of foods to the most strict exchange control. . . . Many loose ideas,
sometimes extreme, sometimes shy; but there was not a coherent proposal for
a whole economic program. . . . The most recalcitrant sectors from the
Peruvian right blamed the reforms and transformations issued since 1968 by
the military government as the exclusive cause of the economic crisis. The
Marxist Left blamed the Pentagon, the Yankee Imperialism, and so forth.
377

Nonetheless, Silva Ruete and Moreyra were able to implement important
adjustment measures. Their professional background and prestige in the international
financial system granted them a high degree of autonomy with respect to the military
officials who wanted to continue the large expenses on armament and to business
groups that were pressuring the government for special policies to reactivate the
industrial sector.
378
Likewise, as noted in chapter 5, the economic team achieved an
important agreement with the IMF. Besides, Silva Ruete obtained economic support

377
Javier Silva Ruete, 1981, 18.
378
Julio Cotler, “Las intervenciones militares y la ‘transferencia del poder a los civiles’ en el Perú,” in
Transiciones desde un gobierno autoritario, ed. Guillermo O’Donnel and Philippe Schmitter, Vol 2
(Barcelona: Paidós, 1988), 254.
189

from the United States Agency for International Development, and implemented
some market-oriented reforms and some reduction of the state apparatus.
379
The
economic reforms although still limited, were important for that time and constituted
the first effort to modify the rigid model instaured by Velasco.

Non-state actors
Since its creation in 1964, the Department of Economics of the Universidad
Católica had not limited its support to a specific trend in the study of economics.
Some of its research projects were the result of agreements with international
institutions that represented varied research interests and policy orientations, and
with the public administration sector of Perú that tackled issues such as the supply of
export products or the financing of small industrial companies.
380

Nonetheless, during the 1970s two important outcomes at the regional and
national settings largely influenced the trend pursued by the research projects in the
Universidad Católica: the Dependencia debate in Latin America and the reformist
process initiated in 1968 in Perú by the military government of Velasco. Indeed, at
this time “Dependence” was the theoretical approach that most influenced Latin
American debates and research projects. In 1949, while a consultant to the Economic
Commision for Latin America (known as CEPAL in Spanish) Raul Prebisch had

379
Personal interview with Javier Silva Ruete, Lima, October 27, 1999.
380
For instance, during the late 1960s and earlier 1970s, the Department of Economics participated in
a project led by the Brookings Institution and received funding and logistical support from the
Netherlands, the Ford Foundation, and the University of Ottawa. See Denis Sulmont, Veinte Años de
Ciencias Sociales 1964/84, (Lima: Pontificia Universidad Católica del Perú, 1984),15.
190

written “The Economic Development of Latin America and Its Principal Problems,”
a groundwork report for the structuralist ideology. By the early 1960s, based on a
more radical interpretation of this report, the Dependencia school emerged in Latin
America, its leading representatives being Fernando Henrique Cardoso and Enzo
Faletto, authors of the seminal work “Dependency and Development in Latin
America.” The Dependencia School focused on issues about the center-periphery
system, the need to control the expansion of transnational corporations in the region,
and the promotion of industrialization with emphasis on income redistribution.
The study and discussion of the economic problems affecting Perú and the
Latin American region took place mainly under the theoretical prism of the
Dependencia debate.
381
Furthermore, the Department of Social Sciences at the
Universidad Católica which groups the academic programs of economics, sociology
and anthropology, had formal cooperation agreements with the Latin American
Council of Social Sciences (CLACSO) and the Latin American Faculty of Social
Sciences (FLACSO). These institutions were linked to the CEPAL and strongly
influenced by the thought of Raul Prebisch and the Dependentistas.
The main research projects in the department of economics were also
influenced by the domestic political context. The structural reforms pursued by the
military government since 1968 attracted large interest within academia. Besides the
analysis of Perú’s economic policies in the areas of finance, commerce, and tax,

381
See Denis Sulmont, in “Veinte Años de Ciencias Sociales 1964/84,” 14.

191

there was a particular emphasis on research related to the agrarian problem and
industrial development. Some of the main research issues were the agrarian reform
pursued by the Velasco government, the peasant rural economy, food production,
industrial development, the problem of poverty, and the distribution of income.
382

As a result, public planning was a very important topic among various
professors.
383
Many shared the Dependentistas perspective and a progressive
approach to the study of Perú’s economic problems.
384
Among these professors, for
instance, were Adolfo Figueroa (Ph.D., University of Vanderbilt), Javier Iguiñiz
(Ph.D., The New School of Social Research in New York), José María Caballero
(University of Essex), and Máximo Vega Centeno (Ph. D., Universite Catolique
Lovaine). Various alumni recognize however that during the 1970s, “still existed a
healthy polarization” within the faculty that permitted the students to tackle Perú’s
economic problems from various perspectives.
385
Despite the strong influence of the
Dependentista approach, a group of professors shared market-oriented policy
ideas.
386
This group included for instance, among other professors, Richard Webb
(Ph.D., Harvard University), Roberto Abusada (Ph.D., Cornell University), Iván

382
Sulmont, 6.
383
Personal interview with Máximo Vega Centeno, one of the founder professors of the Department
of Economics.
384
Ibid.
385
Personal interview with various alumni of the Department of Economics of the Universidad
Católica del Perú: Maria Jesus Hume, Vice Minister of Commerce during the Belaunde government
(1981-1983), Lima, July 27, 2000; Octavio Chirinos, Professor at the Department of Economics
(1977-1980), Lima, June 20, 2001; Roberto Abusada, Vice Minister of Commerce during the
Belaunde government (1980-1981), Lima, July 2, 2003. These alumni were members of the economic
team of Carlos Boloña during the first Fujimori government (1991-93).
386
Personal interview with Rufino Cebrecos (Lima, November 30, 1999), Roberto Abusada (Lima
July 2, 2003), and Richard Webb (Lima, August 5, 2003).
192

Rivera (M.A., Universidad Católica de Chile; Ph.D., University of Chicago), and
Rufino Cebrecos (Ph.D., Cornell University) which during the early 1980s would
play an important although ephemeral role in policy making.
For its part, the Universidad del Pacífico (created in 1962) had also since its
first years pursued an academic policy directed to provide information based on
pluralism that could permit students to learn the various available options in
economic policy and politics.
387
This was also the policy taken with respect to the
formation of young professors, who were sent to pursue graduate studies in a variety
of foreign universities. For instance, some professors (e.g., Jorge Gonzales
Izquierdo, Folke Kafka, Julio Velarde) attended the University of Chicago, known
for its preference for monetarism and market-oriented policies. Others opted for
European universities representing a more Keynesian approach (e.g., Jurgen Schuldt
attended the university of St. Gallen, Switzerland, and Fernando Gonzales Vigil the
Sorbonne in Paris).
Nonetheless, as in the Universidad Católica, the political winds of the 1970s
influenced students, professors, and the line of research in the Universidad del
Pacífico. An alumnus notes,
Throughout its first ten years, the Universidad del Pacífico reflected in some
way the thoughts of its founders, the business groups. During the mid-
seventies and eighties, however, it experienced the impact of policy ideas that
supported an economic order closer to that applied in the socialist countries.
Within the faculty, the majority decisively supported such a policy
orientation. They had access into the management of the academic curricula

387
Raimundo Villagrasa, Recuerdos, Un Testimonio Personal Sobre la Universidad del Pacífico
(Lima: Editorial Universidad del Pacífico, 1997), 95-96.
193

and introduced courses that tackled Marxism . . . Although the Universidad
del Pacífico has always been characterized by its ideological pluralism,
during the 1970s and earlier 1980s, there was a dominant current. . . .
However, there was not any harassment in this regard. Everyone had his own
ideas and worked within his own ideological framework.
388

In 1979, the Universidad del Pacífico sponsored the publication of a very
important book titled Anatomía de un Fracaso Económico (Anatomy of an
Economic Failure) authored by Daniel Schydlowski and Julio Wicht, both renowned
economists within academic circles and professors at this university. This book’s
contribution to the analysis of Perú’s main economic problems was twofold. First,
although Schydlowski and Wicht did not propose a market-oriented reform,
389
they
elaborated sustained criticism of the inward-oriented economic policy that the
military government had pursued until 1978. Second, they proposed alternative ways
of achieving economic development, warning that in order to survive, Perú had to
urgently begin to increase and diversify its export supply.
The aforementioned book should have constituted a landmark in economic
policy orientation. However, economic and political circumstances during the late
1970s contributed to undermine its importance. As noted in chapter 4, the export
boom resulting from the increase of mineral prices in the international market
permitted Perú to enjoy a relative economic bonanza during 1979 and 1980. This
bonanza temporarily blurred the problems derived from some of the inward-oriented

388
Personal interview with Jorge Gonzales Izquierdo, alumni and current professor of the Universidad
del Pacífico, Lima, July 4, 2003.
389
Actually, Schydlowski would later in 1990 confront the market-oriented reform project elaborated
by Jeffrey Sachs (Harvard University) and Carlos Paredes (Universidad del Pacífico).
194

economic policies applied by the government and from those related to the
increasing external debt.
Besides, in the political arena, after a decade of military government,
President Morales Bermudez (1975-1980) had begun the transition towards
democracy. In 1978, he had convoked democratic elections for the Constitutional
Assembly charged with the writing of a new Constitution and had promised
presidential elections for the year 1980. These events opened the door for political
parties to publicly reinitiate their activities and concentrate their efforts on the
electoral competition. Their need for votes gave politicians and their respective
economic advisors an opportunity to voice their constituencies’ demands and at the
same time, to avoid the discussion of any policy that could affect the protection of
interests derived from a program based on import substitution industrialization.
The exporting boom and a national context characterized by electoral fever
and political effervescence postponed the urgent need for an analysis like that
presented by Schydlowski and Wicht. This latter notes, “At that time was very
difficult for us to be heard, and even more difficult to be understood. The business
elite, union leaders, and a deceitful social-patriot message promoted by some
politicians impeded that our advice regarding economic policy could have echo.”
390

Another important source of economic ideas in Perú, as elsewhere, is the
development and research of think tanks. During the 1970s however, there were no
think tanks in Perú that pursued the study or promotion of market-oriented policies.
195

The non-government organizations that at that time invested in specialized research
were the Instituto de Estudios Peruanos (IEP) and the Centro de Estudio y
Promoción del Desarrollo (DESCO), both with agendas that were ideologically and
practically far removed from embracing market principles.
As noted by Avila,
391
the creation of IEP and DESCO and their initial years
of work occurred chronologically and ideologically under the “spirit of the 1960s,”
which was marked by singular historical events that without doubt influenced their
venues of action. These were the first years of the Cuban Revolution, the period of
the Cultural Revolution in China, and the rebel youth movements of Paris in May
1968. Fidel Castro and Che Guevara, the two young leaders of the Cuban revolution,
were inspirational figures to many Latin American youth.
Within an international context characterized by revolutionary ideals, and a
national context of uneven development, the members of IEP and DESCO opted to
work for the economic vindication of the groups less economically favored in the
Peruvian society. IEP was founded in 1964 by a multidisciplinary group of scholars
interested in social reform based on academic research. DESCO was founded in
1965 as a think tank devoted to social analysis and the promotion of development.
The research of IEP and DESCO was oriented toward the critical
interpretation of the Peruvian situation, combining approaches from dependency

390
Personal interview with Julio Wicht, Lima, July 27, 2001.
391
Abelardo Sanchez León, Los Mundos del Desarrollo: 30 años de trabajo en las ONGs, (Lima:
DESCO, 1996), 17.
196

theory, liberation theology, and the New Marxist Left.
392
Under this ideological
framework, their agenda reflected a progressive vision oriented to changing the
direction of Peruvian society from an elitist one to another that could serve the needs
of the popular classes. Acknowledging that the poorest sectors of the society had for
centuries been excluded from the prevailing economic and political system, the
founders of DESCO opted to fight against that system of exclusion.
393

A salient characteristic of IEP and DESCO was their strong ideological link
with the Left. For instance, IEP was founded by José María Arguedas, Luis E.
Valcárcel, María Rostworowski, Aníbal Quijano, and José Matos Mar, all prominent
intellectuals with political affiliations with the Left.

Likewise, the members in both
IEP and DESCO—especially during the 1960s and 1970s—were militants in the
political parties of the Left or sympathizers of leftist ideas. DESCO was the
intellectual laboratory for various projects of the parties of the Left and participated
in Perú’s political arena, in the media, and advising some members of Congress.
394

Despite their cooperative relationship with the Left, IEP and DESCO were not what
the specialized literature classifies as “party think tanks.”
395
They were not funded by
parties of the Left and did not have formal institutional links to these.

392
Javier Avila, “Antropología y Promoción en el Perú,” in No hay país más diverso, Compendio de
Antropología Perúana, ed. Carlos Iván Degregori, 433 (Lima: Red para el Desarrollo de las Ciencias
Sociales en el Perú, 2000).
393
Personal interview with Eduardo Ballón, Member of DESCO, Lima, September 15, 1999.
394
Sanchez León, 17.
395
Here I borrow the classification of think tanks issued by R. Kent Weaver and James McGann,
“Think Tanks and Civil Societies in a Time of Change,” in Think Tanks and Civil Societies, Catalysts
for Ideas and Action, ed. James Mc Gann and R. Kent Weaver, 6-9 (New Brunswick: Transaction
Publishers, 2000). These authors classify the think tanks into four types: academic, contract research,
advocacy, and party think tanks.
197

IEP and DESCO can be classified mainly as academic think tanks. Both
have focused on disciplines such as sociology, anthropology, political economy, and
political science and built strong research capabilities in the social sciences. Both
organizations have had a very important role in the sphere of academic and political
discussion and the diffusion of knowledge in Perú. Important Latin American
authors in the area of dependency theory such as Celso Furtado, Anibal Pinto,
Marcos Kaplan and Teothonio Dos Santos published articles in IEP. Likewise,
Anibal Quijano, one of the most important researchers during the earlier years of
IEP, became a well-known contributor to the dependency theory literature.
396

Regarding their links with academic institutions, the permanent relationship
between both IEP and DESCO with the Department of Social Sciences of the
Universidad Católica is noteworthy. Many of the professors on this department
worked at IEP and DESCO as members of their executive councils, their research
teams, or both. Besides, the majority of the professionals working in DESCO and
IEP research teams were alumni of the Universidad Católica. These links have
facilitated and empowered a fruitful exchange of ideas and the production of
important specialized literature in the aforementioned disciplines.
Moreover, both IEP and DESCO have since their creation tried to reach
beyond the academic arena through the implementation of important grassroots
projects. For instance, during its four decades, DESCO has pursued programs

396
Juan Martín Sánchez, El Instituto de Estudios Peruanos, de la ambición teórica de los años sesenta
al estupor fáctico ante el fujimorismo. Documento de Trabajo no. 123, (Lima: Instituto de Estudios
Peruanos, September 2002), 13.
198

directed towards the empowering of marginalized sectors. It has strengthened civil
society, organized and participated in programs of social development, and educated
labor leaders, among other important projects.
Besides their status as academic think tanks during the late sixties and earlier
1970s, IEP and DESCO had a decisive influence on policy making. There are three
ways in which think tanks have an influence on policy: setting the intellectual
climate, preparing the people who take critical government positions, and developing
and promoting specific policies.
397
The influence of IEP and DESCO on policy
during this period was mainly through setting the intellectual climate through which
the military in the 1960s came to understand the development problems of Perú.
398

Their social policy ideas guided the formulation of specific public policies applied
by the military from 1968 to 1976.
For instance, previous to 1968, IEP had carefully conducted research on rural
society in specific regions of the country that outlined interesting aspects of the
Andean world, an extensive social-historical space that had not received attention in
the oligarchic Peruvian setting and about which very little had been written. Through
important anthropologic, sociologic, and linguistic studies, the IEP intellectuals
focused on aspects of the cultural diversity in Perú, embracing the importance of
culture, language, and regional forms of production. The IEP’s ideas about the
traditional communalism of the Peruvian peasant were taken by the military

397
Nancy Sherwood Truitt, “Think Tanks in Latin America,” in McGann and Weaver, ed., 542.
398
Sherwood Truitt, 543.
199

government and translated into concrete policies that mandated the creation of
cooperatives and communal rural holdings, the industrial community in industry, and
a variety of other social experiments.
399

In addition, during the first phase of the military government IEP and
DESCO developed and promoted policies that reflected their social concerns. In
some cases they made specific policy recommendations, in others responded to
social reforms instituted by the military, working and promoting grassroots projects
whose creation and functioning was regulated by the government.
In sum, during the 1970s the research agenda of the most prestigious
Peruvian think tanks was far removed from issues such as the primacy of the market
in the economy. Outside the think tank area, the situation was not much different.
Although from the mid-1970s onward, some politicians and economists had begun to
question the statist and populist policies of the military government, these policies
were still not discredited among the economists inside or outside the academia.
400

It was not until the end of the decade that sympathizers of market-oriented
policy ideas began to seriously question interventionist and protectionist economic
policies. The first steps were taken by Felipe Ortiz de Zevallos, a Peruvian engineer
who graduated from the Universidad Nacional de Ingeniería del Perú, with
specialized studies in the University of Rochester, and Hernando de Soto, a Peruvian
economist trained in Europe that had also worked in the GATT.

399
Sherwood Truitt, 544.
400
Richard Webb, “Perú,” in The Political Economy of Policy Reform, ed. John Williamson, 365
(Washington, DC: Institute for International Economics, 1994).
200

In 1977, when Perú was still under a military government, Felipe Ortiz de
Zevallos with the support of ten businessmen created the Grupo APOYO. Its
objective was to provide information and analysis of Perú’s economic situation and
of policies and reforms that the government should undertake to combat the
economic crisis of that time.
401
Ortiz de Zevallos notes that the academic formation
he had received at the University of Rochester was intellectually closer to the trend
pursued at the Department of Economics of the University of Chicago. Besides, he
had served for a short period as Vice Minister of the military government of Morales
Bermudez. During that time, he had noticed firsthand the lack of adequate
information in the public sector as well as other deficiencies. That experience added
to his academic formation corroborated his impression that in its attempt to control
the economy, the first administration of the military government had greatly
increased the problems of the state, reducing its technical capacity to provide
adequate input and services.
Initially Grupo APOYO was conceived as a consulting and publication firm
and was constituted as an incorporated business (sociedad anónima S.A.).
Nonetheless, as stressed by its founder, “In essence, APOYO was a non-profit
organization in which its initial shareholders invested capital in order to begin
projects that had less a profitable value than an intellectual one.”
402
In fact, from its
creation APOYO had an eclectic nature, combining consulting work with specialized

401
Unless otherwise noted, the information in this and the two following paragraphs related to
APOYO and its leader is drawn from my personal interview with Felipe Ortiz de Zevallos, Lima, July
7, 2003.
201

journalism in economics. APOYO’s articles were more than short-term projections
of economic trends. They provided analysis of Perú’s economic policy, accurate
data, and commentaries about economic affairs combined with complex essays about
liberal thought and reflections about its applicability in the Peruvian setting.
APOYO’s first product was Perú Económico, a monthly publication
launched in January 1978, while the main press was still under the control and
management of the military government. Perú Económico was the first monthly
economic report issued in Spanish to inform the Peruvian business community about
the problems of the economy and possible solutions. Through this publication,
APOYO highlighted the need to embrace liberal thought as the basis for promoting
the indivisibility of the political and economic liberties and as the essential condition
for progress. It criticized the so-called planned economic systems
403
and praised the
need to defend the individual initiative and private property.
404
In general, through
APOYO, Ortiz de Zevallos publicly expressed his support for change in economic
policy toward a market economy at a time when few voices in the intellectual and
political arenas in Perú asked for such a change. Despite the enthusiasm and energy
invested by Ortiz de Zevallos, during its first years APOYO did not have an impact
on economic policy making or a substantial influence on the wider public. During

402
Felipe Ortiz de Zevallos, (Preface) Los primeros 25 años, Grupo Apoyo. (Lima: APOYO, 2002)
403
APOYO, “Los límites de la Planificación,” Perú Económico, August 1979, cited in Ortiz de
Zevallos, Los primeros 25 años.
404
APOYO, “El pensamiento liberal,” Perú Economico, May 1978, cited in Ortiz de Zevallos, Los
primeros 25 años.
202

the late 1970s and early 1980s, the name APOYO was just beginning to be
recognized in the business, professional, and academic sectors.
For his part, Hernando de Soto, began in 1979 to organize forums to discuss
the possibility of applying a market economy in Perú. With this purpose, he invited
notable international figures to lecture Peruvian audiences about the advantages
supposedly derived from the implementation of a free market economy and underline
the urgency of economic policy change in Perú. According to De Soto, for economic
policy change to happen, first Peruvians would have to embark on an intellectual
effort to free themselves from what he described as “the distorted conceptual
framework that the military government had imposed on the civil society.
” 405
A brief
discussion of the forums organized by De Soto is helpful to illustrate both the ideas
and intellectuals who inspired his strong desire to diffuse a pro-market discourse and
the substantive predispositions against economic policy change existing at that time.
In 1979, De Soto organized a forum titled Democracy and Market Economy.
Among the international guests were economist Frederick Von Hayek, 1974 Nobel
laureate in economics and founder of the Austrian Institute of Economic Research
and the Mount Pelerin Society;
406
Ernst-Joachim Mestmaecker, Director of the

405
Hernando de Soto, “Introducción,” in Democracia y Economía de Mercado, Ponencias y Debates
de un Simposio realizado en Noviembre 1979, Instituto Libertad y Democracia, (Lima: Instituto
Libertad y Democracia,1981), xxiii.
406
The Mount Pelerin Society was founded in 1947 in Lausanne, Switzerland, by intellectuals
strongly supportive of free-market principles such as Von Hayek, Ludwig Mises, and F. Knight (First
Director of the Chicago School of Economics), among others. As noted by George, although the
Mount Pelerin Society does not have a fixed address, it is an international association that includes
hundreds of neoliberal thinkers and has become one of the most important neoliberal think tanks.
Susan George, “How to Win the War on Ideas: Lessons from the Gramscian Right,” Dissent 44, no. 3
(1997).
203

Institute Max Planck, member of the advisory council for the Minister of Finance of
West Germany, and specialist in commercial and antitrust law; and Jan Tumlir,
director of the GATT office of economic research. These lecturers praised the free
market and heavily criticized the intervention of the state in the economy.
Also among the lecturers in the symposium of 1979 there were Peruvian
professionals and politicians that supported market-oriented policy ideas. Among
them, Richard Webb who in 1981 would be appointed President of the Central
Reserve Bank by the Belaunde government, described the remarkably rentist
character of the Peruvian state and the devastating consequences that this had for the
development of the economy.
407
Miguel Vega Alvear, vice president of the
Association of Exporters (ADEX) and representative of one of the Committees of the
National Society of Industries,
408
explained that only a market system could let
Peruvians enjoy a dynamic economy, investment, and employment, and preserve
democracy, guaranteeing free competition.
409
Presidential candidate Luis Bedoya
(leader of the party Partido Popular Cristiano [PPC]) severely criticized the
intervention of the state in the economy and Peruvian industry for not being
competitive and working under the protection of the state.
410

407
Richard Webb, “Perú: Economia Rentista,” in Democracia y Economía de Mercado, 173-188.
408
During the late 1980s as a non-state actor and during the earlier 1990s as member of the Peruvian
Congress, Miguel Vega Alvear would play a very important role in the promotion of market-oriented
reforms. See chapter 7 of the present work.
409
Miguel Vega Alvear “Libertad Económica y Democracia,” in Democracia y Economía de
Mercado, 208.
410
Luis Bedoya Reyes, “Poderes seleccionados: Los privilegios,” in Democracia y Economía de
Mercado, 348-355.
204

The Peruvian attendees to this forum came from diverse sectors, representing
private and national universities, the media, labor unions, research institutions, and
informal producers. De Soto warned this varied audience about the urgent need to
liberate themselves from what he described as the “four beliefs” constructed by the
military government: the conviction that a viable society can only be created and
administered by the state; the need to have an ideology; the certitude that the state
should intervene in everything; and finally, the fear of external dependence.
411

Therefore, he appealed to the Peruvian attendees to learn what democracy and
market economy mean and to promote these ideas throughout the Peruvian society.
However, even during the symposium it was evident that among the national
lecturers there were discordant voices that rejected a market-oriented system. For
instance, this was the case of representatives of center-left and left political parties
such as APRA and the Frente de Obreros, Campesinos, Estudiantes, y Pequeños
Empresarios (FOCEP). Armando Villanueva, presidential candidate for the center-
left party APRA, suggested that especially in moments of economic crisis like the
one Perú was then facing, the adequate intervention of the state in the economy was
necessary. The state, he argued, had to provide the infrastructure to satisfy social
needs through subsidies and other extra-market mechanisms.
412
Likewise, Edmundo
Inga, member of the leftist party FOCEP expressed that if his party won the
forthcoming 1980 presidential elections, there would be a socialist government in

411
De Soto, “Introducción,” in Democracia y Economía de Mercado, xxii.
412
Armando Villanueva, “Democracia Económica y Economia de Mercado,” in Democracia y
Economía de Mercado, 316.
205

Perú in which the state managed the economy and would not pay the external debt or
negotiate any loan with private banks. Instead, Inga noted, the FOCEP government
would negotiate external loans with the USSR, and industrial policy would be
directed towards “the liquidation of transnational corporations” in order to prevent
these from liquidating the small and medium Peruvian firms.
413

Besides these discordant voices, the political/economic events during the
government of President Belaunde (1980-85) would demonstrate that the “learning
of market principles” suggested by De Soto in his first forums would not be an easy
task. It would take several years to convince Peruvians about the so-called virtues of
the market economy. As of the end of the 1970s, only a relatively small elite of
Peruvian intellectuals and politicians shared policy ideas favoring the liberalization
of the economy. Nonetheless, De Soto’s symposium was important in the sense that
it constituted one of his first efforts to approach the Peruvian audience in order to
promote free-market policy ideas. Furthermore, considering the Peruvian economic
policy context at that time, this event was particularly innovative.
Certainly another important factor in which economic ideas achieve currency
is the influence of political parties. During the period under analysis, the parties of
the Left challenged Morales Bermudez’s dismantling of some of the reforms
implemented by Velasco, the implementation of economic adjustment measures, and

413
Edmundo Inga Garay, “El Perú y su futuro a traves de los planes de gobierno,” in Democracia y
Economía de Mercado, 323-324.
206

the negotiation of agreements with the IFIs. They also firmly supported the
demonstrations of the labor movement against the government.
When Morales Bermudez announced elections for the Constitutional
Assembly, some factions of the radical left wing blatantly announced that they would
not participate, arguing that the return to democracy would be an attempt to
perpetuate imperialist and bourgeois power. Nonetheless, they participated in the
subsequent electoral process, but considered this move just a tactical step towards the
larger objective of initiating a socialist revolution.
414
In the 1978 election, all the
parties of the Left as a whole obtained 36% of the general votes.
415
As a result, some
of the most conspicuous leftist leaders— some of them former guerrilla leaders who
did not believe in democracy—became members of the Constitutional Assembly.
Besides, APRA, the center-left party, obtained 35% and the Partido Popular
Cristiano (PPC) on the right, obtained a number of votes below 24%.
416

The participation of the members of the Left in the democratic system,
however, was not accompanied by an ideological renovation. Twenty-three years
later, Javier Diez Canseco, one of the most well-known representatives of the

414
Osmar Gonzales, Señales sin Respuesta. Los zorros y el pensamiento socialista en el Perú 1968-
1989. (Lima: Ediciones PREAL, 1999), 145. Even the Partido Comunista del Perú that during all its
history had been excluded from the possibility of integrating with all its rights into the Peruvian
political system, and the Maoist “Patria Roja,” one of the most intransigent radical leftist groups that
opted for not participating in the elections for the Constitutional Assembly, participated in the general
elections of 1980.
415
However, because of the system of proportional representation prescribed in the Peruvian electoral
regulations, since the various leftist parties did not participate as a block or coalition, this diminished
their possibility of obtaining a number of representatives in Congress according to the number of total
votes.
416
Acción Popular (center-right) did not participate in the elections.
207

Peruvian Left, would recognize this failure. Reflecting about the Left’s trajectory
during the 1970s and early 1980s, he noted,
At that time, to be members of the Left meant to be sectarians and to
wrongfully believe that we were the owners of science and of the workers’
conscience. . . . We adopted incorrect conduct, styles, and approaches
encouraged by our ideological reading of Marxist socialism and an erroneous
political posture. We ascribed to a closed ideology that we thought was able
to explain and understand everything.
417

In fact, as of the end of the 1970s, the majority of the members of the Leftist
parties made no attempt to review the central thesis of the Leninist matrix that
guided their discourse and practice.
418
They praised a dogmatic generalized class
discourse based on the belief that Perú was in a pre-revolutionary stage that would be
followed by a popular government of the masses without the interference or
mediation of political parties. This belief, however, had to do little with the Peruvian
reality of the late 1970s and the installation of a democratic government.
Cotler notes that during their participation in the Constitutional Assembly,
the parties of the Left were more preoccupied with radicalizing the political
discourse and organizing demonstrations against the government. Many neglected

417
Javier Diez Canseco, “Ser de Izquierda en el Perú de hoy,” Quehacer, no. 142, August (2003) 18-
19. In the same line, Martín Tanaka, a scholar who has made an extensive study of the political parties
in Perú, notes that the Left built its schemes from a mistakenly reading of Marx and tried to impose on
the workers a revolutionary ideology. See Los Espejismos de la Democracia: El Colapso del Sistema
de Partidos en el Perú, 1980-1995, en Perspectiva Comparada, (Lima: Instituto de Estudios
Peruanos, 1998).
418
The information presented in this paragraph is based on my interviews with Peruvian sociologist
Guillermo Rochabrun, Lima, July 19, 2003, and Marcial Rubio, Law professor, specialist in
Constitutional Law and the study of political parties, Lima August 5, 2003.
208

the legislative work they were supposed to do as members of this assembly, and at
the end did not approve the last draft of the Constitution.
419

On the other end of the political spectrum were the center-right parties, the
PPC and AP, which had important ties with the private sector and business interests.
With respect to their economic policy orientations, AP supported the intervention of
the state in the economy, while the PPC leader and candidate for the 1980
presidential elections, Luis Bedoya argued the need to facilitate private initiative
through market-oriented reforms. During his participation in the Constitutional
Assembly Bedoya supported the inclusion of an article that recognized the market
economy as the basis of the Peruvian economic system in the 1979 constitution.
420

At the end of the 1970s, Bedoya appointed a team of young economists to
elaborate the PPC economic plan to be applied in the eventual arrival of this political
party to the presidency of Perú.
421
These economists did not have ties with the PPC
politicians linked to business interest groups. They had pursued graduate studies in
U.S. universities and after their return to Perú had worked as business consultants in
the private sector and as professors at the Universidad Católica and the Universidad
del Pacífico. Iván Rivera and Jorge Gonzales Izquierdo had undertaken graduate

419
Julio Cotler, Los Partidos Politicos y la democracia en el Perú, Consejo Latinoamericano de
Ciencias Sociales, Documento de Trabajo no. 9 (Buenos Aires: Consejo Latinoamericano de Ciencias
Sociales, December 1988), 28.
420
Nonetheless, due to the objections launched by APRA (center-left), the term finally approved was
“social market economy.” Each political party, however, interpreted this term in its own way. For
APRA, the term “social” was intended to firmly support the intervention of the state in the economy,
and for PPC it implied a more restricted intervention. Personal interview with Miguel Vega Alvear,
Lima, July 9, 2003.
421
Unless otherwise noted, the description of this team of economists is drawn from my personal
interview with Rufino Cebrecos, Lima, November 30, 1999.
209

studies at the University of Chicago, Jorge Vega at Boston University, and Rufino
Cebrecos at Cornell. All supported market-oriented policy ideas. Their educational
background and political independence permitted them to analyze Perú’s economic
problems and foresee an economic policy program without being influenced by
traditional political-business interests. Nevertheless, these qualities, which from an
outsider’s perspective would have been considered an advantage for fulfilling their
goal to launch Perú into market-oriented reforms, were one of their main obstacles.
The economic program elaborated by these young economists satisfied the
PPC leader Luis Bedoya, who incorporated it to his government plan. However,
since this proposal did not represent the economic interests of many PPC members
with strong ties to business groups, it was not universally applauded within the PPC
political party. The economic plan condemned the direct intervention of the state in
the economy, especially in the areas of business’s property rights, labor policy, and
tariff policy. It argued that this intervention had resulted into the consolidation of a
rent economy in which the market’s decision in the assignment and distribution of
resources had been replaced by political and interest-based decisions.
While the criticism of state intervention in the areas of property rights and
labor policy was uniformly applauded within the PPC, the statements about tariff
policy and rentist practices were not at all welcomed by some PPC politicians and
the interest groups they represented. At this time pro-market policy ideas were
received with suspicion, even within the PPC, whose leader, compared to the leaders
of the rest of political parties, seemed to be the strongest supporter of the free market
210

system. Furthermore, once the press published the PPC economic program, it was
frontally condemned, especially but not only by the political parties of the Left.
422

In sum, at the end of the 1970s, all the parties of Peru’s political spectrum
fiercely attacked any attempt to implement market-friendly policies. Despite some
significant but still incipient efforts by a few policy analysts to advance market-
oriented reforms in Perú, the intellectual and social climate had not yet opened to
that outcome. The agendas of the main research universities and think tanks were far
from paying attention to projects that would lead to the reduction of the participation
of the state in the economy and the opening of the market to foreign competition.

The Belaunde Administration’s Failed Attempt to Implement Market-Oriented
Reforms (1980-1985)
Newly elected President Fernando Belaunde, leader of AP, negotiated a
political pact with the PPC that made possible the transfer of technical expertise
between the two parties, and allowed the PPC leader to nominate the individuals that
the President would appoint as ministers in the sectors of Industry and Justice. The
Belaunde administration opted to apply the market-oriented program supported by
the PPC leader during his electoral campaign. Nonetheless, as this section explains
the members of AP, the majority of PPC, and in general state and non-state actors as
well heavily opposed the implementation of market-oriented reforms.

422
Pedro Planas, La democracia volátil: movimientos, partidos, líderes políticos y conductas
electorales en el Perú contemporáneo, (Lima: Friedrich Ebert Stiftung, 2000), 221.
211

State actors
Central players in the contest of ideas underlying economic reform efforts
during the Belaunde administration were the members of his economic team. The
minister of finance, Manuel Ulloa, had worked with the First Bank of Boston in the
United States and had acquired an important background in international business.
He was very interested in facilitating the flow of foreign investment. Ulloa
incorporated in his ministerial agenda much of the project elaborated by the
economists that had worked for the PPC’s leader.
423
For his advisory team, Ulloa
drew on these economists as well as other groups of highly qualified professionals
that also supported market-oriented policy ideas, held advanced degrees from U.S.
universities, and had connections with international financial institutions. Among
these were Roberto Abusada (a Cornell graduate), José Valderrama (a Vanderbilt
graduate), and Brian Jensen who had occupied a managerial position at the Wells
Fargo Bank in the United States. Likewise, for the position of general secretary of
the ministry of finance, Ulloa appointed Roberto Dañino, a lawyer who had
graduated from the Universidad Católica and pursued studies at Harvard University.
Initially, the performance of Ulloa’s economic team, nicknamed “The
Dynamo,” was fast, coherent, and independent from the influence of domestic
interest groups. Various circumstances facilitated their first moves. First of all, there
was an impressive coherence within the economic team. “We were all convinced and
agreed that a market reform program had to be implemented,” notes Roberto
212

Abusada.
424
Second, Ulloa could at the beginning of his appointment act with
relative autonomy, since Congress had granted the executive the ability to legislate
by presidential decree. This led to the fast approval of economic policies by the
executive, avoiding the regular channels and the extended debates that traditionally
precede the expedition of laws in Congress.
Third, Belaunde’s leadership in AP-which had a majority in Congress-
facilitated the rapid ratification of the policies formulated by The Dynamo without
considering the protests coming from the opposition and public opinion. Because
Belaunde had returned the ownership of the newspapers and television firms
expropriated by Velasco to their old private owners, he had some informal influence
on the media, and through this, on an important sector of public opinion.
425

Nonetheless, The Dynamo’s relative autonomy would not last for long. A few
months later of their appointment, the members of the economic team would learn
that the commonality of opinion within the team would not be enough to effect their
market reform plans in the Peruvian terrain. In the words of Richard Webb,
Practically, the economic team did not—it could not—do very much. After
some relatively short steps, there was a significant back-tracking. At the end,
what the economic team did was just to reduce trade tariffs from 120% to
60%. That was not a vast program of economic liberalization. Despite the
reduction of tariffs, the protection of the national market was still

423
Personal interview with Rufino Cebrecos, Lima, November 30,1999.
424
For instance, Vice-minister of Commerce Roberto Abusada designed a regulation that authorized
considerable tariff reductions without any consultation with industrialists, and another regulation that
cut the CERTEX subsidy without any consultation with the exporting sector. Personal interview with
Roberto Abusada, Lima, July 2, 2003.
425
Personal interview with Julio Cotler; also see Cotler, “Los Partidos Políticos,” 38. Nonetheless, as
I explain later, the press did not take an active supporting role for the application of the reforms. It did
not criticize the government, but did not promote the reforms, either.
213

considerably large. However, the opposition catalogued the economic reform
as an ultra-liberal program.
426

In fact, during the early 1980s there was a sort of unintended convergence
between the progressive intellectual current and the interests of the economic groups
supporting an inward-oriented economic policy. This context and the lack of any
previous effort from the part of The Dynamo to convince others of the need of the
reforms, constituted a serious obstacle in the implementation of these reforms.
Opposition against the team increased in both the state and non-state sectors.
In December of 1982, Ulloa resigned and was replaced by Carlos Rodriguez
Pastor, a Peruvian lawyer with specialized studies at Harvard University and by then
vice president of Wells Fargo Bank in the United States. He was a renowned
negotiator in the international business world and a decisive supporter of monetarist
policies. During his appointment he opted for even greater austerity, and the full
service of Perú’s external debt.
However, Rodriguez Pastor did not have any political support for the
application of his economic program and did not attempt to gain it either. In the
wake of the extreme domestic and external problems that ignited Perú’s worst
economic crisis since 1930, and intense political opposition, the continuation of the
economic program turn into an impossible enterprise. Soon it become evident that
the market-oriented reforms implemented by the Belaunde government reflected the
policy ideas of only a small group of technocrats working mainly in the Ministry of
214

Finance and the Ministry of Energy.
427
Various members of the executive, even AP
politicians appointed by president Belaunde, opposed the policy initiatives of the
economic team. According to Richard Webb,
The reforms challenged popular ideas and political taboos, yet were
announced with no prior search for a political mandate nor any effort to
convince either key political players, even within Belaunde’s party, or the
public at large. . . . The measures required implementing legislation and
ministerial resolutions, active bureaucratic problem-solving, and lower-level
day-to-day decisions that were open to public criticism.
428

Indeed, President Belaunde himself had not been totally convinced about the
need to liberalize the economy and apply austerity measures. He did not have a
coherent strategy but rather a stop-and-go attitude toward the economic team’s
policies. The government maintained levels of state intervention, on the one hand,
and the application of some market-oriented reforms, on the other. Belaunde’s lack
of conviction regarding the retreat of the state from the economy is reflected in the
fact that he shelved various projects of the reform agenda overseen by Ulloa’s
economic team. Among these it was the privatization of state-owned enterprises.
429

Belaunde was a traditional politician who knew that a radical reform along
the lines of free markets and the IFIs’ requirements could seriously risk the social
legitimacy of AP, his political party. The leaders of AP–older members of this party
linked to local authorities and the business elite–had also warned Belaunde about this

426
Personal interview, Richard Webb, Lima, Perú, August 5, 2003.
427
The minister of energy was Pedro Pablo Kuczynski, another Harvard graduate and advocate of
market-oriented reforms who worked closely with Ulloa and The Dynamo.
428
Richard Webb, “Perú,” in The Political Economy of Policy Reform, 365.
215

possible outcome. The president ceded to his party’s pressure and introduced
economic policies far removed from the economic team’s market orientation.
In addition, since Belaunde was an architect with a passion for the
construction of roads and buildings, he constantly made incursions into the fiscal
budget in order to finance infrastructure projects. During the Belaunde government,
the deficit increased significantly because of a huge public investment program
directed mainly by the central government.
430
In 1982, in the middle of economic
crisis, public investment reached a top level of 10% of the GDP.
431

Belaunde’s lack of interest in market-oriented reforms was even more evident
when in 1984 he appointed to his ministerial cabinet AP politicians who had actively
opposed Ulloa and Pastor’s economic policies. The new appointees not only
endorsed Belaunde’s public spending plans, but also reversed the reforms envisioned
by The Dynamo. Belaunde did not oppose this reversal. In the middle of a deep
economic crisis, social protests, and the rout of the AP in the municipal elections, he
simply aspired to finishing his presidential period democratically.
432

429
Personal interview with Roberto Abusada (Lima, July 2, 2003) and Richard Webb (August 5,
2003).
430
An economic report of the firm APOYO noted that Belaunde’s unstoppable desire for construction
had resulted in a level of public investment expenses proportionally greater that that during the
military government, which in theory was supposed to be more statist. APOYO, “Cinco errores para
no repetir,” Perú Económico, August 1985.
431
Two thirds of the financing obtained by Minister of Finance Ulloa from the Club of Paris in 1981
were used to develop public investment projects pursued by Belaunde. Later investment grew, thanks
to the continuous refinancing of the external debt managed by Rodriguez Pastor. Ibid.
432
In fact, the transfer of power from one democratically elected government to another in 1985 after
the end of the second Belaunde government was an event that had not been seen in Perú since 1908.
Various democratically elected presidents during the period 1915 to 1963 could not finish their
government terms.
216

As noted by some of his collaborators, the military coup d’etat that in 1968
had prevented Belaunde from fulfilling his constitutional mandate during his first
presidential term was a hard experience that followed him throughout his exile and
political career. Therefore, during the 1980s Belaunde’s main concern was to transfer
power to another democratically elected government.
433
Since Belaunde did not want
to risk the continuation of his government he opted for not insisting on the
application of market-oriented reforms that were unpopular.
With the return of civilian rule, the Peruvian congress also played an
important role in the success or failure of economic reform. The government’s
political party, AP, had the majority of seats in the Chamber of Deputies and, due to
its political alliance with PPC, it could also count on a majority in the Senate.
434

Nonetheless, this situation did not guarantee unrestricted support for the market-
oriented policies issued by the executive.
Many voices that had not been able to express their demands during twelve
years of the military regime could finally resonate in congressional debates. In
addition, there were many new voices that for the first time could participate and
bring to the table the demands of sectors of the civil society traditionally

433
Personal interviews, Roberto Abusada and Richard Webb. Other analysts have also made
observations along this line. For instance, Sanchez argues that from 1983 onward, with the outbreak
of economic crisis and social unrest, the Belaunde government’s main political objective would be to
transfer the presidential banner to another civilian and remain in the Peruvians’ memory as the
defender of democracy. Juan Martín Sánchez, “El Instituto de Estudios Peruanos, de la ambición
teórica de los años sesenta al estupor fáctico ante el Fujimorismo,” 17.
434
As a result of the elections held in 1980, AP had 51.7% of participation in Congress, added to that
the PPC’s 6.7% (total 57.14). Jurado Nacional de Elecciones, Resultados de las elecciones politicas
generales de 1980, Vol. I., 1982.
217

underrepresented in previous congressional forums. As a result, according to Webb,
the early 1980s witnessed a peculiar type of debate in Congress:
At the beginning it was like the Tower of Babel, it was almost chaotic: with
the most diverse points of view and proposals about what the government
should do to solve the numerous and diverse demands of the various
constituencies. Soon though, these varied voices aligned into one side, firmly
opposing the government.
435

During the first year of Belaunde’s presidential term, a very small number of
representatives of AP and PPC supported the government’s economic policy. Among
these, Garrido from PPC and Mariategui from AP commented that the reduction of
tariffs was a healthy measure that would end excessive rent-seeking and instead
promote efficient industries.
436
Nonetheless, AP political leaders such as Alva
Orlandini (who later would play a key role leading his party against Ulloa, the
minister of finance) expressed strong disappointment with respect to the market-
oriented reforms.
437
AP and PPC politicians echoed the demands of the business elite
and criticized the opening of the domestic market to foreign products, the reduction
of subsidies, and the elimination of tax benefits to exporters.
Likewise, the parties of the opposition rejected the implementation of the
market-oriented policies approved by the executive. Armando Villanueva, the APRA
presidential candidate in the elections held in 1980, was not at that time a member of
Congress, but his opinion as an influential APRA leader is illustrative of the position
taken by this political party. Villanueva declared to the press that

435
Personal interview, Richard Webb, Lima, Perú, August 5, 2003.
436
“New tariff rate ends rent-seeking,” El Comercio, September 16, 1980, 13.
437
“Preocupa a Alva Orlandini política económica de Ulloa” El Comercio, June 23, 1980, 6.
218

We have presented serious observations to the government’s economic policy
whose proceedings reflect the principles supported by Friedman and his
disciples. The effects of this consumerist economic policy are negative. . . .
There will not be salvation for Perú without a strong promotion of
industrialization. . . . The reduction of tariffs and the increase of interest rates
do not favor the development of a national industrial capitalism. . . . The
government has implemented reforms using a strange model that favors
multinational corporations.
438

With respect to the parties of the Left represented in Congress, they did not
give the Belaunde government a chance. Although the Left had been divided during
the general elections,
439
once in Congress the Leftist representatives united their
voices to blame the government of economic policy wrongdoing. Ministers Ulloa
and Rodriguez Pastor and their economic teams were accused of being servants of
the IFIs, of practicing an economic policy that favored the multinational
corporations, and for not paying attention to the problems affecting Peruvians.
440

The parties of the Left were at that time experiencing a serious crisis of
identity and internal divisions that had become evident as a consequence of structural
changes in the Peruvian political arena. Although the successful results obtained in
the general and municipal elections incorporated the Left into the process of the

438
“Política económica precisa de saludable rectificación”, Interview to Armando Villanueva, El
Comercio, July 23, 1981, A-4.
439
Five lists from the Left participated in the general elections of 1980. Unión de Izquierda
Revolucionaria (UNIR), whose most important political party was Patria Roja (which had not
participated in the elections to the Constitutional Assembly in 1978) obtained 4.55% of the general
vote; Partido Revolucionario de los Trabajadores (PRT), 3.98%; Unidad de Izquierda (that
represented Partido Comunista Peruano and Partido Socialista Revolucionario), 3.52%; Unión
Democratica del Perú (UDP), 3.50%; and Frente Peruano de Campesinos y Trabajadores
FOCEP,1.68%. Osmar Gonzales,“Señales sin Respuesta,” 143.
440
See “Este régimen ha fracasado en las promesas que hizo, afirman representantes de Izquierda
Unida, Jorge del Prado y Manuel Dammert.” El Comercio, July 23, 1981.
219

formal democratic system,
441
this process became “painful and traumatic” for this
political sector whose traditional political activity had to face a series of shifts.
442

In order to participate in the elections and later in the political arena, the Left
had to expand its traditional discourse based upon the central idea of pursuing a
revolution to one that had necessarily to deal with the issue of how to consolidate
democracy. Likewise, due to its participation first in the electoral campaigns and
later in the various roles the democratic vote had assigned to them, the members of
the Left had to shift their organizational work from the social terrain to the electoral
sphere. For instance, during the 1970s, leftist activists had worked directly with
workers and peasants and thus pursued politics in the slums, factories, and peasant
communities. Later, however, the larger national scene—constituted mainly by the
Congress, the municipal offices, and the mass media— became the optimal spaces to
exercise political activity and capture badly needed public opinion.
443
These shifts
caused identity problems and contradictions for the Left.
Furthermore, the country’s political shift from a military dictatorship toward
a democratic order during the early 1980s created a new context and demanded a
redefinition of objectives and strategies. Unfortunately, not all the sectors of the Left

441
In the municipal elections of 1980, the winner in Lima and at the national level was Acción
Popular, Belaunde’s party. Nonetheless, the leftist Izquierda Unida (IU), a political front founded in
September 1980 that included the majority of socialist parties, obtained the second place. In 1983, IU
reached the largest success electorally achieved by the Left: Alberto Barrantes won the municipal
government in Lima and in various provinces of Perú. Osmar Gonzales, 153.

442
See in this regard, Osmar Gonzales, “Señales sin respuesta: Los ‘zorros’ y el socialismo en el Perú
1968-1989,” and Guillermo Rochabrún, “Izquierda, democracia y crisis en el Perú,” Márgenes, no.3,
Lima, June (1988), 79-99.
443
Osmar Gonzales, “Señales Sin Respuesta: Los ‘zorros’ y el socialismo en el Perú,” Socialismo y
Participación, 76, December (1996): 127.
220

responded to this demand, and those that attempted to do so demonstrated
ambiguities and contradictions that resulted from the Left’s moving to a democratic
regime “without liquidating its bills with its ideological inheritance.”
444

On the one hand, the radical sector of the Left persisted in its traditional
discourse that proclaimed the pursuit of a revolution through an army insurrection as
its main goal. This position continued despite the fact that as a result of the
democratic elections held in 1980, various Leftist leaders had become members of
Congress or municipal governments and as such were part of the state apparatus
working under a democratic government. As noted by Abugattas, there was within
the Left a sacred fear to review under the light of the Peruvian reality the ideological
principles they considered “scientific” and thus untouchable.
445

By contrast, the socialists and moderates of the Left took as imperative the
need to reflect on the challenges and opportunities that a democratic context could
offer for pursuing their ideals. Nonetheless, even within this group there were largely
divergent ideas. Consequently, their initial efforts to assume a more responsible role
within a democratic order also had ambiguous results.
For some, the participation of the proletariat and the masses would strengthen
the power of democracy, which through socialism would take a qualitative step
forward. Socialism was considered to be “the road to an economic, social, political,

444
Luis Pásara, “Ocho tesis erróneas sobre la democracia en el Perú”, Revista Peruana de Ciencias
Sociales, 1, no. 3, August – December (1988): 121.
445
Juan Abugattás, “El Leviatán apedreado: la polémica sobre el Estado en el Perú,” in Estado y
Sociedad : Relaciones Peligrosas, Alberto Adrianzén, et. al. (Lima: DESCO, 1990), 102. Personal
interviews with Marcial Rubio (August 5, 2003) and Guillermo Rochabrún (July 19, 2003).
221

and cultural democracy, with economic planning and redistribution, popular
assemblies, plurality of political parties, freedom of press and the total respect for
democratic liberties and human rights.”
446

For others, references such as “the revolution of the proletariat” and a
“democracy based on the revolution of the masses” formed part of their discourse
and political initiatives.
447
For instance, one of the conclusions of the First National
Summit of the Izquierda Unida (IU), held in March 1983 stated, “By principle, the
IU does not relinquish any mean of fight, or to any form of organization. It combines
all and each of these forms, even if these are legal or illegal, open or secret.”
448
One
conclusion of the Second National Summit of the IU Directive Committee held in
April 1984 said, “There is a need to be prepared in all fields, even in that of the
violent revolution.”
449

In sum, the common ground among the various Leftist groups in Congress
was their strong opposition to the Belaunde’s government economic policies.
However, there was not yet within the majority of the Leftist groups an attempt to
reflect on the role of the democratic state in the economy. As a block, the Left
assumed an ambiguous position that affected its political agency and impeded the

446
“Primer Congreso Nacional MIR. Tesis Politicas”, Voz Rebelde no.12, Special edition, MIR, Lima,
August 1983, 17, cited by Osmar Gonzales, “Señales sin respuesta,” 153 .
447
See “Primer Congreso Nacional MIR. Tesis Politicas,” en edición especial de Voz Rebelde no.12,
MIR, Lima, August 1983, 13-15. Cited by Osmar Gonzales, “Señales sin respuesta,” 153.
448
Ibid. As noted in the next chapter, this sort of statement that was repeated by various politicians of
the Left would have terrible consequences for the Left. The lack of an immediate condemnation of the
terrorist attacks during the early 1980s by leftist non-legal groups affected the reputation of the Legal
Left’s politicians, especially when the Maoist terrorist group Shining Path increased its attacks against
civil society.
449
Osmar Gonzales, “Señales sin respuesta,” 154.
222

elaboration of an economic program according to the needs of the Peruvian
context.
450

In conclusion, with respect to the Peruvian congress as a whole—from the
right to the left— it did not support the economic policies formulated by the
ministers of finance Ulloa and Rodriguez Pastor. With the outbreak of the economic
crisis in 1982 Congressmen almost unanimously reacted against the executive, and
this animosity grew strongly during the following years. The politicians blamed the
government, arguing that the market-oriented policies had contributed to the
economic crisis.

Non-state actors
The role of non-state actors in this dynamic anti- market reform that
characterized the 1980s must not be overlooked. Despite the fact that the majority of
the members of Ulloa’s economic team had studied at the Department of Economics
of the Universidad Católica, this latter did not support the economic policies
implemented by its alumni.
451
After 1980, when the fourteen professors of the
Department of Economics that supported market-oriented policy ideas left this

450
Personal interviews conducted in Lima with Marcial Rubio, August 5, 2003; Guillermo
Rochabrún, July 19, 2003; Alberto Adrianzén, November 16, 1999; and Efraín Gonzales de Olarte,
July 2003 and September 1999.
451
These professionals were alumni of the Universidad Católica del Perú, and had also taught in the
Department of Economics of this university. For example, Richard Webb, president of the Central
Reserve Bank appointed by Belaunde, was among the founding faculty of that department. Abusada
and Valderrama had studied in this Department, and after pursuing graduate studies in the United
States, had returned to Perú to teach in their alma mater. Rivera had studied in the Universidad del
Pacífico, and after pursuing master studies in the Universidad Católica de Chile, returned to teach at
the Universidad Católica del Perú.
223

institution, the prevailing ideological trend among the remaining faculty was a
progressive one, close to that of the Peruvian moderate Left.
With respect to the Universidad del Pacífico, as mentioned above, toward the
end of the 1970s, members of its faculty had severely criticized the intervention of
the state in the economy especially the way in which the military government had
overemphasized this intervention. Nevertheless, neither the Universidad del Pacífico
nor those members who had questioned the state intervention in the economy
recommended the implementation of market-oriented reforms as an alternative. On
the contrary, some of the most renowned professors of this university publicly voiced
their disagreement with these reforms.
452
For instance, in 1981 the National Society
of Industries sponsored a conference in which the Belaunde government’s economic
policies were the center of debate. Among the experts who intensely criticized the
government was Daniel Schydlowski, a professor of the Universidad del Pacífico.
Nor could the Ulloa economic team count on the professional support or
collaboration of any think tank, despite the fact that during the early 1980s a second
set of think tanks ideologically and organizationally different from those created
during the 1960s had emerged. Grupo de Analisis para el Desarrollo (GRADE),
created in 1980 by a group of social scientists, and the Instituto Libertad y
Democracia (ILD), created in 1981 by a group of professionals led by economist
Hernando De Soto, shared a favorable vision of market forces in the development
process. These think tanks’ economic policy orientation was closer to that of Ulloa’s
224

economic team. However, there was not among them any institutional tie or effective
support for the formulation and application of market-oriented reforms.
Since its creation, the ILD’s purpose was to play a role in policy making. Its
focus on economic policy has always been specifically policy oriented, not
theoretical. Its founders believed that in order to achieve the promotion of freedom
and democracy in Perú, it was necessary to study and promote the study of the
market economy “aside from any scholastic ideology.”
453
For its leader, De Soto, the
ILD’s intellectual mission was to find a way in which Perú could adapt its social
structure to the specialized and interdependent mode of production of more
prosperous societies. Thus, the ILD set as its central task to improve the legislation
and create market mechanisms in order to “radically change the social order.”
454

During its early years, following the earlier efforts of De Soto, the ILD
organized forums for the discussion of market-oriented principles. For instance, in
1981 the ILD organized a forum it titled Dependencia y Desarrollo en Debate
(Dependency and Development in debate), to which prominent international and
national figures were invited. Among the former, there were for instance, Milton
Friedman and Larry Sjaastad,
455
both from the University of Chicago. According to
the speakers in this forum, the determinants of underdevelopment in the region were

452
Personal interview with Professor Julio Wicht, in Lima, July 27, 2001.
453
ILD constitutive agenda.
454
Hernando De Soto, in Dependencia y Desarrollo en Debate, Diario de un Simposio, Instituto
Libertad y Democracia (Buenos Aires: Editorial Fraterna S.A., 1982), 8.
455
Sjaastad had been advisor of the Chilean government and the main author of the various studies
about Chile’s trade liberalization sponsored by the Central Reserve Bank of Chile. Ibid, 591.
225

endogenous.
456
Therefore, they suggested searching for endogenous and depth
modifications.
457

At this event De Soto did not mention specific schools of thought in
economics. Nonetheless, his criticism to the terms used by CEPAL and especially by
the intellectual Dependentistas, could not be more obvious. Basically, the objective
of the forum was to question “the wide-spread idea in Latin America that economic
dependence was linked to underdevelopment.”
458
In De Soto’s words,
Any prejudice against international interdependence delays our entrance to
the stage of specialization and to the market economy system. Such a delay is
grave. . . . Therefore, it is useful to distinguish between the harm coming
from outside and the internal causes that include our own incompetence. . . .
It is difficult for our governments to take adequate decisions if such a
prejudice persists.
459

Despite the evident coincidence between the economic policies praised by
ILD and those applied by the Ulloa economic team, there was not a concrete work
agenda for cooperation between them. During the early 1980s when Ulloa’s
economic team began the implementation of some market-oriented reforms, the ILD
was not yet a solid institutional organization, even less a powerful think tank. The
pro-market policy ideas discussed in its forums had not had yet a significant
influence in Peruvian intellectual or academic circles. Although the ILD initiated at

456
See in this regard for instance, Larry Sjaastaad, “Como Dejar de Exportar (o Por qué el Dr.
Prebisch no recibirá el Premio Nobel) in Dependencia y Desarrollo en Debate, Diario de un
Simposio, Instituto Libertad y Democracia, 261.
457
Fernando Isaza, “Responsabilidad de la Contratación Petrolera” in Dependencia y Desarrollo en
Debate, Instituto Libertad y Democracia, 201.
458
De Soto , “Dependencia y Desarrollo en Debate,” 11.
459
Ibid, 9.
226

this time important research focused on the informal sector and the problems created
by the state in the intervention of the economy, the main findings of its research
would not be available or publicized until some years later. Before the end of his
presidential term—when Ulloa’s economic team was not part of the government
anymore—Belaunde contacted De Soto and inquired about the ILD’s studies in the
informal sector. However, their conversations did not generate any specific
agreement or the initiation of any project.
460

With respect to GRADE, since its creation it had pursued academic research
on the formulation of public policies in areas relevant to the development of Perú.
However, during the years that the Ulloa economic team attempted to reform the
Peruvian economy, GRADE was still in its incipient stage. Like the ILD, it did not
have any institutional cooperation project with Ulloa’s economic team.
461

With respect to APOYO (created in 1977), in 1982 it established a service to
provide economic information and analysis for the most important firms in the
country. In 1984, APOYO created its own polling division with the objective of
monitoring political and economic information for the information service created in
1982. By the mid-1980s, its publication Perú Económico and its economic reports
produced for its customers were in good demand by business and professional
sectors, ensuring the long-term sustainability of APOYO’s other research projects.
462

460
Personal interview with Hernando de Soto, Lima, October 1999.
461
Personal interview with Roberto Abusada, Lima, July 2, 2003.
462
During its first decades, APOYO financed its non-profit activities by generating profits from the
production of different economic reports for the private sector. Gabriel Ortiz de Zevallos, “Instituto
APOYO,” in Mc Gann and Weaver, Think Tanks and Civil Societies, 561.
227

Nonetheless, during the early 1980s – at the time that the Belaunde
government’s economic team initiated market reforms-APOYO’s ability to influence
the wider public and the policy making arena was yet not effective. For instance,
APOYO introduced to Congress a project to privatize state-owned firms. Although
that project was approved in the Senate, it was rejected in the Deputies’ chamber.
463

With respect to IEP and DESCO, during the early 1980s their research began
to pay considerable attention to economic issues and to underline the deficiencies of
the state. For instance, IEP created a division charged with the study of employment,
agriculture, regionalization, and the relationship between democracy and economic
growth. Likewise, it published texts that tackled issues regarding internal migration
to the cities and its impact on the process of urbanization,

focusing on economic
issues that the Belaunde government seemed to ignore or neglect. In the IEP, there
was the perception that on their return to government in the early 1980s, Belaunde
and AP had not noticed the considerable social transformations that had occurred
since Belaunde had left the presidency in 1968.
464

A frontal criticism of the state was made by IEP in 1984. It published a
catalyst essay “Desborde popular y crisis del Estado. El nuevo rostro del Perú en la
decada de 1980,” in which the author José Matos Mar highlighted the process of
radical transformation of the Peruvian society and criticized the deficiencies of a
state in crisis, unable to respond to that transformation. This book focused on the

463
Personal interview with Felipe Ortiz de Zevallos, Lima, July 7, 2003.
464
Juan Martín, Sanchez, 18; and personal interview with then director of Instituto de Estudios
Peruanos Julio Cotler, Lima, October 1999.
228

incapacity of the state, its weak legitimacy, and its distance from a social group
constituted by inhabitants of neighborhoods populated mainly by migrants from the
provinces. Matos Mar noted the contrasting results of an inefficient large state
apparatus and its rules and of an emergent society, an informal sector, that was
creating multiple and effective strategies of survival, contesting and going beyond
the formal, official order.
In this regard, IEP’s analysis added to that of other voices that during the
early 1980s strongly criticized the performance of the state, such as those of the
technocrats of Ulloa’s economic team. However both IEP and DESCO launched
their criticisms about the state, from an opposite perspective than that of the
promoters of market-oriented reforms. IEP and DESCO stressed the need for a more
socially concerned state that could extend and improve its services to all the
population. In contrast, the Ulloa economic team more concerned with free-market
issues proposed the reduction of the state and the liberalization of the economy.
Furthermore, both IEP and DESCO frontally opposed and criticized the
performance of Ulloa’s economic team. As Cotler commented,
It was unbelievable—and difficult to understand—that a democratic
government that had just been installed after eleven years of military regime
could through its economic policies violently attack the most needy popular
strata, benefiting instead a very small group that was economically, socially,
and culturally removed from the majority of the population. This was a slap
in the face to democracy and to the Peruvian people.
465

465
Julio Cotler, personal interview, Lima, October 1999.
229

Summarizing, during the first half of the 1980s, there was no concrete
working agenda between the government’s economic team and the Peruvian think
tanks. On the one hand, the think tanks that had affinities with the economic team
regarding economic policy orientation were not yet ready to offer significant support.
During the early 1980s, ILD and GRADE were still in their incipient years, still
lacking a solid organizational structure or a consolidated position in the Peruvian
intellectual arena that could enable them to generate wider support for their policy
proposals and the market-oriented reforms applied by the government. On the other
hand, the most prestigious think tanks that had invaluable experience and logistical
structure did not share the views of the Ulloa economic team.
Labor unions, too, are important non-state actors with a stake in economic
policy. Compared to the strength of the labor movement during the 1970s, labor’s
capacity for collective action declined in the 1980s. The military government of
Morales Bermudez had allowed in 1978 the owners of firms to fire 3,000 union
leaders who were not allowed to come back to their jobs. Although this measure did
not immediately generate the labor movement’s retreat from the political arena, it
seriously weakened its organization and initiated its process of decline.
Nonetheless, during the early 1980s labor unions were one of the most
serious opponents of the economic policies of the Belaunde government. There were
two nationwide strikes in 1983 and two in 1984, and high-profile strikes staged by
230

municipal workers and bus drivers, among others.
466
Through their demonstrations
and electoral votes, the organized workers made explicit their repudiation of the
government’s economic policy. The dramatic failure of the AP, the government
party, in the municipal elections of 1984 and the fact that the Left—the political
group closer to the labor unions—won these elections in many jurisdictions
throughout the national territory, were clear signs of the workers’ position.
With respect to the wider public, during the early 1980s it did not participate
in public debate related to economic reforms or the implementation of these reforms
either. It expressed its disagreement mainly at election time. Furthermore, as noted
by Richard Webb, president of the Central Reserve Bank during the Belaunde
government, “the adjustment and reform agenda were perceived as radical,
exaggerated, insensitive, and technically flawed by a majority of the public.”
467

In conclusion, during the early 1980s, the political forces did not see the
implementation of market-oriented reforms as a plausible remedy to the destructive
capacity of the economic crisis. Although the populist and statist economic policies
of the military regime were severely questioned after 1976, these were still not
totally discredited in public opinion at the beginning of the 1980s. The particular
diagnosis of the Peruvian economy and the projected solutions to overcome its
problems that were pursued by the ministers of finance, Ulloa and Rodriguez Pastor,
did not find support within the Belaunde administration or the government’s political

466
Carmen Rosa Balbi, “Politics and Trade Unions,” 140.
467
Richard Webb, “Perú,” in The Political Economy of Policy Reform, ed. John A. Williamson, 373
(Washington, D.C.: Institute for International Economics, 1994).
231

party. Even less was the support outside of those arenas. Only a very small number
of politicians, economists, and think tanks considered the intervention of the state in
the economy and inward-oriented economic policies as problems that required urgent
attention. Some of these social actors began their tireless efforts to spread their
policy ideas and to underline the need to implement reforms in this line. However,
the repercussion of their actions was very limited until the mid-1980s.

The García Era: The Failure of the Triumph of Substantive Predispositions
Against Market-Oriented Reforms (1985-1987)
In the elections held in 1985 the popular vote put Alan García the leader of
APRA (center-left) in the presidency and center-left and left politicians in key
Congressional positions. These state actors openly criticized market-oriented reforms
and, by the same token, emphasized inward-oriented economic policies. However, as
the present section argues, it was precisely during this period in which substantive
predispositions against market-oriented policy ideas were dominating government
circles that events that quaked Peruvian politics motivated non-state actors to
extensively demand economic policy change in direction of the free-market. In doing
so these non-state actors prepared the Peruvian arena for the onrush of policy market
ideas and the subsequent application of market-oriented reforms during the 1990s.

232

State-actors
Once elected president, García appointed Luis Alva—an important APRA
politician—as minister of finance in his first ministerial cabinet. However, this
appointment was just a formal step taken by the president. A group of professionals
called “The Audacious,” supporters of the heterodox approach in economics were
García’s closer advisors and constituted the de facto economic team in charge of the
formulation of the macroeconomic policies implemented by the government. This
group was led by Daniel Carbonetto, an Argentine technocrat linked to the radical
sector of the Peronist party that had come to Perú in 1974, and Carlos Franco, a
Peruvian center-left intellectual.
Both Franco and Carbonetto had cooperated with the military government of
Velasco (1968-75). After being dismissed by the Morales Bermudez administration,
they had joined other professionals in the “Centro de Desarrollo y Participación”
CEDEP, a center-left oriented research institution. In 1983, these technocrats began
to elaborate a heterodox program designed to attack the recessive inflation process
through the extension of demand, an increase in sales, and the reduction of costs.
468

Their main goal was to initiate a process of re-structuring the productive and
industrial sectors led by the state, which would be the direct agent in the
transformation and distributive growth of Perú’s economy.
469

468
See Daniel Carbonetto, Oscar Dancourt, and María Inés de Cabellos, El Perú Heterodoxo (Lima:
Instituto Nacional de Planificacion, 1987), 14.

469
Personal interview with Carlos Franco, Lima, November 1999.
233

According to Franco, he and his fellows considered the heterodox approach
neither an academic option nor a pragmatic recipe with the narrow objective of
solving Perú’s economic crisis, but a deep and responsible personal option, “a
political conception of the economy and an economic conception of politics.”
470
In
their opinion, Perú’s main economic problems, such as inflation and the balance of
payments crisis, were the direct result of the absence of a solid national productive
sector of strategic goods and capital. This scarcity, they affirmed, impeded the
development of the country and generated an inadequate relationship with developed
economies. Furthermore, Franco and Carbonetto and the group they had formed,
thought that Perú’s fragile economic situation had been worsened by what they
identified as the “ultra-neoliberal and fondomonetaristas” [imposed and controlled
by the IMF] policies” applied by the Belaunde government.
In contrast to The Dynamo team led by Ulloa during the early years of the
Belaunde government (1980-1983), The Audacious supported the neo-structural
school and seriously opposed and questioned monetarism and the new classic
macroeconomics.
471
While Ulloa’s economic team had links with the IMF, the World
Bank, and the international private banking sector, García’s team disregarded these
international links, opting to strengthen their relationship with functionaries of the
International Labor Organization, the European Union, the United Nations Program

470
Unless otherwise noted, I describe this approach based mainly on my personal interview with
Carlos Franco, Lima, November 1999.
471
Jurgen Schuldt, “El Programa Neoestructuralista en el Perú 1985-1987,” in Neoliberalismo y
Neoestructuralismo en América Latina, 107. Luis Ignacio Jácome et. al. (Quito: Pontificia
Universidad Católica del Ecuador, Instituto de investigaciones económicas, 1989).
234

for Development, and the Cartagena Agreement.
472
Furthermore, García and his
advisors were especially critical of the IFIs in Washington and considered these
institutions “agents of imperialism.”
473
President García himself was a strong
supporter of heterodox policies. Although without economic training, he had
published an article in 1981 that proposed the application of these policies for the
solution of Perú’s economic crisis.
In 1985 García and The Audacious applied heterodox stratagems and moved
Perú far from any market-oriented policy. Backed by the international reserves
accumulated during the Belaunde government, the heterodox measures had relatively
good results. As seen in table 9, GDP grew during 1986-1987, but the state’s
expenses were larger than its revenues and consequently fiscal deficit increased
considerably. (As seen in tables 3 and 4)
At the beginning of 1987 the economic situation began to display emergency
conditions: international reserves were drained, the inflation rate increased, and
private investment fell. According to Schultz, the economic team did not take into
consideration that the heterodox policies it had applied were supposed to be
temporary and needed to be supplemented by policies that emphasized production
and productivity growth as a permanent basis for an stable economy.
474

Despite warning signals indicating economic problems the government
disregarded the implementation of a serious fiscal policy directed to reduce the

472
Ibid.
473
Personal interview with Carlos Franco, Lima 1999.
474
Schuldt, “El Programa Neoestructuralista en el Perú 1985-1987,”
235

state’s expenses. This omission had a triple impact: the government began to
distance itself from the heterodox approach that had inspired its original economic
program, directly contributed to the failure of this specific program, and in general
damaged the prestige of the heterodox approach.
In fact, an unintended but evident consequence was that García’s economic
team, the most enthusiastic supporters of the heterodox view in Perú, contributed in
large part to the term “heterodox” becoming a distrustful word in the national lexicon
and a rejected economic policy option. With their erratic decisions, The Audacious
provided ammunition not only to the political parties of the opposition but also to
professionals working in think tanks and universities with which to seriously criticize
the deficiencies of the government’s own designed heterodox program.
Compared to his economic team, however, it was probably García himself
who had the largest responsibility for destroying the viability of the heterodox
program implemented during his government. On July 29, 1987, during his speech
commemorating Perú’s Independence Day, the president announced the
nationalization of the banking sector. This announcement took by surprise even the
Apristas in Congress and caused commotion outside the government.
The decision to nationalize the banking sector had been taken by the
president and his closest advisors, who justified that policy under the argument that it
was necessary to deter the continuous exit of capital abroad and the consequent lack
of private investment. Various analysts believe that García’s sudden decision had
236

been driven more by political than economic considerations.
475
Whatever the
motives, García did not foresee the boomerang effects of his decision which had a
tremendous impact in Peruvian politics and in the economy. As noted by Ugarteche,
“confidentiality,” the alliance between private capital and the state under clear and
specific rules directed towards the adequate distribution of gains that was a central
element of the heterodox model, collapsed, and with it the possibilities for an
effective heterodox program.
476

Furthermore, García’s decision could have not been taken at a worse time.
External restrictions, aggravated by the confrontational position with the IFIs, and
the increasing fiscal deficit were overwhelming the Peruvian economy. Not
surprisingly, some analysts described García’s attempt to nationalize the banking
sector as the “presidential killing” of the heterodox program.
477
Wrongfully, the
public began to identify the García government’s economic program with the terms

475
Cotler explains that internal divisions in APRA had motivated Luis Alva Castro, an Aprista leader
with presidential aspirations, to distance himself from García and criticize his authoritarian leadership
in the party and the government. For his part, García wanted a Constitutional amendment that could
permit him to run for a second term. He thought that with his decision to nationalize the banking
sector, accusing the powerful economic groups of sabotage of his economic program, he would
recover political control, uniting around him the popular masses, APRA, and the Left. See Julio
Cotler, Política y Sociedad en el Perú. Cambios y Continuidades (Lima: Instituto de Estudios
Peruanos, 1994), 192-194.
476
Ugarteche, “El fracaso del éxito,” 22. In fact, regarding the confidentiality factor and the related
private investment, according to polls conducted by the firm APOYO during August and September
1987, after the president announced the nationalization of the banking sector, 50% of public opinion
thought that private investment would decrease, while 21% that it would remain the same. Even
worse, the business sector, whose opinion in this matter was more than important, unanimously
believed (100% of businessmen owners of large and medium firms) that private investment would
not increase. See “La Banca y La Opinión Pública,” Debate, IX, no. 46, September-October (1987),
36-37. Likewise, polls conducted during September 1987 by the firm Peruana de Opinión Pública
among one hundred private companies indicated that 53% of the representatives of these companies
thought that García’s economic policy was wrong, and 7% that it was wretched. 75% of the
interviewed businessmen had a negative opinion of García. Revista Sí, October 5-12 (1987):16-18.
237

“heterodoxy” and “neo-structuralism” and, what is worse, to associate these terms
with state interventionism and bad management of the economy.
In short, a particular version of an economic model was confused in Perú
with the model itself. In the words of Schultz, economic terms that had scientific
prestige and theoretical and empirical basis were “polluted by politics.”
478
An
economic model that later could have perhaps served as a theoretical framework for
the elaboration of an alternative economic proposal
479
was pushed off the table,
reducing the already small number of options for facing Perú’s economic crisis.
On the other hand, García’s decision to nationalize the banking sector ignited
an unprecedented reaction not only in the sector directly affected by his decision, but
also in various sectors of the Peruvian civil society. In the next chapter, I extend the
description of the reaction of non-state actors with respect to García’s decision. But
now it is important to note that the nationalization of the banking sector constituted a
landmark in Peruvian politics that definitely contributed in large to opening the door
to economic policy ideas opposed to those promoted by García and his economic
team. It significantly added to the impact of various events in the social and political
arenas that also contributed to discrediting inward-oriented economic policies.

477
Ugarteche, “El fracaso del éxito,” 21.
478
Schuldt, “El Programa Neoestructuralista en el Perú 1985-1987,” .
479
In fact, internationally renowned economists such as Roger Dornbusch and John Williamson have
recognized the scientific prestige of the heterodox model based on the structural economic theory.
Williamson, whose proposal for economic reform presented in 1989, the so-called Washington
Consensus, is recognized by many analysts as the synthesis of the neoliberal model, notes the
effectiveness of some heterodox measures. He refers, for instance, to the Mexican case in which the
government of president La Madrid reduced inflation through the relative success of fiscal discipline,
control of prices, and fixed exchange rate. Cited by Martin Tanaka, “La economía política del ajuste y
238

Ironically, the center-left and leftist parties that had been the most opposed to
the market-oriented policy ideas, greatly contributed by default to the consolidation of
these ideas in the Peruvian setting. The lack of a unified understanding by the Left or
by APRA regarding the important role each should play in Peruvian politics, added to
the attitude of President García and his economic team who did not want to respond to
warning signals in the economy, helped to pave the way for the promoters of market-
oriented policy ideas.
With respect to the Left, the year 1985 had been very important for this
political sector. The number of its representatives in Congress significantly increased
compared to the prior elections of 1980. This outcome, added to the positive results
also obtained in the municipal elections of 1984, permitted the participation of the
Left in the state to be substantially larger at both the national and municipal levels.
Among Latin American leftist movements, the Peruvian Left had the largest
representation in a democratically elected government.
However, the participation of the Left in Congress resulted into a peculiar
situation. On the one hand, the Left as a collective approved eclectic programs
presented by other parties that had little or nothing to do with the thesis and
objectives of the various rigidly Leninist political parties.
480
On the other hand, the
lack of effort to pursue an ideological debate outside the strict Leninist parameters

la reforma estructural en el Perú,” in Repensando la Politica en el Perú, ed. Elsa Bardalez, Martin
Tanaka and Antonio Zapata, 143 (Lima: Red para el Desarrollo de las Ciencias Sociales, 1999).
480
I draw this description of the Left mainly from Juan Abugattás, “El Leviatán apedreado: la
polémica sobre el Estado en el Perú,” in Estado y Sociedad: Relaciones Peligrosas, Alberto
Adrianzén et. al. ( Lima: DESCO, 1990), 103.
239

that guided its discourse prevented the Left from reflecting about the nature of the
state and its functions in the Peruvian society.
Furthermore, the emergence of the terrorist group Shining Path in 1980 and
the increase in its bloody attacks that by 1985 had caused the death of approximately
10,000 Peruvians had a twofold impact on the Left. First, the Left began questioning
the viability of its proposal of pursuing a revolution. Osmar Gonzales, an intellectual
of the Left, explains that in such a context, it was impossible to consider a violent
resolution of the crisis at the expense of the life of thousands of human beings
481
All
Peruvians were directly or indirectly experiencing the devastating consequences of
Shining Path’s savage insurrection. This brutal reality demystified the revolutionary
dreams of the radical Left regarding the possibility of taking power by force.
Second, the reputation of the leftist parties was seriously damaged.
Unfortunately, immediately after Shining Path initiated its brutal attacks in the early
1980s, some sectors of the Left did not frontally criticize these events. This
precedent, plus the fact that the political parties of the Left and Shining Path shared
an ideological Leninist matrix, affected the reputation of the former, despite the fact
that during the mid-1980s various politicians of the Left made explicit their distance
from the violent means used by Shining Path. In this regard, a sympathizer of the
Left notes that “Part of the public opinion put us [Marxists] in the same boat as that

481
Osmar Gonzales, “Señales sin Respuesta: Los Zorros y el Socialismo en el Perú,” Socialismo y
Participación, no. 76, December (1996):125.
240

of Shining Path. Since we were labeled as this latter’s legal facade, our possibilities
of mobilizing people were largely truncated.”
482

Moreover, the Peruvian Left did not appropriately assimilate the set of new
circumstances occurring at the national level that were affecting the composition of
its basis of support, and thus did not reflect about the objectives that should guide its
practice.
483
For instance, the Left’s restricted and static notion of “the worker”
encapsulated this latter as an individual necessarily opposed to capitalism and to the
structural economic system. As such, the majority of the parties of the Left were not
able to show a disposition to understanding that the workers were also motivated by
other objectives such as participation in the market system and personal aspirations
such as social and economic mobility. This serious omission caused the Left to lose
the opportunity to include in its base of support the so-called emergent or informal
sectors, small entrepreneurs who generally came from the lower economic class and
who, with hard work and innovation, were creating small industries and businesses.
Some intellectuals of the Left paid attention to this social phenomenon, but the
majority of the political leaders of the Left did not consider in time the magnitude
and importance of this new capitalist sector.

In general, the mid-1980s were tense moments for the Left as a whole, for
radicals and non-radicals alike. The identity crisis of the Left that had begun years

482
Personal interview with Luis Sirumbal, Lima, July 10, 2003.
483
I owe this explanation to Francisco Durand, a prominent Peruvian political analyst who after
having interviewed businessmen from the so-called emergent sectors as well as leaders of the Left,
realized the inability of the latter to extend its basis of support due to their allegiance to traditional
241

earlier with its participation in democratic institutions was seriously aggravated by
domestic events that demonstrated the pitfalls of an ideological discourse that was
far from optimal to face the problems affecting Perú. In 1988, Alberto Flores
Galindo, one of the most respected intellectuals of the Peruvian Left, pointed out
how divorced the intellectuals of the Left were from the social movements in Perú.
He noted that the Marxist Left had not been able to produce a global and imaginative
vision of Perú’s reality, and that instead frustration and pessimism had invaded the
leftist intellectual space.
484
Likewise, Javier Diez Canseco, a politician from the Left,
who during the late 1980s was a member of the Peruvian Congress notes that at that
time the Left “had evolved into a simple electoral coordinator, focused on occupying
posts within the structure of the old state.”
485
Therefore, he argues, the Left did not
recognize on time the new face of Perú constituted by an emergent and democratic
social movement.
In sum, internal and external problems affecting the Peruvian Left prevented
this political sector from presenting a coherent economic policy proposal at a time
that was more than necessary given the failure of the Aprista government in solving
the economic problems affecting the nation.

concepts and myths regarding capitalism and the market economy. Personal interview with Francisco
Durand, Lima, July 22, 2003.
484
Jorge Manco, “Reflexiones sobre ideología, política y cultura. Entrevista a Alberto Flores
Galindo,” Actualidad Economica 100, July (1988): 36-39.
485
Javier Diez Canseco, “La agenda de la Izquierda Unida,” 32.
242

Non-state actors
With respect to the labor unions, during the mid-1980s, various problems
affected its former relationship with the Left. An important factor that accentuated
the labor movement’s weakness was precisely the participation of the Left in
Congress.
486
The parties of the Left had always advocated workers’ rights and
ideologically were linked to the labor unions. Nonetheless, their participation in
Congress obligated them to assume additional duties that absorbed the time and
attention previously devoted to the labor unions. Without an effective leadership and
the immediate political guidance of the Left, the labor union movement began to
loose the dynamism that had characterized its actions during previous years
Furthermore, during the 1980s the economic crisis disarmed the discourse of
the Left and made this latter loose the support of workers, a vast sector of its
constituency.
487
The deterioration of the country’s economy that had been deepened
but artificially hidden by the reactivation policies implemented during the early years
of the García government affected not only the workers’ economic conditions but
also their attitude regarding the union movement and its political tactics.
Indeed, during the 1970s and early 1980s the confrontation with the
government and business owners had been the logical and legitimate response of the
workers to the recessive economic policies. Later however this confrontation was

486
I draw the evidence for this paragraph from personal interviews with Pablo Checa, former labor
union leader (Lima, July 8, 2003), Luis Sirumbal, senior economist at Centro de Asesoría Laboral-
CEDAL (Lima, July 9, 2003).
487
I draw my evidence for this and the following paragraph from my personal interview with Peruvian
sociologist Guillermo Rochabrún, Lima, July 19, 2003.
243

replaced by more pragmatic and effective actions that helped workers and people
with few economic resources to deal with the economic crisis affecting the nation.
The lack of redistribution policies motivated these people to look for manageable
solutions that could permit them to survive. For instance, conscious of the economic
crisis affecting the firms were they worked various labor unions in order to keep
their jobs attempted to reach agreements with the owners of these firms.
488
Likewise,
people living in poverty began to organize themselves to pursue cooperative efforts
that would permit them to get food for their families or to initiate small businesses
and create jobs for their communities. This occurred without the theoretical and
ideological discussions that the leaders of the radical Left had previously used to
indoctrinate the working class. As noted by Rochabrún, a prominent Peruvian
sociologist, this happened through a spontaneous process. Leaving behind the radical
Left’s discourse based on insurrection, various labor unions and their families opted
for thinking about the need to preserve order. As a result of these various events, the
labor movement found itself organizationally weakened and without the capacity to
activate an effective coordination and communication with the workers and the Left.
While the aforementioned problems were negatively affecting the agency of
the state and non-state actors that traditionally had supported inward oriented
economic policies in Perú, the panorama for those supporting market-oriented
policies seemed to be by far better. In fact, as of the mid-1980s, the think tanks
advocates of market-oriented policy ideas had grown significantly not only in the
244

size of their organizations and the scope of their activities, but also they had
strengthened their position and influence in Peruvian society. For instance, with the
publication of his book “The Other Path” in 1986, Hernando de Soto became a
public figure for its innovative ideas about the informal sector and the market.
Likewise, by 1987 APOYO was well known for its specialized journalism in
economics, its leading work in consulting, and its conducting of public opinion polls.
GRADE, for its part, had extended its scope of research and was consolidating itself
as one of the most important research centers in Latin America.
The case of the ILD is particularly interesting. The launch of its book The
Other Path constituted a turning point in the institutional life of the ILD. It increased
its reputation, attracting the attention of domestic actors and international research
and funding institutions.
489
The Other Path maintained that Perú’s mercantilist state,
a result of the alliance of the bureaucratic state with the traditional groups of
economic power, had denied access to the formal sector to millions of peoples,
thereby denying the development of a market economy and thus of capitalism.
Therefore, the ILD proposed to implement reforms that permit the development of a
free-market system to encourage the participation of private initiative without the
obstacles derived from the intervention of the state in the economy.

488
See Werner Garate, Sindicalismo a Inicios de los 90, (Lima, ADEC-ATC, 1993).
489
For instance, in 1987 the Center for International Private Enterprise (CIPE) a Washington based
think-tank and the U.S. Agency for International Development (USAID) sponsored a conference
organized by the ILD that emphasized the relationship between property rights and economic growth.
More than 35 countries attended this event.
245

The Other Path discourse changed the terms of the debate about economic
policy in Perú and became a subject of analysis and discussion in academic, think
tank, political, and intellectual circles. First, it firmly defended capitalism as a viable
political and economic option for Perú and underlined the importance of free
enterprise, free competition, and private property. These terms had been omitted
from the political discourse prevailing during the 1970s and 1980s and as noted
early, viewed with suspicion when included in proposals for policy change.
Second, The Other Path and the ILD blamed the traditional groups with
economic power, considered by the center-left parties as the representatives of
capitalism, of actually being responsible, along with the state, for Perú’s
underdevelopment. For decades the traditional political discourse of the center-left
had blamed the capitalist sector for Perú’s economic problems. The Other Path
claimed that it was not capitalism but precisely the lack of authentic capitalism and
the excessive intervention of the state that had impeded the people from lower
economic sectors from prospering.
Moreover, The Other Path advocated the entreprenurial initiatives of small
informal businesses led mainly by people of the popular socio-economic sectors.
That is, an important sector that the center-left political discourse had included in its
generalized classification of oppressed and that the radical left visualized as part of
its social basis on which to pursue revolution was, according to The Other Path,
actually interested in practicing capitalism, in being part of the market. As noted by
Osmar Gonzales, the discourse of De Soto and thus that of The Other Path
246

destabilized and surprised the Leftist political parties. It “appealed to popular sectors
more than the socialist discourse could.”
490

During the 1980s the ILD worked on the elaboration of projects to simplify
administrative processes that facilitate the access of mainly small entrepreneurs from
the so-called informal sector to the legal registry system. The ILD also worked with
some unions seriously affected by the high prices that as a result of the excessive
tariffs and trade restrictions imposed by the government, they had to pay for goods
utilized in their daily work. For instance, this was the case of the Federación de
Choferes del Perú (FECHOP) that grouped small entrepreneurs and drivers of buses
and mini-buses. FECHOP backed by the ILD demanded the government to eliminate
the restrictions to import tires and auto-parts.
Furthermore, throughout the decade the ILD had been visiting guilds of
informal entrepreneurs, publishing ads in the written press, convoking press
conferences, and distributing brochures with the ILD proposals. Through these
venues, the ILD repeatedly claimed the need to eliminate the obstacles that impeded
the exercise of private initiative and to promote capitalism. The ILD proposed the
liberalization of the economy and the reduction of the intervention of the state in the
economy.
Due to its intense public relations campaign to promote its proposals for the
application of free-market policies and the simplification of the state’s regulations, as

490
Osmar Gonzales, “Señales sin respuesta. Los Zorros y el pensamiento socialista en el Perú 1968-
1989,” 165.
247

of 1987 the ILD had became a well-known institution in various corners of the
Peruvian society. Besides, the international recognition that De Soto and the ILD
were achieving contributed to increasing their high profile in the national and
international settings.
Likewise, during the mid-1980s the number of institutions that supported
market-oriented policy ideas increased considerably for Peruvian standards. Indeed,
various well-known Peruvian economists created private consulting firms. These
firms offered a new option for younger generations of economists interested in
projects different from those traditionally tackled by IEP and DESCO and for former
functionaries of the public sector discontented with the way in which this sector
handled the economic problems affecting the nation. Initially these consulting firms
dedicated a large part of their work to specific projects designed for their customers
in the private sector. However, that did not impede their members from facilitating or
actively participating in the diffusion of market-oriented policy ideas.
For instance, MACROCONSULT was launched in 1985 by economists and
lawyers led by Manuel Moreyra, who had served during the last years of the military
government (1978-1980) as president of the BCR. At that post, Moreyra had worked
closely with Minister of Finance Silva Ruete in the introduction of reforms directed
at gradually adjusting the Peruvian economy. Like Manuel Moreyra, several
members of MACROCONSULT had been officials of the BCR. Their professional
practice in the public sector had made them familiar with both fundamental
macroeconomic issues that should not be overlooked in policy making and the limits
248

of the public sector’s ability to provide accurate information and solve the economic
problems affecting Perú.
Although in its incipient years, MACROCONSULT’s main activity was to
provide advising to its private clientele in making good economic decisions in the
context of crisis and increasing inflation, later this consulting firm played a more
important role in the promotion of market-oriented policy ideas. Moreyra together
with Javier Silva Ruete and Aurelio Loret de Mola had created in 1984 the political
party Solidaridad y Democracia, known by its initials SODE. The fact that
practically the same team of technocrats led both institutions constituted a particular
link that facilitated their impact in economic policy making. On the one hand, the
political party SODE could count with the expert advice of the highly professional
team of economists working in MACROCONSULT. On the other hand,
MACROCONSULT could through SODE have a voice in the political arena.
In sum, as of 1987, while the Left and the majority of the political parties did
not review their political and economic perspectives and practices, the supporters of
market-oriented policy ideas were pursuing important efforts to design a new model
of economic development for Perú. In this political and ideological context,
President García announced the nationalization of the banking sector. The next
chapter analyzes the impact of this measure as well as other consequences of the
promotion of market-oriented policy ideas.

249

CHAPTER 7: MARKET-ORIENTED POLICY IDEAS AND THE PERUVIAN
PROCESS OF ECONOMIC REFORM (1987-1992)

In the present chapter I analyze the ideational context prevailing immediately
before and during the early years of President Fujimori’s first presidential term. It
shows that previously to the issuance of the program of liberalization of the
economy, Perú saw an unprecedented and extensive diffusion of market-oriented
policy ideas and that a considerable sector of the wider public had come to support
the application of economic reforms embodying these ideas. To explain why this was
the case, I pay attention to both the context within and the venues through which
these ideas were communicated to the wider public. Particular emphasis is given to
the analysis of the political discourse that supported market-oriented reforms.
In the first section, I describe the impact that President García’s
announcement of the nationalization of the banking sector had on Peruvian politics.
In this regard, the present chapter supplements the information provided in chapter 3
that describes the reaction of the business elite to that announcement. Here I pay
attention to the way in which various social actors expressed their opposition to that
policy and how in this enterprise they introduced market oriented policy ideas in the
political discourse. The second section focuses on the venuest through which the
promoters of market-oriented policy ideas extensively disseminated these latter to
different corners of Peruvian society. With that purpose, I divide the period under
study (1987-1992) into three stages and describe the specific strategies used in each
250

by those disseminating the pro-market policy discourse. Likewise, I refer to the
social-political context surrounding these events. Specifically, I analyze the role that
both state and non-state actors had in the promotion of market-oriented policy ideas.

The Weakening of Substantive Predispositions With Respect to Market-
Oriented Reforms (1987-1990)
A central thesis of the present chapter and discussed in this section is that
during the late 1980s, the promoters of market-oriented policy ideas discursively
constructed public opinion support for the economic reform program applied during
the 1990s. While it had not been politically correct in Perú during the 1960s and
1970s to openly and firmly defend a capitalist system based on market-oriented
policies, during the mid-1980s, the winds began to change direction. Some sectors of
the wider public that years earlier had favored the participation of the state in the
economy and opposed market-oriented reforms deviated from this position.
Especially from 1987 onward, in the aftermath of the nationalization of the banking
sector, a publicized debate—the so-called “war between old and new policy
ideas”
491
—began in Perú after July 29, 1987. Language and symbolism were utilized
to mobilize opposition against both the specific policy of nationalization and the
economic policy framework pursued by the García government.

491
Phrase with which observers representing varied political perspectives described the debate ignited
by the nationalization of the banking sector. See for instance, Carlos Alberto Montaner, “Lima: La
Otra Guerra del Fin del Mundo” in Oiga, October 5, 1987, 35; “¿Guerra del Fin del Mundo?” La
República, August 9, 1987, 12-13.
251

In order to build support for market-oriented policy ideas, the content as well
as the supposed virtues and usefulness of the application of a market reform program
were presented in Perú not only through specialized essays with technical arguments
directed to professional and business elites, but also through more simple and
accessible explanations directed to the wider public. These explanations included the
use of analogies, metaphors, and symbols that helped to create myths about the
potential of the free market or to emphasize myths already accepted by some sectors
of the society with respect to development and modernization. These representational
elements helped towards the construction of an easily understandable pro-market
discourse that was repeatedly publicized especially through the media in order to
promote the approval of the civil society prior to the application of market-oriented
reforms.

The reaction of the wider public to the nationalization of the banking sector
García’s decision to nationalize the banking sector provoked divided opinions
within the wider public. (Table 30) Some saw the nationalization as a fair policy
against the financial oligopolies, while others saw it as a step backward that would
sustain state interventionism and Perú’s underdevelopment. Nonetheless, those who
frontally opposed the nationalization, mainly the business elite and the supporters of
market-oriented policy ideas, took a more pro-active role in the defense of their
position than that taken by those few in favor of García’s decision.

252

Table 30 Public opinion polls regarding the nationalization of the banking sector
Do you approve the nationalization of
the banking sector?
1987
August
1987
December
Yes 46% 36%
No 46% 52%
No answer 8% 12%
Source: APOYO, Informe de Opinión.

The reaction of a considerable portion of the wider public that participated in
demonstrations against the nationalization was remarkable. Even more unusual was
the fact that the majority of those who opposed this policy were not directly affected
by the decision taken by the government. As noted earlier, Mario Vargas Llosa, an
internationally renowned writer entered into the political arena and led the opposition
to the nationalization. Likewise, ordinary citizens from varied social stratum
participated as never before in street demonstrations against the nationalization.
Traditionally, the participants in street demonstrations had been low-income
groups with a specific demand related to a concrete policy or in protest against the
inaction of the government with respect to their interests, such as labor unions,
university students, peasants, or inhabitants of poor neighborhoods. In 1987,
however, after the announcement of the nationalization, Perú experienced “plural
mobilizations.”
492
People from the various social- economic sectors took the streets
of Lima together with representatives of banks and business associations (who
belonged to the upper classes) to protest against the government. According to the
weekly Oiga, “The demonstrators were businessmen and craftsmen, intellectuals,
253

white and blue-collar workers, leaders of democratic political parties and street
sellers, people from middle class and from popular neighborhoods.”
493
There were
also similar large demonstrations in other major cities such as Arequipa in southern
Perú
494
and even in Trujillo in the northern region of the country, where the political
party of President García traditionally had its strongest base of support. The
unprecedented feature of these peculiar demonstrations was the reaction of the
middle class, which political analysts described in these terms:
Even people from the upper level social-economic sector that until recently
were already able to pack their belongings and search for a new life abroad,
enthusiastically raised their voices and joined the protests. . . . This was the
most salient fact of 1987.
495

The strangest coalitions of economic groups and social fractions, the most
diverse public communiqués. . . . The announcement of the nationalization
has awakened the middle class, that sleeping giant that used to wake up only
temporarily at the time of presidential elections. . . . A healthy experience for
a country in which notwithstanding the generalized context of corruption,
delinquency, and rent-seeking, . . . “I don’t care” seems to be the rule.
496

Added to these unusual street demonstrations, the written press published
tens of communiqués against the nationalization issued by a variety of civil
institutions. Among these latter were political, independent, professional, university
students, civic, youth, and religious associations that were not directly affected by

492
I have borrowed this term from Jurgen Schuldt, “Socialización de la Banca y Democracia en el
Perú,” Quehacer, no. 48, September-October (1987): 40-41.
493
Oiga, August 24, (1987):12.
494
García’s decision was broadly opposed by various private and public personalities in Arequipa.
See interview to the Major of Arequipa in Caretas, August 24 (1987): 28-30. The Chamber of
Commerce and Industry of Arequipa, and the Regional Bank of the North, published extensive
communiqués in important Peruvian dailies opposing the government decision. See for instance, El
Comercio, Lima, August 13, 1987, and La República, August 8, 1987.
495
Francisco Igartua, “La sorprendente clase media,” in Debate IX, no. 48, December (1987): 9.
254

the decision of the government to nationalize the banking sector.
497
Even the
Catholic Church (mainly its conservative sector) raised its concerns.
498

Although there were also some communiqués supporting the nationalization,
these were few compared to the tens of communiqués against this policy.
Furthermore, the former were mainly issued by García’s political party, APRA, and
by institutions related to this party, such as APRA’s committees,
499
labor unions,
500

municipal governments,
501
and state-owned enterprises and institutions managed by
people appointed by President García.
502
In other words, the communiqués in favor
of the nationalization were produced by loyal militants or sympathizers of APRA
supporting the decision of Alan García,
503
who also happened to be the general
secretary of this political party.
504

496
Jurgen Schuldt, “Socialización de la Banca y Democracia en el Perú,” 40-41.
497
Some of these associations were: Asociación de Ingenieros Civiles, El Comercio, August 18, 1987,
Frente Nacional de Trabajadores Campesinos (FRENATRACA), La República, August 19, 1987,
Federación de Estudiantes de la Pontificia Universidad Católica del Peru (FEPUC), El Comercio,
September 2, 1987, Asociación de Juventudes Independientes, El Comercio, September 2, 1987,
Asociación de Profesionales de Trujillo, El Comercio, August 20, 1987.
498
Letter to the President by the Nucleo Peruano Tradición, Familia, Propiedad, published in El
Comercio, September 3, 1987. Two bishops and ninety-nine Catholic priests adhered to this letter.
Likewise, Monsignor Oscar Alzamora published in El Comercio, October 1, 1987, a letter in which he
underlined that the Catholic Church promoted the universality of private property. It is important to
mention here that according to public opinion polls counducted by the firm APOYO the Catholic
Church (especially during the period under study) is for Peruvians the most prestigious and respected
institution. See Alfredo Torres, Perfil del Elector, Editorial APOYO, 1989.
499
For instance: Agrupación Nacional de Trabajadores Apristas del sector pesquería ANATAP,
MIPE, EPSEP, Pescaperú, ITP, Imarpe and Cerper, La República, August 8, 1987, 7; Secretaría
General de Juventudes Apristas, La República, August 17, 1987, p. 15
500
Central de Trabajadores Apristas de ENAPU-Perú, La República, August 8, 1987, 19.
501
Concejos provinciales a la opinión pública, La República, August 8, 1987, 29.
502
For instance, Comunidad de telecomunicación de la Empresa Nacional de Telecomunicación del
Perú, La República, August 8, 1987, 13, and the University Federico Villarreal (alma mater of Alan
García and a traditional bastion for Apra’s ideologists) in La República, August 8, 1987, 19.
503
Inside of APRA there were also divided opinions regarding the nationalization. Alfredo Barnechea
– a reknown journalist – and Jorge Torres Vallejo – a leading Aprista politician with a solid
255

Another effect of the nationalization announcement was that those who had
already been criticizing García’s economic policy long before the occurrence of this
event had a greater opportunity to make contact with vast sectors of Perú’s civil
society that they had not been able to reach before. Taking advantage of the
opportunity that the government unintentionally had provided, various non-state
actors participated into the assertive deployment of market-oriented policy ideas that
until then had been discussed only in specialized professional or business circles.
With respect to the business elite, as explained in chapter 3, CONFIEP
dramatically changed its traditional discourse after García announced his decision to
nationalize the banking sector. Despite its long trajectory as supporter of state-led
protection of the domestic market and especially of domestic capital, CONFIEP and
various members of the business elite criticized the ISI model of economic
development and participated in the diffusion of market-oriented policy ideas.
Various of the new breed of think tanks created during the 1980s and the
mainstream media disseminated studies that proposed market-oriented reforms as the
way to solve Perú’s economic crisis. Through their specialized publications, these
think tanks reached professional and highly educated audiences. The media,
especially the written press, reached the average citizens.

constituency in the northern provinces of Perú, publicly rejected García’s decision. However, both
politicians were immediately expelled from this political party by the committee of discipline.
504
There were also communiqués emitted by the Left supporting the nationalization of the banking
sector: “Izquierda Unida: Estatizar para democratizar,” La República, August 9, 1987, 17. “Ni
monopolio privado, ni monopolio aprista. Estatizar para las mayorías,” communiqué by Partido
Unificado Mariateguista IU; and “Ni con el gobierno ni con el sector bancario, (…) Nacionalización
sin compensación ni conciliacion!,” communiqué by CGTP, La República, August 19, 1987.
256

In short, in a massive attempt to coalesce public opinion around an anti-statist
proposal, CONFIEP, Libertad, and various think tanks mobilized a prolific battery of
publicity resources to take over the terrain occupied during previous decades by
political and social scientists representing alternative positions. The following
sections describe how the attempt to defend the private property of a very few
Peruvian businessmen turned into a larger enterprise directed toward the promotion
of a new model of economic development based on the primacy of the market.

The discursive construction of the Peruvian program of market-oriented reforms
Gourevitch notes that to become policy, ideas must link up with politics–that
is, the mobilization of consent for policy: “Even a good idea cannot become policy if
it meets certain kinds of opposition, and a bad idea can become policy if it is able to
obtain support.”
505
Thus, he recommends exploring the politics that surround the
conflict over policy responses in the period when such policies emerge.
The politics in the case under study include besides the events that followed
the announcement of the nationalization of the banking sector, the language and
venues in which the discourse against this specific policy and in favor of economic
policy change was spread in Perú. How a policy is represented to the public may
have a powerful effect on its ability to succeed in Congress and on the likelihood of
its being applied for a long period. If it is presented in such a way that it is appealing

505
Peter Gourevitch, “Keynesian Politics: The Political Sources of Economic Policy Choices,” in
Peter Hall, “The Political Power of Economic Ideas,” 87-88.
257

to a large sector of Congress, its odds of becoming law is higher. Likewise, if the
wider public accepts that policy as the appropriate one, the probability of that
policy’s continuation over time is higher. There will be more support than opposition
to its implementation. Therefore, it is very important to focus on the language that
advocates of certain policy ideas use in their attempt to get supporters for their own
way of defining a specific problem and what they see as the proper solution.
Edelman warns that the analyst of public policy formation needs to know
how cognitions are evoked and how they are structured, whether or not they are
realistic in any sense. Language shapes the meaning of the events it describes and
helps to shape the political roles that officials and the general public may play.
506

Kenworthy notes that although there is more to international relations than rhetoric
and myth, power and language are so intertwined that an accurate representation of
political life requires seeing how language constructs a history that serves a specific
set of power relations.
507

In order to see how language and symbolism were utilized to promote
consent for the application of market-oriented reforms in Perú, I have divided the
period under study into three stages. (Figure 6) This classification considers the
chronological order of political events that followed the announcement of the
nationalization of the banking sector (from now onward referred here as the

506
Murray Edelman, Political Language, Words that Succeed and Politics that Fail (New York:
Academic Press, 1976), 9.
507
Eldon Kenworthy, America/Américas, Myth in the making of U.S. Policy Toward Latin America
(University Park: Pennsylvania State University Press, 1995), 8-9.
258

nationalization), and especially the sort of venues and means used in the promotion
of market oriented policy ideas.

Figure 6: The Pro-Market Discourse in Perú

1987 -------------- 1988 ------------- 1989 ----------- 1992
First Stage Second Stage Third Stage

Introduction of market-oriented Promotion of market-oriented policy ideas
policy ideas

Implied Reference to the Symbol of Security

Evocation of threat Evocation of threat Message of Reassurance

Use of analogies Use of analogies Local and Global
and metaphors metaphors, and Myths

Intervention of the state in the
Problem-framing Problem-solving economy is associated with
death, or with Perú’s
becoming a barbarian or
africanized society.

Myth: The power of the free
market to solve Peru’s
problems.

Message: The enemy is domestic Message: Only a free market
economy will save the country

Enemy: Enemy: Partner:
The government The State and ISI - The free market
- Foreign investment
- International financial
community

Reference to foreign cases Reference to foreign cases
of negative reputation. presented as examples that
Perú should follow.
259

First Stage: Evocation of Threat With Respect to the Interventionist
Government (July 1987 - March 1988)

This stage began immediately after President García announced his decision
to nationalize the banking sector. The owners of the banks, the business elite, center-
right politicians, and various of the leading supporters of market-oriented policy
ideas took advantage of the protest against this policy, which had galvanized
Peruvians from diverse social and economic groups. Every gathering or press
interview was taken as a platform to criticize García’s policies and embrace by
contrast the virtues that a market economy could offer.
The rhetoric at this stage was characterized mainly by the use of analogies
intended to increase fear in the wider public with respect to the García government’s
policies. Those non-state actors opposed to the nationalization believed and tried to
convince the wider public that this policy was just the first step towards a a series of
nationalizations by the totalitarian regime. For instance, despite the fact that García
had been democratically elected and during his government had respected the
freedom of the press, some described his government as a dictatorship comparing it
with the military administration of Velasco (1968-1975), who had taken power by
force and led a dictatorial regime. This forced comparison, however, was the least
exaggerated of the various analogies included in the anti-nationalization discourse.
Indeed, most of the analogies used during this stage were based on distorted
statements and included references to foreign and bloody regimes that did not have
260

any similarity with the Peruvian case. For instance, some press reports identified
García as “the publicity agent in Perú of Kim-IL-Sung,”
508
and his government was
compared with experiences “of devastating consequences such as those during the
1920s and 1930s in Italy, Germany, and later in Argentina with Peron.”
509
Likewise,
some described the nationalization as “the Peruvian version of fascism,” naming it
fascismo criollo,
510
while others alerted the public that the nationalization would take
Peruvians “towards a road similar to that of Cuba and Nicaragua.”
511

It is interesting to note that the communiqués, speeches, and articles against
the nationalization did not mention the military government of General Pinochet,
who in 1976 had initiated a bloody dictatorship in Chile (a country that shares
borders with Perú) and as of 1987 was still in power. Chronologically and
geographically, the Pinochet regime was the closest example of a totalitarian
government. However, at this point in time those that led the opposition to the
nationalization did not mention the Pinochet’s government as an example of a
totalitarian regime. The purpose of this omission is obvious. The Chilean case was
not among the kind of analogies those opposed to the nationalization needed to
promote their discourse. Besides the crimes and dictatorial measures perpetrated by
the Pinochet government it had also applied a market-oriented reform, encouraged
private investment, terminated pro-worker labor laws, and in general disregarded all
the policies established during the democratically elected socialist government of

508
Oiga, August 24, 1987, p. 15
509
Oiga, August 17, p. 13
510
Declarations of Manuel Moreyra, member of SODE, in Caretas, September 21, 1987.
261

Salvador Allende. The market-oriented policies implemented by the Pinochet
government were precisely the issues that those opposed to the nationalization
considered the appropriate way to solve the economic problems created by García’s
policies. Thus, the Chilean case was not mentioned as an example of totalitarism.
512

Findings by studies about the cognitive dimensions of foreign policy and the
use of language and symbolism in politics can shed some light on how to analyze the
impact that the analogies used (and omitted) by the opposition might have had on
Peruvian politics. These studies note that analogical reasoning involves two entwined
processes, the first of which is retrieval. People search through their memories for
something that resembles the situation they are trying to understand. The second
process involves the creation of knowledge: having located something similar to the
situation confronting them in certain key aspects, people assume that the situations
are alike in other respects as well.
513
For Khong,
514
historical analogies play an
important role in decision-making, as these can perform problem-framing and
problem-solving tasks. The former includes defining the situation, analyzing the
issues and stakes involved, and perhaps suggesting a general approach. The latter

511
Declarations of Manuel Cruchaga, co-founder of Libertad, in Oiga, August 24, 1987, 15.
512
Instead, as I will describe later, the reference to Chile was crucial during the second stage but using
it as a positive example of economic policy reform. It is worth noting that years later Vargas Llosa
would in some of his interviews, if asked about this issue, criticize the authoritarism of the Pinochet
government. However, a review of the discourse given by those opposed to the nationalization shows
that during this stage there were not references to the Chilean government and that the criticisms
made later were very mild. There was not an express and strong condemnation to Pinochet’s anti-
democratic practices.
513
Keith Shimko, “Foreign Policy Metaphors.” In Foreign Policy Analysis. Edited by Laura Neack,
Jeanne A.K. Hey and Patrick Haney, 71-84. (Englewood Cliffs, N. J.: Prentice-Hall Inc., 1995).

262

deals with identifying specific courses of action and evaluating their prospects for
success or failure.
Regarding problem-framing, those opposed to the nationalization defined this
event through analogies that contained references to leaders whose reputation was
negative, and asseverations that the attack against private property was being
performed by a “totalitarian government.” With respect to the reference to negative
leaders, Edelman notes that
Political facts are especially vivid and memorable when the terms that denote
them depict a personified threat: an enemy. . . . Personified threats are
politically potent regardless of the seriousness or triviality of their impact
upon people’s lives. The personified threat, no matter how atypical, marshals
public support over a much larger number of ambiguous cases symbolically
condensed into the threatening.
515

During this first stage, in which the immediate purpose was to create
animosity toward to the nationalization, the enemy alluded to was the president and
his government. Comparing the Peruvian situation in 1987 with historical events
characterized by the strong influence of a leader whose violence or mismanaged
policies had put his country in serious political or financial risk, those opposed to the
nationalization were personifying the threat to Peruvians in the figure of García.
It is worth noting in this regard that the references to one’s political
adversaries as “enemies” were not a symbolic tool used exclusively by those
opposed to the nationalization. Since the beginning of his government, President

514
Yuen Foong Khong, Analogies at War: Korea, Munich, Dien Bien Phu, and the Vietnam Decisions
of 1965. (Princeton: Princeton University Press, 1992), 20-21.
515
Edelman, 5.
263

García had also constantly turned to this tactic. He frequently presented as enemies
of the nation “foreign others” such as the IFIs, the United States (el imperialismo
Yankee), and the multinational corporations. The novelty in the discourse of those
opposed to the nationalization was that the “enemy” was not foreign anymore.
516
The
enemy was domestic: it was the president and his administration.
With respect to the use of the term “totalitarian,” it cannot be denied that
President García exercised an autocratic style of governing. For instance, even
though the Peruvian Constitution endowed ministers with formal responsibility for
all government acts, García treated his ministers as second-class secretaries.
517
The
most important decisions about economic policy and even some sectoral measures
were taken by him and his team of closer advisers.
518
Despite this evident failure in
García’s performance, his government and the Peruvian context at the end of the
1980s largely differed in many aspects from the specific historical cases mentioned
by those opposed to the nationalization.
519
Nevertheless, the description of the García

516
Hernando de Soto had initiated this sort of discourse. In the first symposiums he had organized in
1978 and 1980, he had pointed out that the problem that impeded Perú to achieve development was
not foreign but domestic, it was the economic order established in Perú.
517
Felipe Ortiz de Zevallos, The Peruvian Puzzle, 21.
518
This situation was vox populi in political, bureaucratic, and social circles. Various observers note
that García used to govern independently of his party and even without consulting his cabinet,
avoiding administrative instances. See for instance: Julio Cotler, “Las intervenciones militares y la
‘transferencia del poder a los civiles’ en el Perú,” 1988, 51-55. It is illustrative in this regard the result
of a public opinion poll conducted by APOYO in 1989, in which to the question: Who do you think
has more influence in the decisions taken by President García? the majority of the poll respondents
indicated: nobody. See Debate XI, no. 56, July-August (1989): 27.
519
Despite the multiple defects the García government could have had, people could exercise their
individual rights. Especially, freedom of the press existed. The best proof of this is precisely the huge
use of the media by Vargas Llosa and those opposing the nationalization, and on the other corner the
unfortunate but not less important fact that even the terrorist group Shining Path had a newspaper that
freely circulated in Perú. Furthermore, posterior public opinion polls conducted by the firm APOYO
S.A. noted that people recognized as one of the very few positive aspects of the García government
264

government as a totalitarian one stood in many circles. For instance, people who
participated in the massive meetings and demonstrations organized by Vargas Llosa
or by the PPC, carried banners slogans such as, “Say No to the Aprista civil
dictatorship.”
520
Likewise, in its communiqués, CONFIEP warned about the
immediate effects of the nationalization, as in the following:
Now there will be only one owner and master: the government. Your
personal life, your business, your projects will depend on the decision of the
government. Defend your liberty! Say “no” to the totalitarian regime and yes
to freedom!
521

Other actors within the civil society also framed the nationalization as the act
of a totalitarian government. Among the communiqués emitted by various civil
associations not directly affected by the nationalization, the common denominators
were the comparison between the García government and totalitarian practices. For
example, one communiqué described the nationalization as an irrational attack and
even compared it with terrorism, “two equally irrational attacks: the dementia of
Shining Path and terrorism, and the civil dictatorship that begins to show itself
through actions such as the approval of the nationalization of the banking sector.”
522

Likewise, some communiqués described the nationalization as the gradual

the respect for freedom of the press. See “Octava Encuesta Annual, July 1987-June 1988,” Revista
Debate X, no. 51, July – August (1988): 30; and Revista Debate XI, no. 56, July-August (1989): 27.
520
La República, August 15, 1987, 7. Some banners even said: “Alan García is the Hitler of Perú.”
See La República, August 22, 1987.
521
La República, August 19, 1987.
522
Communiqué by Francisco Diez Canseco Távara, Unión Parlamentaria Independiente, Frente
Democrático de Unidad Nacional, Unión de Juventudes Independientes. El Comercio, October 12,
1987.
265

implementation in Perú of “collectivist Marxism”
523
or “fascism.”
524
Other
communiqués stated that the banks would be the first in the long list of businesses
and civil institutions that the “totalitarian” government would place under state
monopoly.
525
In general, the various communiqués, dailies, and press interviews by
those opposed to the nationalization argued that the monopolist trend of the
government went against private property, free competition, and economic pluralism.
In addition to forging a negative opinion about the government, the use of
analogies also helped to set the process of problem-solving. By constructing a
domestic enemy akin to “fascism, nazism, or totalitarism” against which the
Peruvian citizens must be protected, those opposed to the nationalization attempted
to legitimize their reaction against the government.
526
Besides, they wanted to
legitimize the steps they considered necessary to confront the government as well as

523
Letter to the President by “Núcleo Peruano Tradicion, Familia, Propiedad,” published in El
Comercio, September 3, 1987. Two bishops and ninety-nine Catholic priests adhered to this letter.
Likewise, Monsignor Oscar Alzamora published in El Comercio, October 1, 1987, a letter in which he
underlined that the Catholic Church promoted the universality of private property.
524
Frente Nacional de Trabajadores Campesinos FRENATRACA (National Front of Workers and
Peasants), in La República, August 17, 1987.
525
Especially Vargas Llosa emphasized in his speeches and interviews with the press that with the
government as owner of the banking sector there would not be freedom of the press, and that the areas
of culture and education would also be manipulated by the government. See for instance, La
República, August 9, 1987, 12-13, and El Comercio, August 11, 1987, 3.
526
However, it is important to note that Vargas Llosa accompanied by Luis Bedoya (PPC) and
Fernando Belaunde (AP) assumed a responsible attitude making it clear that the confrontation they
were promoting would be strong but under democratic means. They noted that the primary goal of the
opposition against the nationalization and García’s economic policies was not an attempt to take
García from power before he would end his presidential term. Instead, they underlined, the opposition
was directed to call the attention of the government and made this to recognize its mistakes in political
economy. Vargas Llosa (See La República, August 19, 1987, 8, and August 22, 1987, 12) and Bedoya
(See La República, August 15, 1987, 4) reminded their followers that all should respect the
presidential term of a president that had been democratically elected.
266

the policies they proposed as alternative to those pursued by President García.
527

Once the message that “the totalitarian regime that destroyed business initiative, free
enterprise, private property, and overall Peruvian’s freedom was menacing
Peruvians” had been sent, the next necessary step was to face that situation. In this
regard, those against the “totalitarian government” proposed embracing the flag of
liberty, which was understood mainly as the freedom of private enterprise.
Added to these analogies, references to symbols were essential to the political
mobilization. As explained by Rotunda, symbols are important because they reflect
people’s innermost thoughts and ideas and may determine the very way people think:
“Symbols not only reflect; they mold.”
528
Likewise, Elder and Cobb suggest that
through symbols, movements can appeal to diverse groups, interests, and individuals
for different and even incompatible reasons.
529
Symbols may have different weights
related to the affective sentiment attributed to them. Since higher-order symbols have
greater generality and tend to be the objects of widespread and intense affective
sentiment, they tend to possess greater symbol weight, and thus are likely to attract
more people and prevail. For example, Elder and Cobb note, the term “freedom” will
have greater weight than “deregulation.”
530

527
As I explain later, the same tactic was used later by Vargas Llosa and various of the promoters of
market oriented policy ideas, when they introduced in their political discourse analogies and
metaphors through which the state was presented as the “enemy” of Peruvians.
528
Ronald Rotunda, The Politics of Language, Liberalism as Word and Symbol (Iowa City: University
of Iowa Press, 1986), 7.
529
Charles D. Elder and Roger W. Cobb, The Political Uses of Symbols (New York: Longman Inc.,
1983), 116.
530
Elder and Cobb, 39.
267

Sartori explains that symbols that are used to define the stakes in a conflict
define who has reason to be involved, thus some groups in order to garner support in
a conflictive situation will seek to expand the conflict by redefining what is at stake.
In this attempt, they will use symbols of importance to potential allies, who could be
specific groups or the general public.
531
For instance, Sartori mentions: “to ‘capture’
a word such as democracy–that is, a word which has favorable emotive properties–is
per se to assure oneself of a formidable position of strength.”
532

Indeed, after President García’s announcement of the nationalization, the
words democracy, liberty, and peace were repeatedly used in the Peruvian arena
during the various events organized to protest against the government.
533
Those
leading the opposition to the nationalization were interested in sending a message
making it explicit that they were not defenders of the bankers’ private property but of
the more transcendent right of living in democracy and liberty.
From 1987 onward, in the straightforward campaign pursued by the recently
created movement Libertad led by Vargas Llosa, the expressions “defense of
freedom” and “defense of private enterprise” were used almost interchangeably by
those confronting the nationalization.
534
For instance, the enormous meeting

531
Giovanni Sartori, Democratic Theory, quoted by Ronald Rotunda, vii.
532
Ibid.
533
García had also recurred to the use of the word “democracy” as a symbol when he presented the
nationalization as the “democratization of credit.” However, the opposition made use of this symbol
in a more powerful and extended way, linking it to other important values such as freedom, peace, and
linking to these the concept of private initiative.
534
In this regard Jorge Salmón, Vargas Llosa’s friend and publicity advisor for this campaign up until
1988, notes in his memoirs: “I worked in two different but parallel campaigns. One defended private
enterprise. The other, the fundamental principle of freedom. These were, I think, the two most
268

organized by Vargas Llosa few weeks after the announcement of the nationalization
was named: “Civic Summit for the defense of Liberty.” Some of the ads calling the
citizens to gather in this summit read, “All free men let’s protest against the violation
of the Constitution, let’s defend our liberty. Say no to the totalitarian government,
yes to free enterprise.”
535
This event had been preceded by an expensive publicity
campaign in newspapers, radio and television, in which the message had been
precisely that the summit was a venue “to defend Peruvians’ liberty.” During the
meeting, Vargas Llosa emphasized that this event was to defend democracy and
Peruvians’ freedom, and that the confrontation was not between rich and poor but
between the state and Peruvians.
536
Due to the decisive support of the mainstream
media, who directly transmitted this summit across the nation, millions of Peruvians
could follow it through radio and television and received the message that the
demonstrations against the nationalization were part of a crusade defending
Peruvians’ liberty. Likewise, Libertad’s statement of principles, published later in the
most important dailies and weeklies, portrayed the implementation in Perú of
market-oriented reforms as a condition sine–qua-non for economic development and
“recovering” the characteristics of a “free and democratic nation.”
537

The politicians and business leaders demanding changes in economic policy
also built their claims not only on economic explanations but mainly by making

important and successful campaigns in the history of publicity in Perú.” Jorge Salmón Jordan, Entre
la Vanidad y el Poder, (Lima: Editorial Apoyo, 1993), 45
535
Ad from the group “Libertad” inviting people to attend the meeting organized by Vargas Llosa, El
Comercio, August 16, 1990.
536
“Vargas Llosa invocó la rectificación de un error,” El Comercio, August 22, 1987.
269

statements about the need to respect “human values.” For instance, CONFIEP’s
leader declared, “We are not defending only the property rights of the private banks,
we are defending democracy in our country. If there is no ‘economic democracy’
(sic) there cannot be democracy at all.”
538
Likewise, the president of CADE
mentioned the need to defend freedom, democracy, peace, and individual rights.
539

It seems that the analogies and symbols utilized in the pro-market discourse
had effect on the public. Prior to 1987, there were certainly people with negative
opinion about the president, yet this was not generalized. That negative opinion was
evident mainly in circles more informed about economic policy issues who
understood earlier the flaws of García’s economic program and its consequent
failure. In contrast, after the deployment of the anti-nationalization propaganda, and
before the burst of hyperinflation and the economic crisis Perú would experience at
the end of 1989, public opinion polls showed an increase in the doubts and animosity
among the wider public regarding the nationalization and García’s economic policy.
Indeed, as early as 1988, Peruvians were very critical of the intervention of
the state in the economy. While in August 1987, 46% of the poll respondents
approved the nationalization of the banking sector, (as seen in Table 30), on July
1988, 72% believed that the nationalization was the worst mistake of the García
government, and 64% that the worst mistake of this administration was its economic

537
El Comercio, March 13, 1988.
538
Ricardo Vega Llona in El Comercio, July 31, 1987. (Emphasis added).
539
Inaugural speech of the President of the Conferencia Annual de Empresarios, (the annual summit
of businesss entrepreneurs) CADE 1987, El Comercio, November 27, 1987.
270

policy.
540
Furthermore, public opinion polls showed a trend in favor of increasing the
participation of private initiative in the economy and by the same token, of reducing
the participation of the state. (Tables 31-33) For instance, according to polls
conducted in June 1988 and published by the press, 53% of the poll respondents
affirmed that the private initiative should play a larger part in the economy.
541

Table 31: Public Opinion With Respect to Public Enterprises, December 1987
In your opinion, the contribution of the public
enterprises to Perú’s development is …
1987
December
Positive 47%
Negative 26%
Neutral 20%
No answer 6%
Source: APOYO, Informe de Opinión.

Table 32: Public Opinion With Respect to the Size of the State, September 1987, May 1989
The size of the state including central government
and public enterprises should be..
1987
September
1989
May
Larger 42% 26%
Remain the same 30% 32%
Smaller 11% 28%
No answer 17% 15%
Source: APOYO, Informe de Opinión.
Table 33: Public Opinion With Respect to the Role of the State and Private Initiative in the Economy
1988
August
1989
August
The state should leave more space for private initiative 53% 56%
The government should intervene more on the planning
of the economy
29% 28%
The present situation should remain the same 18% 12%
Source: APOYO, Informe de Opinión.

540
Polls conducted by the firm APOYO, “El Poder en el Perú, Octava Encuesta Anual, July 1987-
June 1988,” published in Revista Debate X, no. 51, July-August (1988): 30.
541
Polls conducted by the firm APOYO, during June 1988, published in El Comercio, August 28,
1988, F 16.
271

Second Stage: Evocation of Threat With Respect to the State and the ISI Model
of Economic Development (July 1988- August 1989)

Although as of July 1988, the issue of the nationalization of the banking
sector was not a central matter of discussion anymore,
542
the impact it had had on
catalyzing the business elite’s reactions and demands for change in economic policy
on the part of specialized professional and research circles continued to grow. As in
the first stage, the use of symbols continued, but the arguments in favor of the market
were more technically elaborated. These underlined the errors in economic policy
incurred by the García government, and presented market-oriented reforms as the
only plausible alternative to solve the economic crisis.
The trend of identifying “domestic” enemies continued, but going beyond the
specific focus on the García government, the criticism included harsh comments
about the state-centered model of economic development that had been implemented
in Perú since the 1950s. The references to the “totalitarian government” extensively
deployed during the first stage were replaced by messages portraying this time the
state as the enemy and oppressor of Peruvians’ fundamental rights.
With respect to the communiqués, these were emitted mainly by business
associations and included complaints about concrete economic policies (e.g., trade

542
The Peruvian Congress had approved the nationalization of the banking sector in 1987. However,
in practice this law was not enforced, since after being approved it was boycotted by functionaries of
the Public Administration sector. Luis Alva Castro, former minister of finance of García’s
government had presidential aspirations and was opposed to the nationalization. Therefore, he
mobilized his followers to blocked the application of a law that had put almost all Perú against APRA.
Furthermore, through various judicial processes and certain maneuvers the bankers could keep their
272

tariffs, import controls and the application of multiple exchange rates).
543
Yet
speeches, essays, specialized studies, and press articles supporting market-oriented
policy ideas continued to be authored and deployed by representatives of the
business elite, politicians, journalists, and specialized professionals from think tanks.
Based on their content, the variety of communications issued during this
stage portraying market-oriented policy ideas may be classified into three groups.
First, those that strongly criticized the government’s economic policy; second, those
that highlight the obsolescence of the state (and with it the ISI model of economic
development); and third, those addressing alternative policy directions.

Strong criticism of the government’s economic policy
As of 1988, the arguments against the government’s economic policy had a
solid factual basis: the extreme increase in inflation led experts to warn of the
coming of an hyperinflation.
544
Nonetheless, besides the factual information, various
critics also included in their demands for policy change analogies and metaphors
describing García’s mismanagement of the economy. For instance, both the
increasing inflation and the government’s inability to detain it were compared with
terrorism. Some articles published by the press noted, “Inflation and terrorism are the

properties. At the end the government retreated from its initial attempt. One year after the
announcement of the nationalization, the government took definitely a step back.
543
Communiqués by ADEX, APSIA, APIA, Cámara de Comercio, all noting the lack of foreign
currency, and the excessive delay in the issuance of permissions to import. The ILD and the
federation of drivers-FECHOP, against the prohibition to import tires. (July 3, 1988).
544
In July 1988 the inflation rate was 30.9%. This meant an increase of 181.8% during the first seven
months of the year 1988, and an annual variation of 302.1% (from July 1987 to July 1988). The
273

two big monsters that we have to combat, and if we analyze carefully, both monsters
are related”
545
and “The government is practicing economic terrorism.”
546
The use
of these analogies at a time in which Perú was experiencing the bloody attacks
perpetrated by terrorist groups had without a doubt the purpose of spurring the wider
public’s support for those demanding economic policy change.
As in the first stage, the advocates of market-oriented reforms also resorted to
the use of analogies that made reference to historical foreign experiences. For
instance, in November 1988, after the application in less than one year of three harsh
but unsuccessful stabilization programs, the criticisms against the government and
the demands for the application of corrective measures increased. These demands
were accompanied by analogies that compared the government’s mismanagement of
the economy with incentives to the expansion of terrorism. For instance,
When people lose their hope in the government, it is easy to be seduced by
rare doctrines that give an escape, a hope, even if this is outlandish: the
Germany of Weimar, with its high inflation rates and the subsequent ascent
of the Nazis is the most classic example. Likewise, Czarist Russia that
struggled with high inflation after the war opened the way for the socialists to
take power and later for the Bolsheviks. . . . The only ones that benefit from
crises are the extremists of any band. That is the fatal conclusion.
547

Likewise, critics demanding economic policy change repeatedly pointed out
that the crisis was the result of the policies applied during the earlier years of the
government and described these through metaphors. For instance, one critic wrote,

government itself through the Instituto Nacional de Estadística (the government institution in charge
of publicizing official statistics) emitted this data. See El Comercio, August 3, 1988.
545
El Comercio, August 3, 1988.
546
“Loret De Mola critica el terrorismo económico,” El Comercio, September 6, 1988, A5.
274

“We are paying the bill of the big parties and celebrations, of the excessive
drunkenness with consumption experienced during 1986.”
548
Similar metaphors were
used by another, who claimed that “The drunkenness at the beginning of the present
government, motivated workers to buy whatever goods they could. Later when it was
time to pay the bill, there was not enough money to do it.”
549

According to studies on cognitive dimensions of foreign policy, metaphors
play a critical role in the process of “problem-framing,” providing an underlying
intellectual framework for understanding a situation.
550
Studies of language and
politics indicate that metaphors may be employed for connotative or emotional
purposes in arousing emotions and reinforcing particular perspectives, and to elicit
absurd images that can be used for ridiculing one’s opponents.
551

Indeed, the metaphors used in the second stage by the promoters of market-
oriented policy ideas had a twofold purpose: to lead the Peruvian public through the
process of problem-framing with respect to the causes of the economic crisis, and to
underline the government’s irresponsible management of the economy. As described
elsewhere, García’s economic policy did initially improve people’s purchasing
power, but at the expense of the fiscal deficit. At the third year of García’s
government, when the upcoming of economic crisis was evident, the president

547
“Un ‘paquete’ dos ‘paquetazos’…y alta inflación,” El Comercio, November, 25, 1988.
548
Ibid.
549
" Hiperinflación del 88, fracaso del gradualismo,” El Comercio, January 4, 1989.
550
Keith L. Shimko, “Foreign Policy Metaphors,” in Foreign Policy Analysis, Continuity and Change
in its Second Generation, ed. Laura Neack, Jeanne A.K. Hey and Patrick Haney, 76 (Englewood
Cliffs, N. J.: Prentice-Hall Inc., 1995).
275

responded to his critics, reminding Peruvians about what he saw as the positive
achievements during the two first years of his administration: good salaries and low
prices. He blamed the private capital and the IFIs for the economic crisis.
Given that scenario, those critical of García’s policies needed to convince
Peruvians that those policies that had initially increased salaries had, by the same
token, increased the fiscal deficit and squandered Perú’s international reserves. Thus,
the use of the term “intoxication” to describe García’s first years of government
helped to convey in dramatic fashion the fact that the government’s economic
policies had created a pseudo-bonanza, an unreal situation with detrimental effects in
the medium and long term.
552
It seems that this discourse also had effect in the wider
public. Polls conducted at the end of the 1980s note that Peruvians associated
García’s policies with the constant increase of inflation. (Tables 34-36)
Table 34: Public Opinion With Respect to the Cause of the Increase of Prices , January, 1988
Who do you think are responsible for the constant
increasing of prices ?
1988
January
The government 40%
The producers 21%
The merchants 26%
The consumers 5%
Others 3%
No answer 4%

Source: APOYO, Informe de Opinión.

551
John Wilson, Politically Speaking, The Pragmatic Analysis of Political Language (Oxford, UK;
Cambridge, MA, USA: Basil Blackwell, 1990: Basil Blackwell, 1990), 104.
552
Furthermore, according to polls conducted during the early 1990s, and the analyses by experts such
as Ortiz de Zevallos and Susan Stokes, Peruvians at that time associated the raise of salaries with
inflation and thus instead of having their salaries raised were able to accept sacrifices in order to have
a more stable economy and less inflation. Stokes notes that during the early 1990s Peruvians
associated the betterment of salaries with less confidence in the future, while the deterioration of
salaries with better expectations about the future. See, Susan Stokes, “Reforma Económica y Opinión
276

Table 35: Public Opinion With Respect to the Cause of Inflation, March, 1988
Which is the main cause of inflation ? 1988
March
The government’s economic policy 28%
Bad management of the economy 12%
Bad management of international reserves 6%
Lack of control of prices 4%
The increase in the gas price 4%
Devaluation 4%
Speculation 3%
Freezing of prices 2%
Other 24%
No answer 13%
Source: APOYO, Informe de Opinión.

Table 36 Public Opinion With Respect to the Cause of Inflation, March and September, 1988
Which is the main cause of inflation? 1988
March
1988
September
The government spends beyond its revenues 46% 41%
Speculation 20% 0%
The productive structure of the country 11% 8%
There is more demand than supply of products 9% 2%
The primary emission of money without financial
backing
7% 15%
People’s expectations 1% 3%
No answer 6% 1%
Source: APOYO, Informe de Opinión.

The obsolescence of the state and the ISI model of economic development
The criticisms against the ISI, especially those emitted by the business elite
did not emphasize that the problem was not in this model of economic development
per se but in the distorted way in which as the result of clientelistic practices it had
been applied in Perú. There was no reference, either, to the fact that the application
of the ISI had initially permitted economic growth. Instead, in an evident effort for

Pública en el Perú, 1990-1995, in Los Enigmas del Poder, ed. Fernando Tuesta Sobrevilla, (Lima:
Fundación Friedrich Ebert, 1996), 331-356.
277

blaming the intervention of the state in the economy as the sole -or at least the main
cause- for Perú’s economic problems, the whole ISI model of economic development
was repudiated.
For instance, business leaders declared, “The ISI model has been the cause
that Perú lost its train in history for achieving development;”
553
“…. The import
substitution model of development initiated during the 1950s has been the structural
cause of Perú’s economic crisis”;
554
and “Our nation is in the middle of an economic
crisis because of the false belief that the state is the best distributor of wealth.”
555

The road to follow
As of the end of this stage the advocates of pro-market ideas began to include
in their demands specific proposals that the government should follow. There was in
these demands a considerable support for policies that coincided with the IFIs’
prescriptions. That was evident in the letters to the government written by business
guilds and published by the media. For instance, in July 1988, the National Society
of Industries published in the press its proposals for solving Perú’s economic crisis.
These recommendations were similar to those set by the IFIs: fiscal austerity;
reduction of the bureaucracy, privatization of all state-owned firms, simplification of

553
Declaration of CONFIEP’s representative Rafael Villegas El Comercio, April 8, 1988.
554
Declaration of Stanley Simons, manager of the Chamber of Commerce and Industry of Arequipa,
El Comercio, Lima, April 17, 1988.
555
Declaration of Gabriel Lanata, president of the National Society of Industries, El Comercio, Lima,
April 17, 1988.
278

the laws that regulate private business, modification of labor laws, and the
liberalization of the economy.
556

Likewise, a common theme in the various articles published in the
mainstream press and in the interviews transmitted by radio and television during
1989, was the call for the immediate application of a radical adjustment program.
The analysts proposing this adjustment argued that the burst of hyperinflation was
the direct consequence of “the excessive credit directed to finance the expenses of
the state”
557
and of “government irresponsibility for applying gradualist recipes that
were meant to fail.”
558
They underlined the urgency of confronting the fiscal deficit
and downsizing the state and its intervention in the economy. For instance, one claim
that “The government erroneously insists on preserving state-owned firms that are
mounting to the deficit of the fiscal sector, . . . and on evading talks with the
international banks and financial institutions.”
559

There was also a steady demand for the prompt initiation of a dialogue with
the IFIs to repair the relationships between Perú and these institutions. For instance,
various guilds of exporters published a letter directed to the government demanding
the prompt elaboration of a coherent economic program and the “urgent dialogue

556
“Industriales dicen: males peruanos son desconfianza e ineficiencia,” El Comercio, July 27, 1988.
557
¿En las puertas de la inflación? El Comercio, August 8, 1988.
558
For instance, some of these press articles: “Hiperinflación de 1988, fracaso del gradualismo,” El
Comercio, January 4, 1989; “Se insiste en desorden del gradualismo acelerado,” El Comercio, April
30, 1989.
559
“Un ‘paquete’, dos ‘paquetazos’, y alta inflación” in El Comercio, November 25, 1988.
279

with the IFIs.”
560
An important theme mentioned in the articles published by the
press regarding this issue was the extraordinary effort made by other countries–
especially Eastern European and African countries–to negotiate with the IFIs. The
following are examples of this theme in some these press articles:
While here in Perú our politicians are still trapped on XIX century dogmas
and fetishes condemning the IMF, socialist countries such as Hungary,
Yugoslavia and Poland are making a good use of this institution and
abandoning the intervention and planning of the economy, opting instead for
free market policies.
561

There are many pragmatic foreign lessons: the radical economic reforms
applied by socialist Hungary supported by the IMF and the World Bank . . .
and the liberalization of the economy in India by Rajiv Ghandi the renowned
leader of the ‘Non-Aligned’ countries who nonetheless in 1988 will receive
three thousand million of dollars from the World Bank.
562

Perú is the only debtor country that is rejecting all the offers that since
September 1988 in the Berlin Annual Assembly the IMF had made to help
countries to pay their debts with the support of Western governments. . . .
Since that date Guyana and Somalia have signed agreements with the IMF
and initiated the application of structural reforms in their economies. Zambia
has initiated negotiations with the IMF. . . . Vietnam has reinforced its
reformist venue initiated in 1986 and negotiated a “shadow program” with
the IMF in order to pay its debt.
563

Interestingly, public opinion polls conducted as of the end of this stage and
onwards, indicate an increasing support for the eventual application of policies that
coincided with the IFIs’ prescriptions, particularly for the reduction of the
participation of the state in the economy and for the privatization of public

560
Published in El Comercio, November 2, 1988, by the Sociedad Nacional de Minería y Petróleo,
ADEX, Comité de Exportadores de Algodón, Sociedad Nacional de Pesquería, Comité de
Exportadores Perúanos, Asociación de Exportadores de Café.
561
“Vientos del Este que debemos de tomar en cuenta.” El Comercio, July 16, 1988.
562
“¿Se podrá mantener el gradualismo? El Comercio, July 16, 1988.
280

enterprises. (See Tables 37-40) For instance, in August 1989 the majority of poll
respondents believed that the public enterprises should be privatized.
Table 37: Public Opinion With Respect to the Sale of Public Enterprises
Do you agree that in order to solve the fiscal deficit
the government should sell the public enterprises?
1988
March
1991
March
Yes 50% 74%
No 42% 12%
No answer 8% 14%
Source: APOYO, Informe de Opinión

Table 38: Reputation of Public Enterprises Compared to that of Private Enterprises
Making a comparison between public and private
enterprises, which do you think are….?
1988
February
1990
November
More efficient Private 80% 79%
Public enterprises 14% 9%
No answer 6 % 4%
Pay more taxes Private 79% 67%
Public enterprises 11% 7%
No answer 10% 12%
More corrupted Private 16% 9%
Public enterprises 68% 72%
No answer 16% 8%
Source: APOYO, Informe de Opinión
Table 39: Public Opinion With Respect to the Privatization of Public Enterprises
Regarding the number of public
enterprises
1988
August
1989
August
1990
November
It must remain the same 44% 24% 11%
Public enterprises should be privatized 33% 50% 85% (*)
Private firms should be nationalized 12% 12% -----
No answer 11% 14% 4%
Source: APOYO, Informe de Opinión

(*) Table 39.a
(*)Opinion about the number of enterprises that should be privatized
All 10%
The majority 23%
Some 52%
None 11%
No answer 4%
563
“Hay que pagar las deudas vencidas,” El Comercio, August 29, 1989, also see “Directorio FMI
verá caso de los inelegibles como el Perú,” El Comercio, July 7, 1988.
281

Table 40 Public Opinion With Respect to the Quality of the Service Provided by the Peruvian State.
How can the state best serve the people? 1989
May
1990
November
With few but efficient public enterprises 81% 91%
With many but deficient public 12% 7%
No answer 7% 2%
Source: APOYO, Informe de Opinión

Third Stage: August 1989– December 1992: The Message of Reassurance
Regarding the Potential of the Free Market.

In content, the pro-market message conveyed during this stage greatly differs
from that of the first stage (e.g., the nationalization issue is not mentioned anymore)
and technically is more specific than that communicated during the second stage.
Nonetheless, in order to analyze its impact on the wider public, it is necessary to take
into consideration the features of the preceding stages and the particular links
connecting them.
Edelman suggests that in the evocation of threat and reassurance, the primal
political symbol is security. He notes that
Through the evocation of threat and reassurance, leaders gain followers and
people are induced to accept sacrifices and to remain susceptible to appeals
for support. . . . For governments and for aspirants to leadership it is therefore
important both that people become anxious about their security and that their
anxiety be assuaged.”
564

564
Edelman, “Political Language,” 4-5.
282

In fact, with respect to the Peruvian case, the link between the three main
stages under study is the implied reference to the political symbol of security.
565

While during the first and second stage the pro-market discourse emphasized
evocations of threat, during the third stage it emphasized evocations of reassurance.
This strategy presented the application of market-oriented reforms as the only venue
through which Perú could confront the “threats imposed by the interventionist state”
During the third stage several significant events occurred in the political
arena: the electoral campaign, the election of a newcomer in politics as president,
and the application of a drastic program of economic reform. Given that changing
scenario and the various actors that because of these events led the promotion of
market-oriented policy ideas at different times, the third stage may be divided
chronologically into two sub-stages. Each is characterized by the emphasis on
specific demands and the use of varied language tools in the pro-market rhetoric.

First sub-stage (August 1989 – June 1990): The promotion of market-oriented
policy ideas during the electoral campaign.

Four main aspects characterize the pro-market discourse during this sub-
stage. The first aspect is the frequent reference by the supporters of market-oriented
policy ideas to foreign cases of economic reform presented as examples to emulate.
The second is the detailed description of the policies necessary to sustain a market-

565
Interestingly, later Fujimori will exploit this political symbol of security based on the evocation of
threat and reassurance when he obtained the presidency after the second round of elections.
283

oriented economy. The third is a constant message of reassurance that the market-
oriented reforms had the potential to solve Perú’s economic problems. This includes
presenting market-oriented reforms as the only means of achieving “modernity,”
which was defined as the stage of development of the rich countries of the West. The
fourth is an intensive diffusion of market-oriented policy ideas through a simplified
discourse meant to be understood and accepted by the average citizen.

References to foreign cases of economic reform.
While earlier the promoters of market-oriented policy ideas used analogies
portraying unfortunate foreign historical events whose negative effects were
compared with García’s nationalist policies, during the third stage the references to
foreign cases were instead to cases considered to be examples that Perú should
follow. In this regard the reference to the Asian countries, especially to those so-
called “The Dragons” is remarkable.
Indeed, the experience of the Asian countries was one of the “recurrent and
almost obsessive examples” cited by Vargas Llosa,
566
but also by many that pursued
a pro-market discourse.
567
It is important to note, however, that this discourse
focused only on the economic results achieved by these countries and did not unveil

566
Alvaro Vargas Llosa, El Diablo en Campaña, (Madrid: Ediciones El País S.A./Aguilar S.A, 1991),
74.
567
The reference to the “Japanese miracle” and in general to the “Asian miracle” by Vargas Llosa was
such that when Fujimori became second in the first round of presidential elections in April 1990 and
then was able to participate in the run off, he himself declared that such a reference had been one of
the most important factors that had permitted him to raise his popularity among Peruvians. Fujimori
noted: “Especially Vargas Llosa has praised the ‘Japanese miracle’ and the population has identified
284

the means through which they had conquered international markets and found
macroeconomic relief. For instance, it was not mentioned that it had been precisely
the state and not the invisible hand of the market that in these countries had led a
process of economic reform based on planning, protection of specific sectors of the
economy, and a strict system of exchange and capital controls.
568
There was no
reference, either, to the authoritarian style of their governments.
569
Those complex
issues were raised only by some of the Peruvian analysts who did not share Vargas
Llosa’s pro-market discourse. However, their articles/essays were published in
specialized journals (Left-oriented think tanks and intellectual circles) which were
less likely to reach the wider public, in contrast to the speed and frequency with
which the mainstream press could disseminate the pro-market discourse.
570

The dailies, weeklies, and television news that had wider diffusion reported
the views of leading personages, mainly from FREDEMO, who exalted the
economic success of the Asian countries, especially that of “The Dragons.”
Likewise, FREDEMO arranged that Peruvian television broadcast reports on Vargas

me with that miracle.” See “No es necesario aplicar un shock para solucionar la crisis del país,” La
República, April 7, 1990, 8.
568
See Jose Antonio de Echavé, “Corea del Sur: A propósito de un paradigma,” Actualidad
Económica, 107, April (1989): 11-13.
569
Especially, there was no reference to the fact that part of these countries’ comparative advantage
was constituted by their abundant source of cheap labor regulated by legislation that established a
larger number of work hours per week and facilitated the participation of underage workers that
perceived lower salaries than average. Echavé, “Corea del Sur: A propósito de un paradigma,” 11-13.
Also in this regard see Givoanni Andrea Cornia, Richard Jolly, and Frances Stewart, Adjustment with
a Human Face (Oxford: Oxford University Press, 1987).
570
In this regard see for example, “Corea, La ignorancia ilustrada de la derecha,” Actualidad
Económica, no. 101, July-August 1988, 48; “Corea del Sur: La apertura abortada,” Actualidad
Económica, Special Edition, May 13, 1989; “Somos ricos seámoslo siempre,” Actualidad Económica,
no. 114, March 1990, 40 –42; Guillermo Rochabrún “Todos Vuelven…Neoliberales,” Actualidad
Económica no. 104 (May)1992:13-14.
285

Llosa’s tour of four Asian countries each night in primetime from September 27 to
October 14, 1989.
571
Moreover, TV channels, newspapers, and weeklies were
inundated with pictures of Vargas Llosa conversing with Asian leaders such as the
prime minister of Japan, Toshiki Kaifu, or President Lee Teng-hui in Taiwan. These
reports underlined Vargas Llosa’s favorable opinion of the economic development
achieved by these countries. For instance, the top-selling daily noted that
Vargas Llosa is taking a bath of Asian pragmatism visiting Singapore, South
Korea, Hong Kong and Japan. . . . and taking a close-up of the experience of
the Dragons which are causing sensation in the world due to their industrial
capacity and economic potential.
572

Likewise, in an interview offered to the top-selling weekly magazine, Vargas
Llosa expressed his admiration for the Southeast Asian countries and for what in his
opinion was the right path towards development and modernity: emulating the free-
market strategies followed by Western countries:
With respect to economic issues, these countries are westernized. They have
combined the influence received from the West with their own traditional
virtues. . . . What the Asian countries demonstrate is that any country in the
world can reach development and prosperity [and] can overcome its
economic, cultural, and political limitations, based on effort and a smart
perception of modernity. . . . The common denominator between the
successful experiences in Asian and Western countries is free market,
democratic society, liberal orientation [sic].
573

The reference to the Asian countries’ experience was particularly appealing
in the Peruvian context, given the remarkably positive reputation enjoyed by Asian

571
Alvaro Vargas Llosa, El Diablo en Campaña,
572
“Los candidatos y sus circunstancias,” El Comercio, September 23, 1989.
573
Caretas, October 30, 1989, 32-35. Emphasis added.
286

people, who are considered smart and hard working.
574
Japan and “The Dragons”
are seen as models of progress, cutting-edge technology, and economic success.
575

Likewise, during the late 1980s and early 1990s there was a broad flow of
information about Latin American countries that had implemented market-oriented
reforms. The Chilean and Bolivian experiences were particularly influential in Perú.
Journalists, politicians, academics, and business supporters of market-oriented policy
ideas continuously mentioned these two countries’ reforms as examples of good
economic policy.
576
Typical was this example from a specialized journal:
The electoral trend in Bolivia shows that not matter how painful the
economic adjustment could be, people preferred it instead of the
hyperinflationary cancer. . . . Bolivian politicians are not populist or
demagogues anymore. . . . The [Bolivian] future exists again.
577

Furthermore, institutions representing the Peruvian business elite, such as
CONFIEP and the Instituto Peruano de Administración de Empresas (IPAE), made
great efforts to facilitate the creation of specialized networks with their Bolivian
counterparts. They invited Bolivian businessmen, politicians, and technocrats who

574
Perú has a large population of descendants of Japanese people (the second in South America,
following Brazil). Generally Japanese immigrants had been successful in Perú and are known for their
work ethic, their excellence in the pursuit of higher education, and their economically prosperous
professional careers and businesses.
575
According to public opinion polls conducted by APOYO, the two countries that Peruvians most
admired were Japan and the USA. See Perú Económico XIII, No.6, June (1990): 18.
576
Like in the references to the South East Asian countries, there was also great ommission of details
in the references to the Bolivian case. For instance, the promoters of market oriented policy ideas did
not mention that the initiation of the program of stabilization was accompanied by the political
repression that unarticulated the Bolivian labor unions.
577
“El ejemplo Boliviano,” Perú Económico, May 1989, 2. See also, “El Desafío del Ajuste
Estructural: Lecciones de Bolivia,” Coyuntura Económica, Centro de Investigaciones Universidad
Pacífico, February 1990, p. 13-15; and “Cuidado con el Gradualismo, No Funciona. Entrevista a
Sánchez de Lozada.” Perú Económico, March 1990, 6.
287

had participated in the formulation or application of economic reforms in their
country to visit Perú and lecture about their reform experience. For instance, in its
Fifth National Congress in Management, IPAE invited Carlos Calvo, president of the
Confederación de Empresarios Privados de Bolivia (the Bolivian business umbrella
organization), who encouraged Peruvians to face “the challenge of free competition
and to abandon state tutelage.”
578
Likewise, he highlighted the firm decision taken by
the Bolivian government in 1985 to reduce both fiscal deficit and the size of the state
and to adopt the zero tolerance policy in monetary emission.
579

With the help of the press, the “lessons” taught by Bolivian personages were
extensively reported and reached large audiences beyond the business and
specialized professional circles. The common denominator throughout the press
articles reporting on these lectures was the emphasis given to both the imperative
need for Perú to apply a radical economic adjustment program supplemented with
market-oriented reforms and the rejection of any gradual policy as the route toward
economic recovery. The following are examples of newspaper comments about the
Bolivian experience:
Bolivian President Paz Estenssoro vindicated himself historically because
from being an irresponsible government that pursued nationalization policies,
he converted into the hero Saint George that killed the hyperinflationary
dragon.
580

The government of Paz Estenssoro tossed in the garbage . . . the failed
theories of economics.
581

578
“El ejemplo boliviano contra la inflación,” El Comercio, July 2, 1989.
579
Ibid.
580
Ibid.
581
“Releamos el caso boliviano,” El Comercio, August 5, 1990.
288

Abjuring from his socialist background President Jaime Paz Zamora is
committed to keep Bolivia’s recovered economic stability.
582

Likewise, during 1990 economists that had elaborated Bolivia’s stabilization
plan, and Gonzalo Sanchez de Lozada, a former Bolivian minister of planning, made
presentations in various Peruvian forums and declared to the press,
We have arrived to the conclusion that it is not possible to stop hyperinflation
unless you brake it at once. . . . We attempted to establish a neutral economic
system, not only because we think that to intervene in the economy is
contrary to any democratic process, but because the political cost is too
high.
583

There are not gradual venues to end hyperinflation. It is necessary to adopt
decisive adjustment measures and although that is painful there are not other
effective alternatives.
584

Our [Latin American] countries are poor because we want to be poor. . . .
This is the time for businessmen to become innovators and leave behind
oligarchic practices.
585

The mainstream media and the promoters of market-oriented reforms
highlighted only specific aspects of the “Bolivian miracle” and disregarded any
negative commentary. For instance, they did not mention the high rate of
unemployment in Bolivia and the lack of basic social services for those in need.
Likewise, there was no reference to the losses of national industries that could not be

582
“Sector Privado Dirigirá economía en Bolivia,” El Comercio, August 30, 1989.
583
Normal Gall, “El caso Boliviano. Una experiencia que merece debatirse,” interview of the Andean
Report published in Caretas February 5,1990, 18, 87.
584
“De cómo los bolivianos sí pudieron derrotar la inflación,” El Comercio, January 30, 1990.
585
“Desechan el gradualismo en debate sobre el actual caos. Ex ministro boliviano plantea paquete
simultáneo de estabilización y ajuste.” El Comercio, March 3, 1990. “Receta Neoliberal. Entrevista a
Gonzalo Sanchez de Lozada,” Caretas, March 5, 1990, 15-17.
289

revived because of a shrinking domestic market resulting from import competition
and workers’ low purchasing power because of salary restrictions, an important
component of the economic program of reform.
586
Only a few analysts tackled these
other effects of the market-oriented reforms in the Bolivian economy. Again,
however, their commentaries were published only by specialized Left-oriented
journals that did not reach the wider public at the speed and scope that those
promoting market-oriented reforms did.
The Chilean experience of economic reform was also repeatedly mentioned
as a successful case that Perú should emulate.
587
As in the comments about the
foreign cases of economic reform mentioned above, the references to the Chilean
case concentrated on the economic reforms and how these had turned Chile into the
Latin American leader in economic development.

Detailed explanations of market-oriented reforms.
Vargas Llosa wanted Peruvians would support him as a candidate, but
especially his economic plan when they exercised their right to vote in the upcoming
presidential elections. Thus he and his political movement, Libertad, organized a
“campaign of ideas,” conceived of as an effort to display in pedagogical and easily
understandable style their policy ideas and the content of the market-oriented

586
Julio Jimenez, “El Shock en Bolivia: un país a la medida,” Quehacer no.64, May-June (1990): 62-
64.
587
A particular anecdote in this regard is that CONFIEP did not participate in a convention organized
by the García government in which the agenda was to search for a “concerted planning.” However,
the president of CONFIEP attended a meeting with Chilean president Augusto Pinochet held at the
290

reforms included in their economic program.
588
Part of this enterprise was a publicity
campaign in the media explaining the program of economic reform.
589
The objective
was to create such a consensus that “in the Peruvians’ agenda there would be only
one way to confront inflation and to generate growth and employment.”
590

One part of these plans was to air commercials on television from November
1989 to February 1990. The first commercial showed the damage caused by inflation
suffered by those who lived on a fixed income and then posited that the only way to
put an end to inflation was to drastically stop the printing of money without financial
backing. The second commercial explained how the intervention of the government
in the economy had paralyzing effects on production and claimed that under a free
market, there would be incentives for the creation of jobs.

Polls taken by Sawyer and Miller, the American consulting firm that advised
Vargas Llosa’s electoral campaign, to measure the impact of these two commercials
in the wider public indicated that a solid majority had a favorable opinion about the
privatization of public enterprises, free competition, and free prices.
591
Furthermore,
Sawyer and Miller reported that as of the beginning of 1990, people from the

same time than the event organized by García. Actualidad Económica no. 101, Julio -Agosto (1988):
7.
588
Mario Vargas Llosa, A Fish in the Water, A Memoir (New York: Farrar, Straus and Giroux, Inc.,
1994), 364-366.
589
Alvaro Vargas Llosa, 35-36.
590
Alvaro Vargas Llosa, 33.
591
Alvaro Vargas Llosa notes however that the opinion polls also indicated however a curious trend.
As of the end of 1989 and at the beginning of 1990 Vargas Llosa ran first in the polls (50.1% followed
by one of the leftist candidate with 14.1%). Although more Peruvians were accepting the market-
oriented proposals promoted by Vargas Llosa, many were not decided to vote for him. That is,
Peruvians wanted economic policy change, but were not sure about whom should led the application
of economic reforms. Alvaro Vargas Llosa, 47-49.
291

peripheral poor urban neighborhoods and from rural areas, classified as sectors C and
D,
592
were discussing market-oriented policy ideas.
Of the seven commercials originally planned to explain in detail the market-
oriented reforms, only the two mentioned above were aired on television.
Nonetheless, the diffusion of pro-market policy ideas continued. In his political
commercials as presidential candidate and when interviewed by the media Vargas
Llosa also mentioned the economic reforms his government would apply.
The advertising of detailed economic policy reforms in an electoral campaign
constituted a political strategy without precedent in Perú. It largely contrasted with
the traditional politicking that had characterized the presidential candidates’
discourse in prior electoral campaigns. Usually, the presidential candidates had
limited their political ads to clichéd political expressions. For instance, when
Belaunde ran for president in 1980, his ads announced “One Million Jobs” or “A
Government That Works and Lets People Work,” and would mention in his speeches
that he had “Perú as a doctrine.” Likewise, when García ran for president in 1985, he
promised “A government for all Peruvians.” None explained in detail, however, how
they would achieve these goals. Furthermore, no previous presidential candidate had
so frontally criticized the intervention of the state in the economy, let alone
announced its drastic reduction. Traditionally, candidates’ speeches had had a more

592
For the effects of analyzing in more detail the trends in public opinion, the firm APOYO
established a system of classification that divided the Peruvian population in four socioeconomic
sectors: A, B, C, and D, taking into consideration their income and their place of residence. Sectors A
and B were the rich people, the upper middle class, and the rest of the medium class whose income
292

general and unspecified tone, and if by any chance these included the announcement
of a specific measure, they had not gone into detail.
593

In contrast, Vargas Llosa and his political movement Libertad had been
publicly announcing their plans to apply market-oriented reforms as early as 1988,
even before the official creation of FREDEMO (the political coalition formed in
April 1989 with AP and PPC to participate as a block in the presidential elections).
Once Vargas Llosa was officially appointed as FREDEMO’s presidential candidate,
the diffusion of the market-oriented economic program was intensified.
In his discourse at the business elite’s annual summit, CADE 1989, four
months before the presidential election, Vargas Llosa presented his government plan
titled Acción para el cambio (Action for change). He explained that his first step
would be the application of a radical program of stabilization in order to contain
inflation. This program would be supplemented with policies such as the massive
privatization of the state-owned firms, the end of privileges and special concessions
to any productive sector or industry, liberalization of the economy, flexible labor
laws, and a drastic reduction of the public administration sector. Furthermore, while
in previous CADE summits the presidential candidates had given friendly speeches
promising to support the business sector,
594
Vargas Llosa did the contrary. He

and social status had been dramatically affected by the economic crisis during the 1980s. Sectors C
and D were constituted by people from the peripheral poor urban neighborhoods and from rural areas.
593
An exception was in 1979 when PPC leader Luis Bedoya published general guidelines of his
economic program. However he did not vehemently promoted this program as Vargas Llosa did in
1990, and did not have the support of people that could help him in this regard.
594
Alan García for instance, before assuming the presidency of Perú he specifically promised not to
nationalize the banking sector or any other business activity. Nonetheless, two years later he did it.
293

declared that his government would not grant special treatment or aid to firms that
could not compete in a market economy, even if these firms were in bankruptcy.
From the moment in which Vargas Llosa announced his economic program,
it became the center of debate in political, academic, professional, and business
circles. In fact, other presidential candidates spent more time on commentaries
against FREDEMO’s program than in the explanation of their own economic plans.
Despite the warnings issued by Vargas Llosa about the large sacrifices that
the application of his reform program would imply for Peruvians and the severe
criticisms launched against it by other presidential candidates, Peruvians continued
supporting him, his political coalition FREDEMO, and their economic policy plans.
As of January 1990, polls published by the press indicated that 49% of the
population would vote for FREDEMO.
595
By February, the press reported that that
number had increased to 54.5%.
596
(Table 41) Polls conducted by the firm APOYO
also indicated this trend in public opinion. (Tables 42-44)
Table 41: Support for Presidential Candidates (August 1989-April 1990)
Support for Presidential
Candidate
August
1989
January
1990
February
1990
April 1990, before
the elections
FREDEMO 53% 45% 54.5% 51%
Izquierda Unida (*) 14% (*) 10%
Izquierda Socialista 38% 38% 13.5% 14%
APRA 19% 21% (*) (*)
Source: Polls conducted by the firm DATUM (August-February 1990) published by El
Comercio, and by the firm Mercadeo y Opinión (April 1990) published by La República.
(*) There is no information in this regard in the respective press reports mentioned here.

595
El Comercio, January 29, 1990, A4.
596
Polls conducted by the consulting firm DATUM, published in El Comercio, February 19, 1990,
and February 18, 1990.
294

Table 42: Public Opinion With Respect to Front-Runners in the Presidential Elections
Who do you think will be the next
president of Perú?
1989
December
1990
January
1990
February
Mario Vargas Llosa 60% 46% 48%
Alfonso Barrantes (Izquierda
Socialista)
11% 11% 13%
Luis Alva Castro (APRA) 4% 6% 10%
Henry Pease (Izquierda Unida) 3% 7% 10%
No answer 22% 21% 13%
Source: APOYO Informe de Opinión

Table 43: Support for Political Parties/Coalitions (February, March 1990)
Which political party/coalition would you vote
for if the elections would be tomorrow?
1990
February
1990
March
Fredemo 48% 42%
Izquierda Unida 12% 10%
APRA 10% 16%
Izquierda Socialista 9% 12%
Frenatraca 0% 2%
Otro 2% 6%
Blank/ None 7% 12%
No answer 12% 0%
Source: APOYO Informe de Opinión

Table 44: Support for Presidential Candidates (January, February 1990)
Which presidential candidate would you vote
for if the elections would be tomorrow?
1990
January
1990
February
Mario Vargas Llosa (FREDEMO) 46% 48%
Alfonso Barrantes Lingan
(Izquierda Socialista)
11% 13%
Henry Pease (Izquierda Unida) 7% 10%
Luis Alva Castro (APRA) 6% 10%
Otro 1% 1%
Blank / None 8% 5%
No answer 21% 13%
Source: APOYO Informe de Opinión.

295

Reassuring messages through local and global metaphors.
Vargas Llosa and FREDEMO promised that their reforms would help Perú to
overcome its economic and institutional crises. His ads proclaimed, “It will cost us,
but together we will make the great change.” The pro-market rhetoric included a
constant use of symbols and metaphors to emphasize this great change.
As explained by Wilson, the use of metaphors in political discourse has a
peculiar dynamic and effect in the transmission of core ideas.
597
Politicians repeat
their most important messages in various ways to increase the possibility that the
people will receive and understand the message in the way intended. This repetition
is not word for word, but rather of core ideas or cognitive forms. A core conceptual
metaphor can then serve as the basis for additional statements, or alternatively, any
set of metaphors can create a core concept through their frequent use.
The repetition of metaphors can operate at two structural levels. The first is
the local and internal sequential level of the text itself. The selective and repeated use
of metaphors from a core concept is done within the frame of a single discourse (a
speech, for example). The second, which Wilson calls a global level, operates across
individual examples of text and acts to indicate a specific ideological position. Both
structural levels serve to reinforce and develop landmark positions. Furthermore,
global and local structures may interact.
598
A local interpretation can be confirmed

597
Unless otherwise noted, the explanation about metaphors in this and the following paragraphs is
drawn from John Wilson, 125-127.
598
Other scholars interested in the study of metaphors have developed analyses similar to the one
made by Wilson and exposed here. For instance, M. Augostinos and I. Walker, note that metaphors
are organized in chains across a text that provide “connectivity” so that a simple statement tells us
296

by a global rhetorical assessment, and local repetition can serve as the initial step in
the formation of a core concept.
An example of the repetition of metaphors at the local level can be seen in the
long interview Vargas Llosa gave as presidential candidate of FREDEMO that was
published in a special bulletin of twenty pages attached to the daily Expreso on
August 27, 1989. In it, Vargas Llosa claimed,
There is not other remedy. That is, if a leg is gangrened, it is necessary to cut
that leg. Otherwise the person will die. That is the situation in which Perú is
today. Or an economic shock program is applied in a smart way in order to
recover from the situation of crisis, or the reality itself will impose a shock
and become into a permanent situation of barbarian life, of africanized
society. That could happen in Perú as it has happened in other nations.
599

Likewise, Vargas Llosa emphasized that his mission in running for the
presidency was “to save the nation from the barbarian stage in which it was
immersed.”
600
To these ends, the transformation of the state was crucial. It required
liberalizing the state from “a parasite bureaucracy that constituted an extraordinary
ballast, impeded the state to work well, and deprived the civil society to have access
to the market.”
601

much more than is relayed by the words alone. See M. Augostinos and I. Walker, Social Cognition:
An Integrated Introduction (London: Sage Publications, 1995), 42. Likewise, Eubanks states that
metaphor organizes the interpersonal relations between discourse participants, by virtue of being
embedded in a communicative complex that surrounds and supports individual metaphors. Philip
Eubanks, A War of Words in the Discourse of Trade: The Rethorical Constitution of Metaphor,
(Carbondalle: Southern Illinois University Press, 2000), 8. See also in this regard Veronica Koller,
Metaphor and Gender in Business Media Discourse, A Critical Cognitive Study (New York: Palgrave
Macmillan, 2004).
599
“Interview to Mario Vargas Llosa,” Expreso, August 27, 1989, 5.
600
Interview to Mario Vargas Llosa, Expreso, August 27, 1989, 6.
601
Ibid.
297

Although a single instance of metaphor used by Vargas Llosa (such as that
about the gangrened leg) can be understood independently, the core concept on
which it is based includes more than this individual metaphor within the specific
speech in which it was mentioned. In fact, the speech reveals a basic landmark
assumption that links the intervention of the state in the economy with sickness and
failure. The intervention of the state in the economy is associated with death, or with
Perú’s becoming a “barbarian or africanized society.” Each of the metaphors
mentioned in this speech in turn lends weight to the next in the creation of an image
of sickness, weakness, and hopelessness.
602

A similar process–although intended with an opposite purpose–occurs with
respect to the presentation of the program of stabilization and the application of
market-oriented reforms. Those policies are presented as “the only cure” for the
alluded sickness, or as “the only escape” from Perú’s being a savage country. Vargas
Llosa declared that “The state should guarantee a free market system. . . . That is the
only way to assure economic and social health.”
603
Issues such as the failure of the
state and the opportunity of survival offered by the market system constituted the
landmark assumption that he underscored by repetition with the purpose of
emphasizing his message of reassurance.
Vargas Llosa’s global rhetorical assessment of Perú’s economic situation that
appeared across a range of his interviews and speeches during the electoral campaign

602
Ibid.
603
Interview to Mario Vargas Llosa, Expreso, August 27, 1989, 10.
298

is characterized by the repetition of core metaphors and symbols similar to the ones
used in the single interview analyzed above. Indeed, during his multiple visits to the
Peruvian provinces, Vargas Llosa was clear in pointing out that the initial application
of these reforms would cause serious sacrifices on the majority of the population.
Nonetheless, he placed his emphasis on the large advantages that a market system
would offer to all Peruvians. In this regard, his assertions, as well as those of his
collaborators, reflected their highly ambitious expectations regarding the benefits
that the application of market-oriented reforms would bring for Perú. They
announced these expectations as uncontested facts.
Besides claiming that the liberalization of the economy would increase
efficiency in the business sector, Vargas Llosa continuously exalted the economic
bonanza that would follow the retreat of the state from the economy. The liquidation
of state-owned firms would definitely “extend the number of properties and owners”
because workers would have the possibility of being shareholders and owners of the
firms they had worked for. The reduction of the intervention of the state in the
economy would facilitate the immediate access of informal producers to the legal
economy. Vargas Llosa repeatedly asserted “Let’s make of Perú a country of owners
and entrepreneurs.”
604

Vargas Llosa’s discourse of modernity was also a particular feature of his
pro-market rhetoric. Since 1987, when he had led the opposition against the
nationalization of the banking sector, he had declared that the pursuit of free-market
299

policies was the only route Perú could follow to reach a stage of modernity. In 1989,
when he was officially nominated as the candidate of FREDEMO, Vargas Llosa
introduced his vision of modernity in his campaign for the presidency and, as noted
by Degregori, “with obsessive insistence located that vision at the center of the
national political debate.”
605

In fact, assertions about the need to achieve modernization constituted a large
part of Vargas Llosa’s speeches. He blamed traditional politicians, whom he called
“anti-modernist,”
606
for depriving Perú of the opportunities that a modern society
could offer. In his understanding, a modern society was one in which individualism
and a market-oriented economy reigned. Among those claims were the following:
I decisively support the Occidental tradition that has promoted individualism.
. . . For me, to get that modernization is a priority and we need to resolutely
promote it because that is the only way in which we can end or reduce
radically the suffering in Perú.
607

It is necessary to clearly and resolutely opting for the market, for the private
and individual initiative if we want to leave in the shortest plausible time this
situation of poverty. This is the only way against failed statism, collectivism,
and demagogic populism.
608

We are looking for a mandate that supports ideas of modernity and
development. . . . The people would decide if they are in favor or not of a
modern society, a democratic, liberal society with an open market, that
embraces enterprise and private property.
609

604
Alvaro Vargas Llosa, 85.
605
Carlos Iván Degregori and Romeo Grompone, Demonios y Redentores en el Nuevo Perú, (Lima:
Instituto de Estudios Peruanos, 1991), 73.
606
“Vargas Llosa presidió cálido mitin en Huánuco,” El Comercio, September 2, 1989.
607
Interview to Mario Vargas Llosa, Expreso, August 27, 1989, 12.
608
“Solo si atacamos en sus raíces el mal de la pobreza, podremos salvarnos,” El Comercio, March
10, 1990.
609
El Comercio, January 29, 1990, A4.
300

The assertion that modernization was necessary and could only be achieved
through the application of a market-oriented program operated almost as a myth in
the Peruvian political discourse of the early 1990s. Myths in politics are created after
continuous repetition of a given concept in the public arena, whatever its veracity or
falseness.
610
Sarbin suggests that movement from metaphor to myth is a common
social phenomenon and is especially common as a political phenomenon.
611
Edelman
notes that through metaphor, the linguistic evocation of political myths is very
effective. Whatever the case, the repetition of metaphors within political discourse
has a singular impact in the wider public’s understanding of a certain situation.
612

According to Wilson, while single metaphors indicate a simple comparison between
reality and the image portrayed in the metaphor, the repeated use of metaphors over
time will make some individuals accept that image in a cognitive and literal sense.
613

The repetition of metaphors portraying the inefficiency of the state in contrast
to the potential of the free-market, and the diffusion of myths in this regard abounded
in the pro-market discourse deployed in the Peruvian setting. There was in the pro-
market discourse deployed in Perú what Wilson defines as an interaction of the local
and global structures, “a sequential habituation where each representation served as a
confirmation of the initial landmark assumption.”
614

610
With respect to myths in politics see Nicholas Jackson O’Shaughnessy, Politics and Propaganda,
Weapons of Mass Seduction (Ann Arbor: The University of Michigan Press, 2004), 88- 99.
611
Sarbin, cited by Edelman, 17.
612
Edelman, 17.
613
Wilson, 129.
301

Diffusion of market-oriented policy ideas through a simplified discourse.
Besides the organization of specialized forums, presentations by their
representatives in the media, and publication of numerous articles in specialized
journals and in the press, Libertad within FREDEMO and CONFIEP intensively
worked toward the diffusion of market-oriented policy ideas through a simplified
discourse directed to the common citizen.
One of the main strategies adopted by the executive team of Libertad toward
the end of the electoral campaign was to reach the poorest neighborhoods located in
the periphery of the main cities and the rural and indigenous sectors. In this
endeavor, Libertad printed booklets and flyers that were freely distributed in
shantytowns and rural zones in Lima and the provinces. These informational
materials explained the importance of the free market and the need to reduce the
intervention of the state in the economy. One of the co-founders of Libertad reported
that “It moved me to see how people of provinces, especially teachers of rural
schools, wanted to get a copy of that little book which permitted them to read about
other economic perspectives that until then had been out of their hands.”
615

The purpose of these materials was to explain through caricatures, drawings,
and the use of simple concepts, that the economic policy change proposed by
Libertad and Vargas Llosa would “in a matter of a short time produce multiple

614
Wilson, 128.
615
The present paragraph is drawn from my personal interview with Miguel Vega Alvear, co-founder
of Libertad, Lima, July 9, 2003.
302

opportunities for everyone.”
616
For instance, one of these stories was titled
“pateando latas,” a popular Peruvian expression that means to be unemployed and
without income. It promised that the situation of unemployment and hopelessness
(portrayed in the pro-market discourse as a direct result of the failure of the state)
would under a free-market system be changed to one in which the private sector
would recruit workers. These workers would have not only a job but a better job,
more purchasing power and access to better and cheap products as a consequence of
the opening of the domestic market.
617

In 1989 the president of CONFIEP had declared that initiating a process of
change that could permit Perú to turn into a free-market economy required not only
the elaboration of a new legislation, but also “the diffusion of ideas to convince
[Peruvians] that they should not be afraid of liberalizing the economy.”
618
In fact,
especially from 1989 onward, in its effort “to convince and instruct” Peruvians about
the benefits of market-oriented policies, CONFIEP launched special publications that
were freely distributed to the wider public. One was a small magazine added as a
complimentary issue to the top-selling Peruvian daily El Comercio. Another was an
informative brochure added as a complimentary issue to the revista Caretas, one of
the most-read weekly magazines. As of 1990, CONFIEP also distributed the bulletin
Empresa Privada, which stated,

616
Alvaro Vargas Llosa, 37.
617
Ibid. Ironically, regarding employment, as described in chapter 1 and at the end of the present
chapter, from 1990 onwards, after the application of reforms, job conditions became more precarious.
618
“Gubbins pide al gobierno asumir responsabilidad por la crisis,” El Comercio, January 22, 1989, E
5.
303

The spirit that animates us in this enterprise is to put an end to this dramatic
situation of conceptual counterfeit that the political class has operated in the
discourse about economics. Providing the adequate knowledge in economics
in this crucial time for our country, we are giving Peruvians the possibility of
participating in the discussion about economic policy.
619

With respect to the magazine that was added to the daily El Comercio, it was
launched under the title Economía para todos (Economics for everyone).
Nonetheless, the magazine had various sections intended not only, as its title says, to
instruct people about economic issues, but to send a pro-market message. The
various issue of this magazine emphatically asserted that the main cause of Perú’s
economic problems was the intervention of the state in the economy. In contrast,
they praised the opportunities offered by the free market.
This magazine included articles written in plain language and short stories
narrated in a fable style or as “comics.” Another section played the role of an
illustrated dictionary explaining technical economic terms in very simple words, with
the help of drawings and caricatures.
620
There were also analyses of interviews
conducted in the streets of Lima with non-professional citizens and trivia games
including questions about economic terms.
Complicated topics such as inflation,
621
fiscal deficit,
622
artificial monetary
emission,
623
tax reform,
624
and stabilization,
625
among others, were explained in this

619
CONFIEP, “Empresa Privada,” Publicación Institucional de CONFIEP, 1990.
620
As noted earlier, here I do not analyze visual metaphors. Nonetheless, there were many of these
especially in the special bulletins edited by FREDEMO and the business elite.
621
“Con inflación no hay progreso,” and “El monstruo de la inflación,” Economía para todos,
suplemento económico de la revista “Somos,” El Comercio, October 17, 1989; “¿De dónde nace la
304

magazine through the use of metaphors, analogies, and symbols. Examples of this
discourse include the following:
The market is the greatest invention made by humankind. . . . When we
complain that the little store in the corner of our block sells only one kind of
cooking oil and this is very expensive or that the public telephone company
offers a very bad service, what we are doing is to defend our freedom to
choose. We are talking about the free market. If we can only buy one brand
of cooking oil, or if for having access to telephone service we have to order
this to the only company that manages it, we are not free to choose what we
want. . . . From the little store in the corner of our block to the Exchange
Stock Market, the real force is that one of the free market.
626

When any of us wants to spend more than we honestly earn, we do not have
any other solution but to borrow from somebody else. Instead, if the State
wants to spend more money than that it actually possess, the state can
fabricate extra money without any one accusing it of being a counterfeiter.
So, do not let the [García] government to lie to us saying that there is
inflation because of the private sector’s speculative expectations or because
of the excess of demand.
627

In general, the articles described the bad effects of the control exercised by
the state (control of exchange rate, prices, imports, and so forth) and by the state-
owned firms.
628
By contrast, they emphasized the positive effects that a process of
privatization and the simplification and loosening of labor legislation would have on

inflación?” Economía para todos, suplemento económico de la revista “Somos,” El Comercio,
January 13, 1990.
622
“El gordo regalón (O la Historia de los Deficit Fiscal,”) [sic] Economía para todos, suplemento
económico de la revista “Somos,” El Comercio, December 2, 1989.
623
“¿Quién paga los subsidios?” Economía para todos, suplemento económico de la revista “Somos,”
El Comercio, March, 1990.
624
¿Qué es Reforma Tributaria?, Economía para todos, suplemento económico de la revista “Somos,”
El Comercio, June 2, 1990.
625
“¿Qué es la estabilización,” Economía para todos, suplemento económico de la revista “Somos,”
El Comercio, March, 1990.
626
“La filosofía del libre mercado,” Economía para todos, suplemento económico de la revista
“Somos,” El Comercio, August 29, 1989.
627
“De donde nace la inflacion” Economía para todos, suplemento económico de la revista “ Somos,”
El Comercio, January 13, 1990.
305

improving the Peruvian economy.
629
For instance, some of the articles indicated that
it was necessary that Peruvians reflect about the mistakes that had pushed Perú
“towards a steady mediocre stage [of development] instead of one of progress.”
630

The application of the ISI, they claimed, had constituted “Perú’s most terrible
historical misunderstanding,” and the law to promote industry approved in 1959 had
been “the birth certificate of economic populism” that had led Perú “to renounce to
any effort to be competitive, and to opt for mediocrity.”
631

Likewise, the fables especially created for this magazine addressed the
problems derived from the intervention of the state in the economy and ended with a
“moral” emphasizing that the state was a serious obstacle to achieving economic
progress and was taking Perú down a path of failure.
632
The state was compared with
reckless characters (e.g., as an obese, silly, and unskilled man who did not know how
to administrate his business)
633
and its workers with lazy animals.
634

The special publication added to the weekly Caretas was titled CONFIEP
Propone: Una visión para el cambio.” (CONFIEP’s proposal: A vision towards

628
“Embalse: una bomba de tiempo…” Economía para todos, suplemento económico de la revista “
Somos,” El Comercio, January 13, 1990.
629
“La flexibilización del mercado laboral,” Economía para todos, suplemento económico de la
revista “ Somos,” El Comercio, March, 1990.
630
“Un malentendido,” Economía para todos, suplemento económico de la revista “Somos,” El
Comercio, June 2, 1990.
631
Ibid.
632
“Fábula de la reina abeja controladora (o del burocratismo),” in Economía para todos, suplemento
económico de la revista “Somos,” El Comercio, August 29, 1989; “Fábula: El gordo regalón (o la
historia de los déficit fiscal)(sic),” in Economía para todos, suplemento económico de la revista
“Somos,” El Comercio, December 2, 1989.
633
“ El gordo regalón (o la historia de los déficit fiscal)(sic),” in Economía para todos, suplemento
económico de la revista “Somos,” El Comercio, December 2, 1989.
634
“Fábula de la reina abeja controladora (o del burocratismo),” in Economía para todos, suplemento
económico de la revista “Somos,” El Comercio, August 29, 1989.
306

change). Although this publication included lengthy articles that had a more
elaborated and professional style of discourse than the magazine added to the
newspaper, it was also directed to the wider public of readers without a
specialization in economic issues.
Not only these special publications but various newspapers and magazines of
the national press included a series of articles that demanded economic policy
change and praised the market, pointing out that this would offer equal opportunities
for all Peruvians and solve the nation’s economic problems. Basically, the three
newspapers with the largest circulation, El Comercio, Expreso, and Ojo, (Figure 3)
supported Vargas Llosa’s market-oriented program.
635
The readers of El Comercio
and Expreso belonged mainly to the high and middle class. Ojo was the most popular
of the newspapers in the so-called emergent sectors constituted by workers in the
small industrial firms or commerce who were not the typical white businessmen
descended from European immigrants but mestizos or indians who had migrated
from the provinces to the capital. It was also read by people from the lower
economic stratums that still could afford to buy a daily, and by street sellers, taxi
drivers, and in general the workers of the so-called informal sector.
Although during the early 1980s very few had advocated (at least publicly)
market-oriented policy ideas, as of the end of that decade, the trend had largely
changed. Even the sector of the press that did not plainly support Vargas Llosa opted
to publish some articles authored by intellectuals and politicians who promoted
307

market-oriented policy ideas. For instance, La Republica was a daily that published
news or articles with highly negative commentaries about Vargas Llosa and his
economic program. Nonetheless, it also occasionally included articles critical of the
underdevelopment and dependency that had prevailed in Perú until that date.
636

The coalescence of experts and the diffusion of a more technical pro-market
discourse
In addition to the efforts directed to diffuse pro-market policy ideas among
the wider public, there were also efforts directed to a more selected public
constituted by businessmen, politicians, and professionals. In this regard, an
important factor was the coalescence of professionals, mainly economists, supporters
of market-oriented policies. As a consequence of the García’s government’s
increasingly bad management of the economy, from the end of the year 1987 onward
there was in Perú a “fever of forums,” in which economists and other professionals
debated the economic and social problems affecting this country.
637
These forums
opened a door for the wider dissemination of the views of people who supported the
application of market-oriented policy ideas, a group that, given the ideological
context prevailing during the 1970s and 1980s, had been a minority within academic
and professional circles. In the words of a prominent Peruvian economist,

635
Alvaro Vargas Llosa, 51.
636
See for instance, Fernando de Trazegnies, “Las Viejas teorías del subdesarrollo,” La República,
March 10, 1990, 19; “La privatización del desarrollo,” La República, March 13, 1990, 19; “El
desarrollo popular,” La República, March 24, 1990, 19.
308

During the late 1980s there were almost ten forums per month devoted to the
discussion of economic issues. These events permitted an effective
networking among those of us that had common views regarding the analysis
of Perú’s economic problems. We began to identify with each other, . . . to
know with whom we could talk to. Later, Vargas Llosa convoked many of
these people to participate in the drafting of an economic program to be
applied during the 1990s under the eventual government of FREDEMO.
638

Foreign advocates of market-oriented reforms, mainly economists and former
government functionaries, were also invited especially by CONFIEP and IPAE to
share their professional experience in these forums. The message was the same: the
state was responsible for all the economic problems, and therefore its intervention in
the economy, its size, and its expenses had to be reduced dramatically. The
application of radical stabilization was thereby presented as a condition sine qua non
to save the economy.
639

As of the movement Libertad, it organized an international congress titled La
Revolución de la Libertad (the Revolution of Freedom), held in Lima in March 1990.
It was presided over by Vargas Llosa and included the participation of more than
forty technocrats, academics, intellectuals, writers, journalists, and politicians from
Europe, Latin America, Canada, and Perú, as well as representatives or members of
international academic institutions and think tanks known for their support of
market-oriented policy ideas. For instance, there were people from the Austrian
School of Economics, Fundación Humanismo y Democracia (a Spanish institution

637
Personal interview with Jorge Gonzales Izquierdo, Economist, Professor of the Universidad del
Pacífico, Lima, July 4, 2003.
638
Ibid.
309

that contributed to the modernization and liberalization of politics in Spain), the
Mount Pellerin Society, and the American Enterprise Institute. Some of the special
guests were Alan Walters, economic advisor of English First Minister Margaret
Thatcher; Bronisaw Geremek, representative of the movement Solidarity in the
Polish Parliament and of Lech Walesa, Nobel laureate and leader of the Polish
movement Solidarity, and former ministers of state from Chile and Venezuela.
Although this was a private conference in which the Peruvian participants and
attendees belonged mainly to the business and professional elites, the mainstream
press provided extensive coverage so the wider public could learn about the themes
tackled and the credentials and experience of the presenters. The press articles
reporting about this conference praised the market and condemned any kind of
control of the economy.
640

Second sub-stage: The pro-market discourse by state actors during the
beginning of the Fujimori era (1990-1993)

As noted early, Vargas Llosa did not obtain the legal majority of votes
required by the Constitution to be declared president, therefore he had to participate
in a run-off and was defeated by Alberto Fujimori. Nonetheless, as the events that

639
See for instance, “El ejemplo boliviano contra la inflación,” El Comercio, July 2, 1989; “Cómo se
hizo la concertación en México? Empresarios de CONFIEP aprenden la experiencia por intermedio de
dirigente empresarial.” El Comercio, February 24, 1989.
640
For instance: “Los enemigos de la libertad son enemigos del desarrollo,” “La eficiencia económica
depende de la libertad,” “Está pronta la caída del comunismo en Cuba,” El Comercio, March 10,
1990, A6; “Alas de la libertad” in Caretas, March 5, 1990.
310

followed the run-off demonstrate, Vargas Llosa’s economic proposal was not
defeated. In fact, the myths about the market economy promulgated by Vargas Llosa
during his electoral campaign did not disappear from the Peruvian political discourse
after he lost the presidential elections. On the contrary, there was within the frame of
Fujimori’s political discourse, as well as that of the functionaries he appointed during
his government, a selective and repeated use of analogies, metaphors, and symbols
that resulted in a global rhetorical strategy in favor of market-oriented reforms.
Once elected and before formally assuming the presidency, like Vargas Llosa
had done during his electoral campaign, Fujimori indicated that his government will
put order and will initiate the reduction of the state bureaucracy, and the adjustment
of gas prices and utilities.
641
Moreover, Fujimori did not look for additional
explanations that could justify the steps he was taking, but simply repeated the same
discourse that Vargas Llosa and his supporters had promoted during the previous
three years. For instance, in his declarations to the press, Fujimori underscored the
need to reinsert Perú into the international financial system. He pointed out that the
only way to save Perú from its economic crisis was to establish stabilization and
liberalization policies, “a sort of a Peruvian perestroika.”
642

In contrast to the mild commentaries that during his electoral campaign
Fujimori had made against the García government, once elected president he
launched harsh criticisms and confronted government functionaries. Like Vargas

641
See “Fujimori anunció que atraerá inversión extranjera variando las garantías y condiciones,” El
Comercio, June 22, 1990.
311

Llosa and his followers had been claiming during the electoral campaign, Fujimori
declared that due to the mismanagement, corruption, and crisis left by the García
government, the new administration would not have any other solution available but
to apply severe measures to face the most urgent problems affecting the economy.
643

The press, politicians, and analysts noticed and publicly commented the
change in direction of Fujimori’s political discourse. As of July 22, 1990, economists
from the most important Peruvian universities and think tanks
644
who did not share
market-oriented policy ideas and some union leaders expressed their concerns about
the possible application by Fujimori of a drastic adjustment (shock) like that
proposed by FREDEMO.
645
On the other hand, promoters of market-oriented policy
ideas made favorable comments, expressing that “there was not another viable
alternative”
646
and that the president had taken an important step deciding to
negotiate with the IFIs.
647

Later, in his inaugural speech on July 28, 1990, Fujimori emphasized that he
had inherited “a disaster, an exhausted and chaotic economy, almost an economy of

642
“Fujimori tendrá que crear condiciones internas que permitan negociar con FMI,” El Comercio,
June 30, 1990, A4, “Fujimori habló de una Perestroika a la Peruana,” El Comercio, June 30, 1990, B9.
643
“Fujimori anunció que atraerá inversión extranjera …Futuro nuevo gobierno será de orden y
disciplina; iniciará racionalización de funciones burocráticas.” El Comercio, June 22, 1990.
644
Economists from the Universidad Católica, Instituto de Estudios Peruanos, DESCO, and some
from the Universidad del Pacífico considered worrisome that members of Fujimori’s first team of
economic advisors – who had opposed the FREDEMO economic program and proposed an alternative
one – had resigned. La República, July 23, 1990, 5.
645
La República, July 23, 1990.
646
Mariella Balbi, “Interview to Richard Webb,” La República, July 22, 1990, 12- 14.
647
Luis Miro Quesada “La aproximación al FMI hace cambiar de óptica,” El Comercio, June 26,
1990.
312

war.”
648
Therefore, he announced, although Peruvians should be the protagonists of
their own destiny, foreign capital and technology would have to be added to
Peruvians’ efforts in order to generate a process of national development.
649
The
press offered abundant coverage in this regard. Thus when few weeks later Fujimori
began the implementation of an economic program that largely resembled and in
many aspects was even deeper than that which his electoral adversary had so
tirelessly professed, the content of this program was not news for Peruvians.
Fujimori also employed the same sequence of messages that had
characterized the discourse of Vargas Llosa and his followers: messages of threat
supplemented by messages of reassurance. It began with first a fierce attack on the
economic policies pursued by president García, and severe criticism of the state and
its institutions.
650
Then the message of threat was supplemented with a message of
reassurance expressing the determination of the government to achieve both: the
reinsertion of Perú in the international financial community and a new stage of
development—“modernity”—through the application of market-oriented reforms.
Again, like Vargas Llosa and his followers and with the same omissions in which
they incurred, Fujimori continuously mentioned some Asian countries as examples

648
“Heredamos un desastre, con una caída estrepitosa de la producción y la inversión.” El Comercio,
July 29, 1990.
649
Ibid.
650
In this regard however, there is a large difference between Vargas Llosa and Fujimori. The former
criticized the government and the state, especially the state bureaucracy, but proposed a reform of the
state institutions with a strong Congress not subjected to the will of the president. In contrast, since
the beginning of his government Fujimori emphasized a radical message against the state and its
institutions but without a proposal of change. There was in Fujimori’s constant criticism of the state -
especially of Congress – a remarkable option in favor of the Executive branch. Not surprisingly, when
313

that Perú should follow to achieve development. For instance, Fujimori pointed out
in various occasions that he wanted to transform Perú into a “Latin American
dragon.”
Likewise, the assertions repeatedly made by De Soto and Vargas Llosa were
emphasized in the pro-market discourse of Carlos Boloña, appointed minister of
finance in February 1991. For Boloña, Perú’s enemy was not foreign, and Perú’s
economic problems were not the result of dependency and of a hierarchical
international system with core countries taking advantage of those on the periphery.
Instead he asserted, “Do not blame others. We have generated the disaster and we
have to solve it.”
651
Words such as efficiency, opportunity, competition, and free
market, became an important part of the Peruvian political discourse. The free
market was embraced as the only system that could save Perú. According to Boloña,
“Ethics needs to be left aside. I am pragmatic and search for solutions that function.
The world is looking for efficiency and the market can give it to us.”
652

With respect to the use of analogies, during 1987-1989, the followers of
Vargas Llosa had compared President García’s policies with terrorist attacks. In
1991, Minister of Finance Carlos Boloña also made such a comparison. In an
interview transmitted by a radio station, he declared,
The names of the two most dangerous terrorists in Perú began with the
initials A.G.: Abimael Guzmán, and Alan García. The former is a traditional
terrorist that had caused deaths and destruction in Perú. The latter . . . in only

Fujimori closed Congress in April 1992, he pointed out that the Congress and the Judiciary were not
agents for change but instead an obstacle for “progress.”
651
“Boloña sugirió revisar el concepto de concertación,” El Comercio, August 23, 1991.
652
Carlos Boloña, Resumen Semanal, November 21, 1991.
314

five years achieved an economic deterioration and a level of poverty by far
larger than those caused by Guzmán.
653

Likewise, with respect to the message of reassurance, the discourse of
Fujimori and Boloña, like that of Vargas Llosa, included constant references to both
the virtues of the market and the benefits derived from the reinsertion of Perú into
the international financial system.

The Peruvian Social and Political Context That Facilitated the Promotion of
Market-Oriented Policy Ideas.
To this point I have discussed how market-oriented policy ideas were
promoted and the strategies and channels used to fulfill that objective. Nonetheless,
ideas are not spread in a political vacuum. It is necessary to take into consideration
the social and political context that facilitated the ample diffusion of these ideas and
their receptivity by the wider public. This section examines the position taken by
state and non-state actors during the promotion of market-oriented policy ideas and
during the application of market-oriented reforms. In this regard, it underlines the
fact that in comparison to the early 1980s, as of the end of the decade and during the
early 1990s more non-state actors publicly advocated market-oriented policy ideas
and also worked tirelessly to promote their diffusion throughout the Peruvian social
and political arenas. Furthermore, this section notes that even years before the

653
Carlos Boloña, “Cambio de Rumbo,” 5.
315

application of reforms by the Fujimori government, the wider public supported the
eventual application of market-oriented reforms in Perú.

Non-state actors
Besides the efforts led by Vargas Llosa and his political movement Libertad
discussed earlier, a considerable sector of the press and various think tanks actively
contributed to the diffusion of market-oriented policy ideas, playing a crucial role in
changing traditional perceptions about the state and the economy. On the other hand,
non-state actors such as the political parties of the Left, labor unions, and various
guilds that during the early 1980s had successfully opposed the implementation of
market-oriented reforms could not effectively confront the diffusion of market-
oriented policy ideas. Several problems affected their organizational resources and
political identity and impeded them from embracing a coherent discourse against that
promoted by the supporters of market-oriented reforms. Moreover, other non-state
actors, such as university students, played a singular role in this regard. Although
they did not necessarily promote market-oriented policy ideas, they indirectly
contributed to the diffusion of a pro-market discourse when their student guilds
assumed a political position that was open to the reception of new policy ideas.
With respect to the press, its influence on the wider public through its news
reports and its informed analysis of political events and economic issues is, without
doubt, considerable. In this regard Edelman notes that, “news is a catalyst of support
or opposition in the light of the spectator’s sensitivities, areas of ignorance, and
316

ideological stance.”
654
Likewise, specialists in communication studies note that
although learning about the complex issues that confront the polity might be
constrained by the ability of individuals to comprehend the material or by their
interest in the topic, merely paying attention to the news can compensate for
disadvantages in cognitive acuity. “Those with less acuity or prior knowledge
depend significantly on the style and structure of news presentations.”
655

Furthermore, the media’s reports may reach broad sectors of the society, usually
larger than those reached by any other political actor. The speed with which its
message is communicated to society is faster than the explanations constructed by
scholars, political analysts, and political actors. Hence the willingness of any state or
non-state actors to have their discourse transmitted by news media, or even better, to
be supported by the media.
With respect to the role of the media in the Peruvian experience of economic
reform, in contrast to its performance during the early 1980s, from 1987 onward the
mainstream media explicitly advocated market-oriented policy ideas and supported
the application of economic reforms in this line. This change in the position of the
press was influenced by two events. One was President García’s attempt to
nationalize the banking sector, the other, the media’s sour experience with
expropriations during the military government of General Velasco. The latter had
expropriated media ownership and deported leading journalists that were opposed to

654
Edelman, 93-94.
655
W. Russell Neuman, Marion R. Just, Ann N. Crigler, Common Knowledge, News and the
Construction of Political Meaning, (Chicago: The University of Chicago Press, 1992), 21.
317

the military regime. Therefore, when Alan García in 1987 announced the
nationalization of the banking sector, the “Velasco-syndrome” ignited in the press a
fear that they would be next in the list to be expropriated. Not surprisingly, the
dailies El Comercio, Expreso, Ojo, and the weekly magazine Oiga strongly
supported Vargas Llosa’s opposition to the nationalization.
The mainstream press reported extensively and favorably about market-
oriented policy issues. For instance, its reports covered in detail Vargas Llosa’s
campaign activities, interviewed him and his closest collaborators, and published
specialized essays authored by supporters of market-oriented policy ideas. Likewise,
it consistently interviewed and in various situations openly praised political figures
and economists who supported market-oriented policy ideas. Moreover, it reported
about the “success” of other countries that had embarked into adjustment and
market-oriented reforms and analyzed polls that indicated an increase in public
opinion’s support for the application of these reforms in Perú.
Furthermore, after Vargas Llosa lost the presidential elections, the
mainstream media that had openly advocated his candidacy and his program of
market-oriented reforms opted for supporting the application of these reforms by the
Fujimori government. Take, for instance, the following excerpts from El Comercio
editorials:
The elected president has decided to change our foreign economic policy,
ending our auto-isolationism with respect to the debt problem. Not paying
318

attention to the absurd anti-monetarist prejudices of President García, Mr.
Fujimori will initiate conversations with the president of the IMF.
656

In a healthy move and in the quintessential of one who does not want to
deceive himself with respect to the crisis the country is experiencing, and
who is not able to lie to the country . . . President Fujimori has made and
accurate description about our pathetic economic situation.
657

A constant in the inaugural presidential speech has been the ethical proposal
about what the state should be from now onward. . . . [Within the president’s
speech] excels the desire of abandoning the absurd isolationism in
economics, the reinsertion of the country in the international financial
system, and the announcement that the excessive participation of the state in
the relationship between workers and firms’ owners will be cut.
658

With respect to think tanks, by 1990, differences could also be seen since the
attempts of Ulloa’s economic team –in the early 1980s- to apply market-oriented
reforms. As described in the previous chapter, during the 1980s institutions such as
ILD, APOYO, and GRADE that supported market-oriented policy ideas had
acquired a high profile at the national and international level, expanded their research
and consulting services, and strengthened their budgets. Consequently, in 1990 an
important sector of the think tank area was institutionally more able to influence and
support economic policy change in the direction of market-oriented policies.
As noted early, long before 1987, the year in which President García’s
decision to nationalize the banking sector had ignited a wave of reaction in the non-
state sector in favor of the liberalization of the economy, APOYO had been issuing
alerts about the flaws in Perú’s economic policy, and promoting market-oriented

656
Luis Miró Quesada, “La Aproximación al FMI hace cambiar de óptica,” El Comercio, June 26,
1990, Editorial page.
657
“Fujimori puso los puntos sobre las íes,” El Comercio, June 30, 1990, A4.
658
“Planteamiento ético de lo que debe ser el Estado,” El Comercio, July 29, 1990.
319

policy ideas. After the nationalization of the banking sector, Felipe Ortiz de Zevallos,
APOYO’s leader, presented probably the most technical and well-articulated
criticism to this specific policy and to the general postulates of the García
government’s economic policy. Later, Ortiz de Zevallos also participated in forums
supporting policy change directed toward the liberalization of the economy.
659

APOYO played a very important role in the promotion of market-oriented
policy ideas, publicizing these in a twofold way. The editorials and articles of
APOYO’s specialized publications, especially Perú Económico, read mainly by
business, professional, and academic sectors continuously demanded the application
of a radical stabilization program and market-oriented reforms. APOYO also
influenced wider audiences through its public opinion polls that were widely
published in the media.
With respect to public opinion polls, as noted by Rotunda, how a person asks
a question can predetermine not only the answer he or she receives, but if appropriate
words and symbols are incorporated into the question, can determine the way people
think and the way they answer the questions themselves.
660
In the same line, Bogart
asserts that polls help create the opinions they measure when they incorporate

659
Likewise, on some occasions, Ortiz de Zevallos accompanied Vargas Llosa in his visits to guilds or
the poor neighborhoods in the shantytowns located on the outskirts of Lima In this regard Vargas
Llosa notes: “Felipe Ortiz de Zevallos explained how by debureaucratizing the state and by
symplifying the burdensome legal system, tradesmen and craftsmen of the informal economy could
work legally, with proper permits accessible to everyone, and spoke to the stimulus that this would be
for people’s welfare.” Mario Vargas Llosa, A Fish in the Water, 161.
660
Rotunda, 7.
320

evocative terms in their questions, as is inevitable if the questions deal with
controversial matters.
661

This effect in the creation of public opinion that, according to specialists in
this matter like Bogart, could be attributed to the polls conducted by any large
polling firm, was particularly certain with respect to APOYO’s polls. As noted in the
previous chapter, APOYO is not only an opinion polling company, but a consulting
firm and research institution that as of the end of the 1980s had collected invaluable
data about Peruvian economic indicators and conducted important analyses in this
regard. Although APOYO was formally constituted as a think tank just in 1989, long
earlier it had become in practice a think tank through its specialized journalism and
research in economic issues. Even in its publication Perú Economico, which is more
technical-oriented than its Revista Debate and contains mainly discussions and
information about specific economic issues, there were also articles with political
commentaries and essays about democracy and liberal thought.
The high profile of APOYO’s publications and the reputation for serious
work associated with the name of its leader, Felipe Ortiz de Zevallos, granted a
special status to APOYO’s polls. Due to their high reliability, APOYO’s polls were
solicited and published by the media and thus had a larger diffusion. Not only the
news broadcasts transmitted APOYO’s polls, but also journalists, social researchers,
politicians (representing the right, center and left), and political analysts whose

661
Lee Bogart, Silent Politics: polls and the awareness of public opinion (New York: Wiley-
Interscience, 1972) 99-140.
321

commentaries were published by the press and television tended to take these polls
as reference points.
During the late 1980s, APOYO’s polls inquired about the reaction of the
public with respect to the possible application of specific market-oriented reforms
(e.g., privatization, reduction of the state, foreign investment) and the application of
stabilization measures. This kind of inquiry was a novelty in the Peruvian context.
Prior to the presidential elections of 1985, questions about specific economic policy
issues had not been included in public opinion polls. Before then, the questions had
addressed general issues or the profile of the candidate: What do you expect from the
new government? What characteristics should the new candidate should have? Who
do you think will win the elections? In contrast, during the late 1980s, two years
before the presidential elections, APOYO’s polls were already inquiring about
specific economic policy issues: Do you think that foreign investment should be
promoted? Do you think that private capital is important for our country? Is the free-
market system the most suitable for our country? Should the size of the state be
smaller? Are you in favor of selling state-owned firms?
This change in the content of the questions included in the polls mirrored the
climate of Peruvian politics as of the late 1980s. Like never before, Peruvians were
exposed through the media to the vast discussion among experts about economic
issues such as inflation and fiscal deficit, to mention some, and especially to the vast
diffusion of market-oriented policy ideas. Since public opinion polls are the
thermometer of trends in society, as of the end of the 1980s APOYO’s polls had to
322

inquire about the impact of these events using the terms that were at that time part of
the political discourse. APOYO’s polls showing the great expectations that people
had with respect to market-oriented reforms had a feedback impact in public opinion.
Given APOYO’s recognized reputation, it can be affirmed that its polls not only
reported trends in public opinion, but created and promoted these trends.
Moreover, as soon as President Fujimori initiated the program of stabilization
in August 1990, APOYO, through its specialized publications, applauded this
policy,
662
noting that it was necessary to supplement this program with structural
reforms of the economy.
663
The positive remarks about the policies implemented by
the government continued, especially after the issuance of the structural reforms in
February 1991.
664

With respect to the ILD and Hernando de Soto, their participation in the
promotion of market-oriented policy ideas was crucial during the late 1980s and
early 1990s.
665
With the arrival of the new decade, the ILD’s proposals about
economic reform had gained ample acceptance at the national and international level.
After the announcement of the nationalization of the banking sector, Hernando de
Soto supported Vargas Llosa in his efforts to confront that measure and initially
participated in the group Libertad. Although later De Soto distanced himself from

662
Perú Económico, August 1990.
663
Perú Económico, September 1990.
664
Nonetheless, it is important to point out that APOYO, especially his leader Felipe Ortiz de
Zevallos had always tried to promote freedom of the market but linked to freedom of individual
human rights and democracy. Therefore although he applauded the economic reforms of the new
government, he also warned about the authoritarian character that this was taken. In April 1992, after
Fujimori closed Congress, APOYO criticized the political maneuver of the government.
323

Libertad, some professionals from the ILD (among them Enrique Ghersi and Mario
Ghibellini, co-authors of The Other Path) not only continued their participation in
this political group but became leading voices in the promotion of the pro-market
discourse.
During the Fujimori government, the role of Hernando de Soto and the ILD
in the formulation and implementation of market-oriented policies became
particularly important. As noted in chapter 5, immediately after being elected
president, Fujimori contacted Hernando de Soto and appointed him as his personal
representative and principal advisor. As such, De Soto organized the first meeting
the elected president had with the IFI functionaries and connected the elected
president with technocrats who prepared the first proposal of economic policies that
he presented to the IFIs.
From providing the president with particularly useful networks to the
elaboration of drafts of legislation, the scope of De Soto’s advice to the president
was considerably large. For instance, De Soto organized a meeting with a group of
Bolivians among whom was Carlos Urrutia, advisor of former president Paz
Zamora.
666
Likewise, the ILD praises itself of having drafted some 400 laws and
regulations that opened up Perú's economic system, stabilized Perú's economy,

665
The following paragraph draws mainly upon my personal interview with Hernando de Soto, Lima,
October 1999.
666
El Comercio, June 22, 1990, A 4.
324

tamed inflation, and allowed Perú to return to international financial markets.
667
De
Soto resigned on April 1992, when the president opted for a coup d'état.
668

With respect to GRADE, together with the Brookings Institution it convoked
a group of independent economists to work on a proposal for a program of
stabilization linked to a strategy of growth. The project was financed by the
Interamerican Development Bank, the World Bank, United Nations Development
Program (UNDP), the Swiss Agency for Technical Cooperation, the Friedrich Hebert
Foundation, and CONFIEP. The directors of the project were Carlos Paredes, a
Peruvian economist from GRADE, who had graduated from the Universidad del
Pacífico and earned a master’s degree from the University of Georgetown, and
Jeffrey Sachs from Harvard University, who was internationally renowned for his
advice to the Bolivian and Polish governments regarding their stabilization
programs.
The group led by Sachs and Paredes worked together for a year in 1989-
1990. According to Paredes, although there were fruitful discussions regarding
certain details of the program, the members of the team shared the same ideas about
the need to open the economy, reduce the participation of the state in the economy,
and establish guidelines for fiscal discipline. Likewise, Paredes notes that the main

667
Personal interview with Hernando de Soto, Lima October 1999. Also see ILD web page.
http://www.ild.org.pe/home.htm.
668
By this time De Soto had become an internationally recognized economist for his works dealing
with the informal sector and the promotion of free-market institutions. Later De Soto was chosen as
one of the five leading Latin American innovators of the century by Time magazine in its special May
1999 issue on "Leaders for the New Millenium." Additionally, The Economist deemed the ILD as the
second most important think tank in the world, and Entwicklung und Zusammenarbeit, the German
325

purpose of this work was to present it to the wider public and influence both public
opinion and the entering government about the need to apply corrective measures
linked to a strategy of growth.
669
On June 1990, the proposal was presented in a
specialized forum and largely publicized by the media.
670

During 1990, GRADE continued publishing documents that explained in
detail specific points of the economic program elaborated by its economic team.
Likewise, after President Fujimori initiated the application of the stabilization
program, although this had some differences from that proposed by GRADE, this
institution and especially Paredes applauded the government’s initiative. In this
regard, Paredes commented, “If the new government pursues its effort of
stabilization I am sure that soon the majority of Peruvians looking back will consider
the Fujishock as the crucial change of venue that permitted us to reach better
economic conditions.”
671

With respect to MACROCONSULT, due to its institutional ties with the
political party SODE, when this latter decided to participate with FREDEMO in the
general elections of 1990, this political arrangement opened the door for the
professionals of MACROCONSULT to actively participate in economic policy

development magazine, in its January 2000 issue, regarded Mr. de Soto as one of the most important
development theoreticians of the last millenium.
669
Personal interview with Carlos Paredes, Lima, July 24, 2001.
670
Since Sachs was known by specialized professionals, but not necessarily by the wider public, when
the press reported about the economic proposal by Sachs and Paredes it highlighted the fact that the
former had advised the programs of stabilization in Bolivia and Poland. “Plan Sachs Paredes, un
programa completo de estabilizacion y crecimiento”, Caretas, June 25, 1990, 18-19.
671
Carlos Paredes, “Ajustes Necesarios al Ajuste Inicial,” Caretas, August 20, 1990: 26-27.
326

change. They were appointed to the committees in charge of elaborating the
government plan for FREDEMO.
For instance, Raul Salazar was appointed by Vargas Llosa as one of the top
delegates in the presidential campaign and become FREDEMO’s “star in economic
policy issues.”
672
In fact, although FREDEMO’s government plan was the result of
the work of various commissions under the leadership of Luis Bustamante, it was
Salazar who on the public front assumed the defense of the economic reforms
proposed by FREDEMO. Even before his appointment by FREDEMO, Salazar’s
specialized opinion had on various occasions been solicited by the press and by
organizers of forums. Salazar had always criticized the economic policy pursued by
the García government, argued the need to reduce the fiscal deficit in the short term,
and proposed the implementation of market-oriented reforms.
673
Likewise, Javier
Silva Ruete (co-founder of SODE) was appointed by Vargas Llosa to lead the
committee on privatization. This committee worked for an entire year making a
survey of the nearly two hundred public enterprises and setting up a system and
sequence for privatization, which was supposed to begin on the day that Vargas
Llosa would initiate his presidential term if elected.
674

With respect to university students, while during the 1960s and 1970s, being
young in Perú had meant for a great majority being a sympathizer or militant of the

672
Alvaro Vargas Llosa, 42.
673
For instance, see “La Inflación en Debate,” El Comercio, September 4, 1988; “Es un esfuerzo
notable,” Revista Dominical, El Comercio, September 1988.
674
Mario Vargas Llosa, A Fish in the Water, 363.
327

left, as of 1989 this assertion was not that certain anymore.
675
Indeed, prior to the
mid-1980s, socialist ideas had been the favored framework of reference of the
majority of students at Peruvian universities to discuss and analyze the national
reality. Those students who did not opt for a socialist or communist framework of
analysis or political affiliation had a very low possibility of leading a student guild.
During the mid-1980s however, the effervescence of political activism that
previously had characterized the leftist student guilds was facing a process of
deterioration. In the words of prominent Peruvian sociologist Julio Cotler, “There
was an organizational debacle at university circles. Collective action lost its
prestige.”
676

As of 1989 a set of circumstances had begun to bifurcate in university
campuses, affecting university organizations that had traditionally attracted the
massive participation of students in their internal electoral processes.
677
Those
students whose political orientation was not associated with the Left were elected by
popular vote to be representatives of guilds or associations previously led by students
supporting political positions associated with the Left. For instance, at the
Universidad Católica, for more than a decade students supporting leftist options had
been democratically elected to direct the Federation of Students (FEPUC). However,
from 1987 onward, there was an opposite trend. FEPUC was led by students

675
Victor Robles, “Los jóvenes del FREDEMO,” Quehacer, no.60, August-September 1987, 49.
676
Personal interview with Julio Cotler, sociologist, Director of the Instituto de Estudios Peruanos,
Lima, November 19, 1999.
677
The following paragraph unless otherwise noted is drawn from Victor Robles, “Los jóvenes del
FREDEMO,” Quehacer, no. 60, 49.
328

supporting agendas not linked to any political party or by those that supported the
discourse of political parties that emphasized market-friendly policies. This electoral
trend was also evident in the Universidad San Martín de Porres, a private university
in Lima whose student organizations had been traditionally led by members of the
political party APRA (center-left).

Similar changes occurred in other universities in
Lima and the provinces. For example, at the Universidad de Tumbes and the
Universidad Nacional de Piura, students supporting the right-wing political party
PPC won the internal elections.
A very interesting outcome occurred in the Universidad de San Marcos, the
largest public university attended mainly by students from middle-low and low
economic stratum. Traditionally San Marcos had been a bastion for supporters of
radical leftist parties, and its students had excelled in their intense political activity,
at the forefront of demonstrations against the government of turn, always questioning
those in political power. In 1987, however, there was a tremendous absenteeism in
the elections for the federation of students. In contrast to the strong participation of
candidates and voters in previous internal elections, close to 80% of the student
population did not participate in the electoral process, opting instead for being
outside of the university guild and political activities.
678

Furthermore, the trend toward absenteeism in electoral processes at the
Universidad San Marcos was later supplemented by strong support for student

678
Victor Robles, 50.
329

leaders who identified themselves as “politically independent.”
679
This new student
movement clearly asserted that they nothing had to do with the prior radical, mainly
leftist ideology that had dominated student elections during the 1970s and earlier
1980s. “We the independents are like the immensity of the sea” and “The utopias
have died and the ‘efficiency’ was born” were among the phrases repeated by
students participating in the electoral process for the University Council and
Assembly at the Universidad San Marcos in 1992. Interestingly, the winner in this
election was part of a politically independent student organization that had already
won student elections in 1991. These elections’ results were evidence of the new
political and ideological context on university campuses. Students looking to occupy
leadership positions had become aware of this new trend and designed their electoral
campaign strategy accordingly.
As noted by Montoya, student candidates had understood that presenting
themselves as supporters of independent or right-wing proposals was not anathema
anymore, but on the contrary, could add prestige to their electoral campaigns and be
translated into voters’ support and thus into electoral victory. While during the 1970s
and early 1980s, the central issue among student organizations had been to
questioning the political and social order, during the early 1990s, the most important
goal was to ensure support for mechanisms that would permit social ascendance.

679
The following information about elections in the University of San Marcos, unless otherwise noted
is taken from Luis Montoya, “San Marcos: la nueva mayoría,” Quehacer, no. 80, November-
December (1992): 38-41.
330

This latter was understood as the need to be a good professional and have the
necessary environment in the university to achieve that goal.
As of 1990, the renowned Peruvian sociologist Sinesio Lopez noted that the
fighting spirit of the federation of university students and of SUTEP (the union
representing workers in the education sector) “were just memories from the 1960s
and 1970s.”
680
He explained that “their radicalism in economics and their incapacity
to renew their perspective in a situation of crisis that demanded new answers, had
generated a leadership crisis, and weakened their organization and efficacy during
the 1980s.”
681
Likewise, a report by Chiroque noted that during the early 1990s there
had been significant changes among the students of education, a sector which
traditionally had been considered a supporter of the “radical” Left.
682
A poll at the
time showed that despite not having a detailed information about the meaning of
neoliberalism the majority of the future teachers (59%) supported this policy.
683

Since the change of the terms of debate occurring in society could not be
ignored in university campuses, as of the end of the 1980s the market issue had to be
tackled in the classroom or in specialized forums. Whether professors supported
market-oriented policy ideas or not, they had to get involved and lead discussions
about these matters. As one professor of the Universidad Católica observed,

680
Sinesio Lopez, “El Perú de los 80: Sociedad y Estado en el fin de una época,” in Estado y
Sociedad: Relaciones Peligrosas, Adrianzén et. al, 197.
681
Ibid.
682
Sigfredo Chiroque, “Los estudiantes están cambiando,” Revista Autoeducación, no. 47, year XV,
October (1995): 7- 9.
683
Ibid.
331

The debate was unavoidable. The students asked and we had to answer.
Furthermore, given the powerful propaganda that Libertad was conducting
through the media and specialized forums these academic debates constituted
a good opportunity to inform students about aspects that were not tackled by
the neoliberals’ seducing discourse.
684

At the Universidad Catolica, the faculty of the Department of Social Sciences
almost unanimously did not contribute to the promotion of a pro-market discourse.
On the contrary, in their specialized journals, declarations to the press, and
presentations in specialized forums, they rejected that discourse. Nonetheless, they
themselves recognize that it was difficult to gain supporters who shared their
position: “The deployment of the neoliberal discourse and Vargas Llosa’s team
powerful publicity machinery were unstoppable.”
685

At the Universidad del Pacífico, its research center, CIUP, had always
respected an unwritten code that consisted of not giving any opinion about the
economic policy plans of the presidential candidates or the government until these
plans had been effectively adopted and put in practice. However, in 1988, given the
failures of President García’s economic policy and the political climate of debate
about pro-market policy ideas, CIUP decided to deviate from its unwritten code.
686

Professors and economists linked to the university presented policy
recommendations that were published in a special edition of one of CIUP’s journals

684
Personal interview with professors Javier Iguiñiz, Lima August 2003, Efraín Gonzales de Olarte,
August 2003, Eduardo Ballón, Lima, September 15, 1999.
685
Personal interview with Efrain Gonzales de Olarte, August 2003.
686
Personal interview with Julio Wicht, July 27, 2001.
332

titled: La Urgencia del Cambio” (The urgency of change).
687
Some of the proposals
included in this issue were more pro-market-oriented than others, but in general, all
distanced themselves from the inward-oriented economic policy pursued by the
various administrations that had governed Perú during the last thirty years. Some
supported a radical adjustment program,
688
privatization of state-owned firms,
689
the
retreat of the state from the economy through the liberalization of the market,
reduction of trade barriers, and promotion of foreign investment, among other
policies.
690
Likewise, among the faculty of the Universidad del Pacífico, some were
critical while others were strong supporters of Vargas Llosa’s policy ideas.
Nonetheless, it seems that the latter had larger notoriety among the wider public. As
early as 1989, an alumna of this university wrote in one of the CIUP’s publications,
As of 1984 . . . we believed that the recipes that promoted a free market were
not the most adequate. The state had to intervene regulating any activity. The
IMF was our enemy. . . . What happened to all that? . . . Our same professors
and many economists graduated from our school now support the market
over any state intervention in the economy. . . . The theory that before was so
criticized now can explain everything. . . . Now we see how all are seduced
by the new paradigm.”
691

Furthermore, there were important changes in the Department of Economics.
In 1990 Jorge Gonzales Izquierdo, who had collaborated in the working groups

687
La Urgencia del Cambio, Cuadernos de Investigación, Centro de Investigaciones Universidad del
Pacífico, 1988, no. 8.
688
Julio Velarde, “La necesidad de políticas radicales de desinflación”, in La Urgencia del Cambio,
105 – 114.
689
Augusto Alvaro Rodrich, “Qué hacer con la empresas estatales en el Perú?” in La Urgencia del
Cambio, 135-148.
690
Jorge Gonzales Izquierdo, “Quo Vadis Alan?”, in La Urgencia del Cambio, 97-104.
691
“Las Tribulaciones de un tonto economista desconcertado”, Punto de Equilibrio, Centro de
Investigación de la Universidad del Pacífico, June (1989): 2.
333

organized by Libertad to design Vargas Llosa’s economic program, was appointed
dean of the faculty of economics. His first step in this position was to convoke a
group of professors who had been trained in the United States and committed them
to the design of a new curricula. All the courses that largely tackled Marxism were
replaced by courses more in tune with the principles of the free market.
692

In the political realm, as of 1990, the traditional political parties in Perú had
entered into a phase of exhaustion. Peruvians in general were frustrated by the
political parties’ lack of a responsible role in politics and their incapacity to respond
to the political, social and economic crisis affecting the country. The political
parties’ discourse that in the transition to democracy during the early 1980s had
captivated Peruvians from different corners of the civil society lost its appeal and
mobilizing power as of the end of the decade. For instance, despite the fact that 78%
of the population considered democracy the best government system, only 17%
expressed confidence in the political parties.
693

The wider public support for independents or for candidates portraying a
different discourse than that proclaimed by traditional political parties became
obvious during the municipal elections held in 1989. The candidates of FREDEMO
and independents were elected to occupy key positions in the municipal governments
throughout the country. The same took place in the presidential and congressional

692
Personal interview with Jorge Gonzales Izquierdo, Lima, July 4, 2003.
693
Alfredo Torres Guzmán, “Las Elecciones Presidenciales en el Perú,” Document prepared to be
presented at “The 1990 Conference of the World Association for Public Opinion Research,” Lima,
May 10, 1990, 2.
334

elections of 1990. In such a context, the traditional center-left and leftist political
parties did not or could not play an important role in economic policy change.
Because the traditional political system was enormously discredited, as of
1990 there was an evident political vacuum.
694
The political parties of the Left were
supposed to be the ones in charge of providing an alternative proposal to that
encouraged by the pro-market discourse. Nonetheless, they were unable to confront
the large efforts displayed by the promoters of market-oriented policy ideas. Their
internal problems of identity and organization added to special circumstances at the
national and international level contributed to this outcome.
Events such as the economic and political reforms in the former USSR, the
social mobilization in East European countries (especially in Poland where the
workers confronted the authoritarian communist order), and the fall of the Berlin
Wall had a devastating impact on the Left. The press continuously informed the
public about these events and emphasized the subsequent efforts of these countries to
move from the economic policies imposed during the Soviet domination.
Furthermore, the end of the Cultural Revolution in China, the works of Rudolph
Bahro about the crisis of socialism, and the triumphs of Reagan and Thatcher had
also affected the discourse of the Left. Regarding these changes, Alberto Adrianzen
commented, “Our world began to fall down, our ground was shaking.”
695

694
As noted by Teinaiven, Fujimori’s victory may be seen as the final result of the institutional
breakdown and political crisis rather than its primary cause. Teivo Teinaven, 127.
695
Personal interview with Alberto Adrianzen, October 1999. Also see Osmar Gonzales, Señales sin
Respuesta, 120.
335

Nonetheless, without denying the importance of all these events and the
disillusionment they caused intellectuals, activists, and sympathizers of the Left,
these actors themselves recognize that the crisis of the Peruvian Left was due mainly
to other factors than these international events. The Peruvian experience itself had
taught lessons that were necessary to take into consideration about the intervention
of the state in the economy. Implicitly, there was an abandonment of the notions that
foreign capital meant imperialism and that socialism meant statism.
696

Furthermore, internal divisions within the Left, the fruit of the lack of
redefinition of their prime political objectives, together with the domestic context
that affected all the political parties constituted a significant obstacle for the
elaboration of a coherent and adequate response in economic policy.
697
Most
importantly, as noted by Diez Canseco, within the Left there was a lack of a
responsible discussion and of democratic methods to solve the internal differences.
The main decisions were taken by the leaders, without consulting their popular basis
and disregarding the accords taken in their general summits.
698
Due to the internal
confrontations (that were evident as early as 1987),
699
in the general elections of
1990, in contrast to the strategy followed in previous elections the Left did not

696
This paragraph is drawn from my personal interview with Guillermo Rochabrún, Lima, July 19,
2003.
697
Personal interview with Luis Sirumbal, Pablo Checa, Marcial Rubio, Alberto Adrianzén, Eduardo
Ballón, Javier Iguiñiz, and Efraín Gonzales de Olarte.
698
Javier Diez Canseco, “La agenda de la Izquierda Unida,” 30.
699
In 1987, Henry Pease, intellectual and member of the Left had commented: “We are part of a Left
that is without a clue in this political conjuncture. Due to our lack of political initiative we have
became into commentators of the initiatives assumed by the APRISTA government (…). The crisis of
the Left is prior to this conjuncture, it is a leadership crisis that implies the lack of direction with
respect to a political strategy.” Oiga, September 21, 1987, 33.
336

participate in block. Instead, it was represented by two fronts: Izquierda Socialista
(IS) and Izquierda Unida (IU).
The press widely reported the criticisms of one Leftist block against the
other, making it evident the deep identity crisis and lack of leadership existing in the
Left as well as the deficiencies of each block.
700
Even the journals that were
sympathizers of the Left published articles criticizing this situation.
701

Consequently, it was difficult for the Left to present a coherent plan and even more
so to present itself as a coherent political front.
Moreover, two political groups, one legal and the other not, despite not being
part of the Left greatly affected its discourse and practice. One was APRA, the oldest
Peruvian political party and the most organized which in 1985 however after sixty
years of activism had arrived to power only to have “the most disastrous government
in Perú’s history.”
702
With its bad performance in government, APRA not only
immersed the country into economic crisis, but as a center-left political party dashed
the possibility of the Left’s appearing as a significant political option in the general
elections of 1990.
At the same time, during the late 1980s the impact of Shining Path was
tremendously destructive to the image and reputation of the Left among the wider

700
For instance, “La Izquierda Unida en Quiebra,” Oiga, September 21, 1987, 33-35; “La Viabilidad
de Barrantes,” Caretas, February 13, 1989, 26-27; Qué Desune a Izquierda Unida? Caretas, May 2,
1989, 19; Luis Pásara, “Tiene Futuro la Izquierda? Caretas, April 2, 1990, 6; “Cortando Amarras,”
Caretas, January 16, 1989, 29-32, 80; “IU: Fuegos Cruzados,” Caretas, January 30, 1989, 18-19, 84.
701
For instance, Enrique Bernales, “Crisis: y la clase política?,” Quehacer no. FECHA, 5; “El
Fracaso de la Izquierda,” Actualidad Económica, no. 115, April-May 1990, 2-5, 65.
702
Enrique Bernales, “Crisis: y la clase política?,” Quehacer no. FECHA, 5.
337

public. Although as of 1987, various leaders of the Left had publicly condemned the
Shining Path and other terrorist groups, some extreme factions of the legal Left did
not do. Furthermore, these factions were linked to the publication of radical
newspapers (El Diario, La Voz) which encouraged subversion and were seen by the
wider public as the voice of the terrorist groups. These facts dashed the legitimacy of
the Left parties that wanted to achieve reforms within democracy.
As a result of these events, the Left entered the new decade and the general
elections with a reduced electoral basis, a weak organization, and a lack of political
force to confront the challenges derived from the economic, political, and social
context. In the general elections of 1990, IU and IS together obtained only 11% of
the vote.
703
Their representation in Congress was minimal: IU obtained six seats in
the Senate and 16 in the Chamber of Deputies, while IS obtained 3 and 4
respectively, and could not frontally oppose the market-oriented economic program
supported by FREDEMO and the majority of Cambio 90.
Furthermore, the parties of the Left had tied their own hands when it came to
mobilizing people against the Fujimori government’s economic policy. When Vargas
Llosa had to participate in a run-off with Alberto Fujimori after the elections held on
April 1990, the parties of the Left expressly instructed their militants to vote for the
latter. After that, it was difficult for the leadership of the Left to suddenly instruct
their militants to go against the person they had helped to be in power.
704

703
El Comercio, April 6, 1995. In the elections to the Constitutional Assembly in 1978 the Left had
obtained 29%, and in the presidential elections of 1980 and 1985, 16% and 25% respectively.
704
Personal interview with Luis Sirumbal, July 10, 2003.
338

During the early 1990s, given the lack of effective opposition among the civil
society to the Fujimori government’s economic policy, various politicians,
intellectuals, and sympathizers of the Left began to question themselves about the
viability of their economic proposals. Some even recognized that it was important to
pay attention to certain aspects of the market economy that could not be rejected
especially when vast sectors of the society, especially popular sectors, were
supporting that economic program.
705
Likewise, some made serious attempts to
reorganize the Left in order to fill the place in domestic politics they had lost and to
reconnect with the Peruvian population.
706
However, their efforts did not see
important results at that time.
Also weakened as of the end of the 1980s was the activity of the labor
movement.
707
The worsening economic conditions that had largely affected the
survival of the firms and the salaries of the Peruvian workers augmented frustrations
that resulted in a lack of enthusiasm for the initiatives announced by union leaders.
In many cases, the economic crisis had obligated those workers that still had a job to
supplement their deteriorating salary with income from additional jobs performed
after hours or during the weekend. Given this situation, many leaders and members

705
See for instance, “Fujimori: autoritarismo facil, dificil modernizacion,” Cuestion de Estado no.1,
December 1992 – January (1993): 19-31. Likewise, Victor Torres, “Jurgen Schuldt y El Síndrome de
la Plañidera. An interview,” Quehacer No. 83, May-June (1993): 64-68.
706
See “Javier Iguiñiz: Volveremos a conectarnos con el Pueblo,” and “Henry Pease: Llenaremos un
vacío histórico.” La República, March 4, 1991, 11.
707
Unless otherwise noted, this and the following paragraphs related to the situation of labor unions
during the early 1990s, is being drawn from my personal interview with Luis Sirumbal, July 10, 2003,
economist specialized in labor issues, Pablo Checa, former union leader, Lima, July 8, 2003, and José
Marcos Sanchez, lawyer specialized in labor issues. Lima, Lima July 3, 2003. At the time of the
interviews the interviewees were members of NGOs specialized in labor issues.
339

of labor unions were not willing to invest the necessary time and energy required to
mobilize their guilds. Besides, those who had lost their jobs had to accept being sub-
employed in the informal or service sector in conditions that made their participation
in labor unions impossible. As of 1990 the union leaders did not have the power to
mobilize that they had enjoyed during the 1970s and early 1980s. One leader
reported, “even though the labor movement constantly appealed to workers to
confront Fujimori’s economic policy, there was not any significant response.”
708

Furthermore, during the early 1990s the labor movement was unable to activate
effective communication with the political parties of the Left and to organize a
common resistance to the implementation of policies such as the labor reform
implemented by the Fujimori government that ended workers’ job stability.
In addition, the labor movement had lost the support of the civil society. A
poll conducted in Lima and published by the highest-rated television program of
political analysis noted that only 3% of the poll respondents believed that the labor
strikes were beneficial to the society.
709
As explained by political analyst Alberto
Adrianzen, such a result meant that 97% of Lima’s inhabitants believed that the
strikes were not useful as a confrontation measure or as an avenue for the social
development of the country.
710

After the application of the reforms, the mobilization of labor unions became
more difficult. On the one hand, as noted in chapter 1, the new regulations allowed

708
Personal interview with Pablo Checa, Lima, July 8, 2003.
709
Alberto Adrianzen, “Y la Oposición, Dónde está?” Quehacer, March-April (1991): 11.
710
Ibid.
340

employers to issue job contracts through which it was possible to have only 10% of
their workers under formal permanent jobs. In such a context, it was almost
impossible to organize strikes and establish favorable negotiations for the workers.
On the other hand, although institutionally the labor movement did not support the
economic policy pursued by the Fujimori government, the rejection was not
generalized. The workers, like the rest of the society, were also experiencing
frustration with respect to the economic policies applied during the 1980s, which
instead of improving their purchasing power had increased the economic crisis with
destructive effects for both capital and labor. Likewise, they had lost confidence in
political parties’ and labor unions’ ability to help them to achieve their demands. The
workers wanted to protect their labor security but also understood that without a
general level of economic stability, their situation would worsen.
Moreover, like the wider public the workers were not indifferent to the events
occurring in the national context. They were also exposed to the diffusion of pro-
market policy ideas. In the middle of the political, economic and social context
described above workers began to progressively assimilate the idea that state
ownership was not the optimal expression of social property or the basis for the
development of the economy. Instead of viewing economic pluralism, foreign
investment, and privatization as inherently negative issues that had to be blatantly
341

condemned, a vast sector of the labor movement began to reconsider these issues
with a more open perspective.
711

With respect to the average citizen,
712
this was not only more informed about
market oriented policy ideas, but also supported change in economic policy in the
line of those ideas. As noted early, Vargas Llosa, who since 1987 had expounded his
pro-market discourse and tirelessly instructed Peruvians about his drastic program of
stabilization and pro-market reforms, was for more than a year by far the front-
runner in public opinion polls. The same happened with FREDEMO, the political
coalition led by Vargas Llosa.
713
It is worth noting that in the municipal elections
held on November 12, 1989, FREDEMO obtained the largest number of elected
mayors.
714
Furthermore, as the following paragraphs describe, despite the strong
negative campaign led by president García against Vargas Llosa and his economic
plan of reform, the average citizen continued supporting this latter.
Especially during the first trimester of 1990, the declarations to the press by
President García and by members of APRA were directed toward growing fear in the
electorate regarding the application by Vargas Llosa of the program of stabilization

711
This paragraph is based on my personal interview with Pablo Checa, former union leader.
712
Given the remarkable gross inequities that exist in Peruvian society, it is not quite appropriate to
talk about an “average citizen.” As noted by Morley, like many countries in Latin America,
distribution in Perú is among the most unequal in the entire world. During the 1970s inequality
distribution was either rising or constant, and during the 1980s the struggles caused by inflation
severely hit the poor. See Samuel Morley, The Income Distribution Problem in Latin America and the
Caribbean, Economic Commission for Latin America and the Caribbean, ECLAC, (Santiago, Chile:
2001), 25. Nonetheless, I use the term “average” because despite the enormous gap existing between
the various social-economic stratums, public opinion polls indicated that these sectors share-if with
some differences- a particular commonality: the support for political leaders and economic policies
that differed from the ones supported until the early 1980s.
713
“FREDEMO también encabeza preferencia de los electores,” El Comercio, February 19, 1990.
342

(so-called “shock”) and market-oriented reforms. President García declared that
during the first months of its application the shock would produce high inflation rates
of 200% and 300%.
715
Furthermore, he predicted that Vargas Llosa’s economic
shock would end democracy in Perú,
716
and would benefit only the banking and
exporting sectors, depriving the majority of Peruvians of access to consumer
goods.
717
Luis Alva Castro, the APRA presidential candidate, told peasants that if
they wanted to impede the return of gamonales
718
(landlords) they should not vote
for FREDEMO.
719
Besides, APRA sponsored a frightening televised spot that
presented the economic shock as a sign of the coming apocalypse.
720

Moreover, besides the graphic images and symbols diffused by television, the
written press linked to APRA also recurred – like those that led the campaign against
the nationalization of the banking sector did in 1987 – to the use of analogies. For
instance, a daily announced: “The shock is economic terrorism.”
721
The press aligned
with APRA published articles that announced in dramatic tone the devastating
effects of policies similar to those proposed by Vargas Llosa on neighboring
countries such as Argentina and Brazil.
722

714
“FREDEMO dominó el mapa electoral,” El Comercio, January 1, 1990.
715
Fernando Rospigliosi, “El Shock, Sálvese Quien Pueda,” Caretas, March 19, 1990, 25.
716
“Shock de Vargas Llosa puede traer abajo la democracia,” La República, March 8, 1990, 2.
717
La República, March 29, 1990, 2.
718
Gamonales had exploited peasants during the oligarchic system that had prevailed in Perú until
1968, when the military government of Velasco initiated the agrarian reform.
719
La República, March 26, 1990, 7.
720
In the spot the word “shock” appeared in the screen with images of a child eating garbage, a man
falling in the ground, and a screaming face coming from a wall.
721
La República, April 1, 1990, 8.
722
“Argentina Victima del Shock. Las barbas del vecino,” La República, March 9, 1990; “Se agota
paciencia de argentinos,” La República, March 11, 1990, “Shock de Collor arrasará con todo,
343

Leaders of the Left also criticized Vargas Llosa and his plan. Henry Pease,
the presidential candidate of the leftist coalition Izquierda Unida (IU), predicted one
million unemployed people. With respect to the projected reform and modernization
of the state, Vargas Llosa’s contenders warned the public that he would “give to his
friends of FREDEMO the state-owned enterprises that belonged to all the Peruvian
people.”
723
There were rumors that Vargas Llosa would fire a half million of workers
from the public administration and privatize public schools and public universities,
charging tuition that for the majority of Peruvians would be impossible to pay.
724

Likewise, Senator Gustavo Mohme, from IU, declared that the shock proposed by
FREDEMO would be uncontrollable and that Vargas Llosa could not guarantee
foreign investment to Perú.
725

Despite Vargas Llosa’s publicized decision to apply his program of
stabilization and the intense bad publicity that his opponents had mounted against
him and his economic program, the Peruvian electorate gave Vargas Llosa and
FREDEMO the largest number of votes in the elections held on April 1990, 27.61%.
In contrast, APRA and the Left received 9.17% and 10.97%, respectively, which

empezarán despidos masivos,” La República, March 23, 1990; “Shock es incontenible, van 60,000
despidos en Brazil,” La República, March 25, 1990. See also La República, March 28, 1990, and La
República, April 6, 1990.
723
Cited by Wilson Jaime Barreto, Marketing Politico. Elecciones 1990, (Lima: Centro de
Investigación Universidad del Pacífico, 1991), 160.
724
In contrast to the United States, in Perú the public universities do not charge tuition, only minimal
fees. Therefore, to say that Vargas Llosa would change this, put him in a very disadvantage situation
in front of an electorate that in its majority had low or not income at all. Furthermore, it was an
aberration to think about the possibility of privatizing public schools. Although Vargas Llosa’s
economic plan considered some modifications to the current university and public system, it was not
true that his government would indiscriminately privatize both systems and cut access to education
services to the poorest sectors of the population.
344

together represented only one-fourth of the total votes. The geographical distribution
of this voting pattern throughout the country also represented considerable support
for FREDEMO by the electorate.
726
As a result of the elections of 1990, FREDEMO
could occupy the largest number of seats in both legislative cameras, twenty in the
Senate (of a total of 60) and sixty-two in the Chamber of Deputies (of a total of 180).
Nonetheless, Alberto Fujimori was elected president in the run-off elections
held in June 1990. Countless books and articles have tried to explain the causes of
Fujimori’s electoral triumph. Their hypotheses are varied and take into consideration
political, economic, social, and even ethnic issues.
727
To try to understand the
Fujimori electoral outcome (appropriately named “The Tsunami” by political
analysts) would require a lengthy discussion that goes beyond the scope of the
present work. The important point for the topic at hand, however, is that the massive
number of votes obtained by Vargas Llosa and Fujimori in the elections made it
evident that the electorate had opted for economic and political change.
Indeed, the results of the elections held in 1990 indicate a remarkable support
for candidates who offered new perspectives in politics and economics. Peruvians
who voted for FREDEMO (a political coalition that included the traditional political
parties AP, PPC, SODE, and the newly created movement Libertad) voted in

725
La República, March 29, 1990, 7.
726
María Eugenia Mujica, “Movilización de Masas e Importancia de las Bases Partidarias,” Punto de
Equilibrio, Centro de Investigaciones de la Universidad del Pacífico, June-July 1990, 14.
727
Stokes offers an elaborated argument against this “ethnic issue hypothesis.” She notes that
although the public’s perceptions about the ethnic identity and social class of the candidates may
explain in part the voting results, those perceptions did not determined the electoral results. See Susan
345

significant numbers for Libertad’s candidates, most of whom were newcomers to
politics and vehemently supported policy change oriented towards the primacy of the
free market. The case of FREDEMO’s candidates Enrique Ghersi and Pablo
Cateriano, who ran for Congress the first time in 1990, is particularly illustrative of
this electoral trend. Ghersi and Cateriano (especially the former) were inveterate
supporters of market-oriented policies. Even inside their own political movement
Libertad (the bastion of supporters of market-oriented policy ideas), their ideas in
favor of the free market were considered extremely recalcitrant.
728
During the
electoral campaign they had emphasized the need of economic shock policies and
market-oriented reforms, “no matter their social cost.”
729
Nonetheless, both Ghersi
and Cateriano were elected to Congress.
730

In contrast, the candidates representing the parties of the Center-Left and
especially those of the Left who frontally attacked Vargas Llosa’s market-oriented
proposals suffered an overwhelming defeat in the elections of 1990. For instance, IU

Stokes “Reforma Económica y Opinión Pública en el Perú, 1990- 1995,” in Los Enigmas del Poder,
ed. Fernando Tuesta Sobrevilla, 38-39.
728
Personal interview with Jorge Gonzales Izquierdo (July 4, 2003) and with Miguel Vega Alvear
(July 9, 2003). Also see Mario Vargas Llosa, 175.
729
Mario Campos, “El Provocador. Entrevista a Enrique Ghersi,” Caretas, December 4, 1989, 29.
730
Due to his extreme views regarding the application of market oriented reforms Ghersi was known
as the “enfant terrible” of Libertad. His declarations to the press show his ultra-liberal position. For
instance, in 1989 many businessmen especially from the National Society of Industries were fearful of
what they saw as an exaggerated market-oriented approach embraced by Libertad leader Vargas
Llosa. The businessmen criticized him for the decisive support he had publicly given to the economic
program initiated by President Collor de Mello in Brazil. They thought this latter was too liberal.
Ghersi also criticized that support but due precisely to the opposite reasons. He thought that such a
program was not a market oriented one and publicly declared to the press that Vargas Llosa had made
a mistake in that regard. Furthermore, Ghersi had worked in the ILD, the think tank that embraces the
liberal discourse of Hayek and Von Misses and supports the application of market oriented reforms.
He had co-authored with Hernando de Soto (the leader of ILD) the bestseller “The other path.”
346

obtained 7% of the total votes. It could occupy only six seats in the Senate
(compared to twenty obtained by FREDEMO) and sixteen in the Chamber of
Deputies (compared to sixty-two obtained by FREDEMO). Likewise, except for one
seat in the Senate, the Communist Party (Partido Comunista del Perú – PCP) lost all
the seats it had held in Congress during the García government.
Vargas Llosa’s candidacy was seriously attacked by his political opponents
and deeply damaged by the ambitious attitude of FREDEMO’s members who
embarked on an unrestrained spending frenzy on television advertisements to
influence voters. In fact, countless analyses of the presidential elections of 1990
agree about the negative effects of the millions spent on the televised publicity
campaign launched by FREDEMO’s candidates to congress.
731
Their ads saturated
the media and unintentionally projected the image of FREDEMO as a group of
privileged, rich people buying their way into government to protect their vested
interests.
732
Nonetheless, these campaigns affected Vargas Llosa and various
members of his electoral list, but not the possibility that his economic program of
reform could be applied with a considerable support of the wider public.

However Ghersi commented that there was not even one liberal in the ILD. See Mariella Balbi,
“Guerra Avisada no Mata Gente” Entrevista a Enrique Ghersi,” La República, March 25, 1990, 6-10.
731
In this regard Vargas Llosa notes: “From the first opinion polls taken by the Sawyer/Miller Group
it was evident that that extravagant publicity had had a negative impact on voters with small incomes,
those into whose heads the official propraganda (of APRA) hammered the slogan that I was the
candidate of the rich people. What better paradigm of wealth than the ads that turned up on their
television screens? All that might have been won in the previous year and a half with my preaching in
favor of a liberal reform was lost in just days and weeks in the face of that assault of repeated
appearances….” Mario Vargas Llosa, A Fish in the Water, 403.
732
The Economist Intelligence Unit, Country Report no. 2, 1990.
347

In fact, the pro-market message was greatly supported throughout various
sectors of the Peruvian society before and after Vargas Llosa’s electoral defeat in
June 1990. For instance, polls conducted in July 1990 by the firm APOYO revealed
that a large proportion of poll respondents would approve the application of a drastic
program of stabilization and the initiation of negotiations with the IFIs. (Table 45)
Table 45: Public Opinion With Respect to the New Government's Approaching to the IFIs
Do you agree or disagree with the following statement? July 1990
Agree 73%
Disagree 22%
The new government should arrive upon
an agreement with the IMF in order to
stabilize the economy No answer 5%
Source: APOYO, Informe de Opinión.
Likewise, in July 1990 the daily La República reported that almost 62% of
poll respondents would accept the application of a drastic program of stabilization,
and 73% —the equivalent of three out of every four Lima residents—were in favor
of negotiations between Perú and the IMF.
733
Moreover, polls conducted by the firm
APOYO in July 1990 evaluating the attitude of Peruvians regarding the eventual
application of specific market-oriented policies revealed increasing highly rates of
approval, a trend that would continue during the following years.
734
(Table 46)
When in August 8, 1990, Alberto Fujimori took the first step toward the
implementation of the program of stabilization and market-oriented reforms his
popularity was slightly affected.
735
However, after one month he recovered the

733
“Limeños de acuerdo con que se haga tratos con el FMI,” La República, July 25, 1990, 8.
734
“Mayoría está a favor de economía de mercado según encuesta de APOYO,” El Comercio, July 25,
1990.
735
Polls conducted by the firm “Mercadeo y Opinión” during August 9 and 10, 1990, published by La
República, August 12, 1990, 6.
348

levels of popularity he had enjoyed before. (As seen in Table 1) As noted by
Rospigliosi, the hope that the wider public and especially the poor put in the viability
of the economic program indicated a sort of “post-mortem triumph” for Vargas
Llosa’s reform proposal.
736

Table 46: Public Opinion With Respect to Market-Oriented Reforms
Opinion With Respect to Market-Oriented
Economic Policies
August
1989
July
1990
August
1991
Agree 71% 87% 80%
Disagree --- 6% 12%
Foreign Investment should be
promoted
No answer --- 7% 8%
Agree --- 70% 69%
Disagree --- 16% 25%
Private firms are beneficial for
our country
No answer --- 14% 6%
Agree 54% 58% 56%
Disagree --- 24% 34%
The market-oriented economy is
the best for our country
No answer --- 18% 10%
Agree 51% 56% 56%
Disagree --- 28% 43%
The state should leave productive
activities to the private capital
No answer --- 16% 5%
Agree 50% 48% 44%
Disagree --- 39% 42%
A substantive number of public
enterprises should be sold
No answer --- 13% 14%
Agree 39% 52% 38%
Disagree --- 32% 48%
The state should be smaller
No answer --- 16% 14%
Agree --- 27% 33%
Disagree --- 64% 61%
The law that grants job stability
should be derogated
No answer --- 8% 6%
Source: APOYO, Informe de Opinión.
(---) question not asked at the time of this poll.

736
“Por qué no hay un caracazo en Perú? Fernando Rospigliosi, Caretas, September 1990.
349

A hundred days after Fujimori assumed the presidency, he enjoyed the
support of the majority of Peruvians.
737
The daily La República commented that
despite the fact that the majority was conscious that the president was not doing what
he promised during his electoral campaign, poll respondents believed that the new
government’s best performance was the way it was dealing with the economy.
738

Even at the beginning of the application of the program of stabilization (before any
effective result yet in the betterment of the economy) there was confidence on the
potential of this program to solve Perú’s economic problems. (Tables 47 and 48)
Furthermore, polls conducted during the following years indicate a continuous
support for the market-oriented reforms applied by the government. (Tables 49-52).
Table 47: Public Opinion With Respect to the Potential of the Economic Program to Overcome
Hyperinflation (September-December 1990)
The Fujimori government’s economic program to overcome hyperinflation…
1990
September
1990
October
1990
November
1990
December
Will Be Successful 37% 54% 52% 52%
Will Fail 16% 23% 25% 26%
No answer 27% 23% 23% 22%
Source: APOYO, Informe de Opinión.

Table 48: Public Opinion With Respect to the Stabilization Program (September-December 1990)
Do you approve the stabilization program the government is applying?
1990
September
1990
October
1990
November
1990
December
Approve 59% 52% 57% 58%
Disapprove 28% 30% 25% 30%
No answer 13% 18% 18% 12%
Source: APOYO, Informe de Opinión.

737
According to public opinion polls conducted by the firm Peruana de Opinión Pública (POP)
published in La República, November 5, 1990.
738
La República, November 5, 1990, 4.

350

Table 49: Public Opinion With Respect to the Privatization of the Main Public Enterprises
Do you think this public enterprise should be privatized? June 1991
Yes 62%
No 28%
Petroperú
(Hydrocarbons)
No answer 10%
Yes 65%
No 25%
Aeroperú
(Commercial Aviation)
No answer 10%
Yes 62%
No 26%
Electroperú
(Electricity service)
No answer 12%
Yes 67%
No 18%
Compañía Peruana de Vapores
(Maritime transport)
No answer 15%
Yes 61%
No 23%
Siderperú
(Industry)
No answer 16%
Sí 67%
No 21%
Servicio de limpieza pública
(Sanitation)
No answer 12%
Source: APOYO, Informe de Opinión.

Table 50: Public Opinion Indicating the Government's Main Achievements (July 1991)
Main Achievements of the New Administration After Its First
Year
July 1991
Peru’s reinsertion in the international financial community 24%
Reduced inflation 17%
Initiated process of privatization public enterprises 17%
Signing of Anti-Drug Agreement with the U.S.A. 14%
Liberalization of the economy 5%
Others 11%
None 6%
No answer 6%
Source: APOYO, Informe de Opinión.

Moreover, Carlos Boloña, the minister of finance in charge of the elaboration
and implementation of the main structural reforms, enjoyed according to Peruvian
standards an increasing high level of approval during the almost two years of his
351

tenure.
739
According to polls conducted by the firm IMASEN, 47.1% of the middle
class and 35.3% of the low class approved Boloña’s performance.
740

Table 51: Public Opinion With Respect to the Government's Approaching the IFIs
Do you agree or disagree with the government trying to.…? September
1991
Agree 91%
Disagree 7%
Fix Peru’s relationship with the international
financial community
No answer 2%
Agree 89%
Disagree 7%
Refinance Perú’s debt with international financial
institutions such as the IMF and the World Bank
No answer 4%
Agree 54%
Disagree 38%
Follow the IMF and World Bank recommendations
regarding economic policy
No answer 8%
Agree 39%
Disagree 54%
Immediately pay the debt with the international
financial institutions
No answer 7%
Agree 70%
Disagree 22%
Ask the international financial institutions about
new loans/credits
No answer 8%
Favorable 81%
Unfavorable 12%
For Perú an agreement with the IMF is
No answer 7%
Source: APOYO, Informe de Opinión.

Table 52: Public Opinion Regarding Perú's Reinsertion in the International Financial Community
October 1991
Favorable 75%
Unfavorable 11%
Do not know
about President
Fujimori’s trip or
Perú’s reinsertion.
10%
Is it favorable that the president had achieved
the reinsertion of Perú in the international
financial community?

No answer 4%

Source: APOYO, Informe de Opinión.

739
At the end of 1992 Fujimori asked Boloña to resign. Within technocratic and politician circles it
was commented that the president has taken this decision because Boloña was enjoying higher ratings
of approval in public opinion polls. An authoritarian president like Fujimori considered this matter
highly risky and obstructing regarding his own future plans to run for reelection. Arce, 342.
352

Even analysts that seriously criticized the Fujimori government recognized
the lack of resistance from popular sectors to the economic program applied by the
president. For instance, Graña noted in 1991 that as a whole, the popular movement
had not effectively opposed the prevailing market-oriented trend.
741
In 1993, at the
beginning of the implementation of the program of privatization, Iguiñiz pointed out
that privatization was the most popular policy and that the majority of the population
supported it.
742
Likewise, Julio Franco, a specialist in labor issues, noted that in the
ideological and economic arena, the principles of common benefit and coordination
in social relations -of ancestral origin in Perú- were being replaced by an extreme
concept of individualism and the elevation of competition to the category of
paradigm.
743
Specifically, with respect to the middle class, Balbi and Gamero note,
The middle class shared what IMASEN called “the magic of the reinsertion”
in the international financial system (the largely publicized payment of Perú’s
debt to the IMF). In April 1993 two thirds of the population thought that the
reinsertion was enough to: a) increase the flow of international aid; b)
increase wages (67%); c) attract foreign investment; d) reactivate the
economy (77%).”
744

740
Cited by Carmen Rosa Balbi and Julio Gamero, “El Otro Divorcio de Fujimori,” in Perú Hoy, La
Clase Media, ¿existe?, ed. Julio Gamero and Molvina Zevallos, 158 (Lima: DESCO, 2003).
741
Alberto Graña, “El eclipse del programa económico,” Actualidad Económica, no. 106, July 1991,
4.
742
Javier Iguiñiz, “Privatizaciones y Estabilización,” Pretextos, DESCO, November 1993, 10.
743
Julio Franco, “La coyuntura poltica nacional: aspectos centrales,” CEDAL Foro de Trabajo,
Apuntes sobre economía, sindicalismo y política en el Perú. April (1993): 1.
744
Carmen Rosa Balbi and Julio Gamero, “El Otro Divorcio de Fujimori,” 157-158.
353

State actors
While during 1987-1990 the pro-market discourse and the efforts to
disseminate it throughout the Peruvian society had been embraced exclusively by
non-state actors, from 1990 onward once Fujimori initiated his government, state
actors, especially himself and his economic team shared this task. Likewise, the
members of Libertad elected to Congress continued promoting market-oriented
policy ideas and decisively supported the initiatives of reform taken by the president.
With respect to the executive branch, in contrast to President Belaunde who
had been “extremely shy of anything that smacked of shock,”
745
President Fujimori
was inflexible in his determination to apply the program of stabilization “no matter
how hard this would be.”
746
A weekly magazine reported an interesting anecdote in
this regard.
747
During the elaboration of the policies that should supplement those
announced on August 8, Minister of finance Hurtado Miller and his economic team
had planned to present to the president a draft including policies tougher than the
ones they were actually planning to apply. The idea behind this tactic was that once
the president read the draft, he would be concerned about the hard impact that the
proposed policies could have in the public and then, in the typical Peruvian tradition
of bargaining, would ask his advisors to modify the draft and include softer terms. In
this case, Hurtado Miller was relying on his experience as minister of agriculture
during the early 1980s. President Belaunde had never wanted to take unpopular

745
Richard Webb, “Perú,” in The Political Economy of Policy Reform, 372.
746
Carlos Boloña, Cambio de Rumbo,ix.
747
Caretas, August 27, 1990, 12 -13.
354

measures and thus approved the policy proposals elaborated by the members of his
cabinet only after they had reduced the severity of the measures included in their
initial drafts. However, to the surprise of Hurtado Miller and his team of advisors,
President Fujimori insisted on more radical measures than those proposed by the
economic team. For instance, the president did not accept the reduction of the price
of gas and requested additional austerity measures for the public sector. Thus, at the
end, the policies approved were harder than the economic team had intended.
Furthermore, Fujimori himself took into his own hands the elimination of
obstacles to the application of economic reforms, even if that required dismissing
members of his ministerial cabinet or alienating the people who had helped him to
participate in politics. For instance, in October 1990, Minister of Agriculture Carlos
Amat y León was forced to resign after less than three months of his appointment.
He had been trying unsuccessfully to obtain from the president an authorization to
grant special financial relief for entrepreneurs in his sector. Likewise, during the first
semester of Fujimori’s presidential term, Minister of Industry Guido Pennano argued
that in order to avoid having the sudden opening of the market proposed by the
minister of finance harm the national industry, it was necessary to issue sectoral
policies and gradual reforms. When his detailed proposal was leaked through the
press to the wider public, Fujimori immediately asked for Pennano’s resignation.
Given the evident ministerial crisis, the ministers of both industry and finance had to
resign. Taking advantage of the political moment created by that impasse, Fujimori
355

took “one more crucial step towards orthodoxy”
748
and appointed to the ministries of
industry and finance people committed to his emphasis on stabilization and the
market-oriented reform of the economy.
Moreover, Fujimori totally disregarded the advice and demands of the group
of congressmen that within Cambio 90 (his political group) did not plainly agree
with the policies pursued by the government. Fujimori did this despite the fact that
many of these congressmen or people linked to them had tirelessly worked
throughout the country collecting signatures to register him as a presidential
candidate. Likewise, later these people had promoted his candidacy by convincing
people door to door, especially in provinces and rural areas, to vote for Fujirmori. On
a practical level, Fujimori owed his participation in politics and his triumph in the
presidential elections to these people. Nonetheless, once in power, he did not listen
to their objections with respect to economic reform,
749
and instead surrounded
himself with only relatives and other people who submitted to his will.
750

People who worked close to Fujimori or who have the experience of dealing
with the IFIs attest to his solid determination for the application of structural
reforms. For instance, Carlos Boloña, who served as minister of finance for the
Fujimori administration, notes that the president acted with courage and decisiveness
and that his main virtue was understanding and permitting that the reforms could be

748
“El pragmático elige un ortodoxo,” El Comercio, February 16, 1991, p. A 5
749
“Fujimori ha preferido al FMI,” La República, February 8, 1991, p. 6
750
For economic issues and other political decisions and appointments Fujimori relied totally in his
brother Santiago Fujimori, a lawyer that supported market oriented reforms and who until days before
his brother’s electoral victory had supported Vargas Llosa.
356

done effectively.
751
Likewise, Jorge Gonzales Izquierdo, who directed the process of
privatization and later was appointed to the ministry of agriculture, lauds the
president’s strong character in defending what he considered correct and in rejecting
without concession any proposals that did not convince him:
You had to give him good arguments to get his approval. Even if you had
good arguments, Fujimori stopped you and did not give you green light if you
proposed something that he considered not viable. He used to say, “You are
not convincing me,” and that was it, end of the story, no more discussions.
752

Richard Webb, who has twice served as president of Perú’s Central Reserve
Bank (though not in the Fujimori administration) and through his experience as an
international consultant is very familiar with the IFIs’ negotiations, notes that
Fujimori’s role in the implementation of reforms was anything but passive.
Throughout his service in Perú, Webb has had to deal with different administrations
and understands the obstacles that limit the ability of a president to pursue specific
policies. For Webb, a determinant element that helps to understand Fujimori’s
crucial role in the implementation of economic reforms was his personality:
Somebody without the personality of Fujimori would have not decisively
pursued the consolidation of the reforms, even with the pressure of the IFIs,
the forces of globalization, or the examples of success in other countries. For
him, these reforms were the right way to solve Perú’s economic crisis and see
immediate results. Therefore he pushed for their implementation.
753

751
Carlos Boloña, “Cambio de Rumbo,” ix.
752
Personal interview with Jorge Gonzales Izquierdo, Lima, July 4, 2003.
753
Personal interview with Richard Webb, August 5, 2003. In Chapter 5, I note Webb’s accurate
explanation about the space for negotiation that Fujimori had with the IFIs. Webb as well as
Schydlowski – another economist highly familiar with Perú’s economic situation – affirm that Perú
357

It could be said that Fujimori was interested in deepening the implementation
of the reforms principally to sell the image of Perú as an economy open to trade and
investment.
754
His efforts may have been in pursuit of a tangible interest: to attract
foreign investment and thus to obtain the capital Perú so badly needed. Even if this is
the case, it does not mean that ideas are not an important issue here. Instead, it
implies that he was confident in the efficacy of market mechanisms to obtain his
material purposes. He redefined his interests in the face of pro-market ideas that
provided him a guide on how to achieve his objectives.
Turning to Fujimori’s economic team, during the first semester of his
government (July 1990 – February 1991) the minister of finance, as noted above,
was Juan Carlos Hurtado Miller, an agricultural engineer who had graduated from
the Universidad La Molina. He had a master’s in economics from the University of
Iowa and a master’s in public policy and management from Harvard University.
During the early 1980s, as minister of agriculture in the Belaunde government and as
an active member of AP, he had criticized the pro-market policies pursued by Ulloa
and Rodriguez Pastor. Almost a decade later his views about economic policy and
especially about the role of the state in the economy had changed considerably.
In his first declarations to the press as a member of the Fujimori
administration, Hurtado Miller noted that considering Perú’s inflation and the record

had space for negotiation and did not have to apply the reforms in the radical way that Fujimori
pursued these, unless he wanted to do it.
754
This was obvious especially - but not only- in his visits to Asian countries. Fujimori visited and
opened consular offices and embassies in Southeast Asian countries, and invited their private
economic conglomerates to invest in Perú.
358

of failed policies applied to control it, it was not possible to continue with traditional
measures in the management of the economy.
755
He promoted a discourse critical of
the state and in favor of the market, underlining that in order to achieve
development, “it was necessary to have an austere state and provide an adequate
competitive and flexible context for private firms.”
756
Likewise, Hurtado Miller
emphasized that while the initial goal was to control inflation, a crucial aspect of the
economic program would be the structural reform of the economy towards a market
system.
757
He reopened contact with the IFIs in order to prepare the terrain for future
negotiations and devotedly worked to ensure the implementation of the reforms.
758

On February 1991, Carlos Boloña was appointed minister of finance. He had
studied economics in the Universidad del Pacifico, pursued a master’s in economics
at the University of Iowa, specialization studies in the London School of Economics,
and earned a Ph.D. from Oxford. His admiration for the market system had increased
during his long stay abroad while studying in the United States and later in
England.
759
Speaking of the influences that had lead to his thinking in economics,
Boloña mentions the ideas of the intellectuals of the Austrian School of Economics–
mainly Hayek and Von Mises– and his admiration for the Mount Pelerin group,
which he describes as an enriching intellectual forum able to inspire the best policy

755
“Radical de Centro,” Caretas, July 23, 1990.
756
“Queremos dejar atrás la segunda hiperinflación de la historia,” El Comercio, September 20, 1990.
757
Manuel Cisneros Milla, “Interview to Hurtado Miller: Ahora reformas estructurales y
crecimiento,” Suplemento Dominical no. 48, El Comercio, December 2, 1990.
758
Even the daily La República which had seriously criticized Fujimori at the beginning of his
government, recognized the work made by Hurtado Miller, especially regarding the maintenance of
fiscal equilibrium. See “Cambio de Guardia,” La República, February 17, 1991.
359

recommendations for our times. Boloña especially cites the practical lessons he had
learned during his stay in England. There he had witnessed what he describes as the
catalyzing effects of Margaret Thatcher’s reforms in improving the economy,
bettering services, and increasing the well being of the majority of the population.
Boloña had not studied in the University of Chicago, but “from the deep of his heart”
considers himself a “Chicago Boy.” Milton Friedman’s work had deeply affected his
thinking and convinced him that it was possible to obtain better results with
neoclassical tools than with any other policies. Moreover, Boloña had studied in situ
the hyperinflation affecting Bolivia where he says he learned that in order to reduce
fiscal deficit and stabilize the economy, the application of radical instead of gradual
adjustment policies was necessary.
At his return to Perú, Boloña had worked during the early 1980s with
Hernando de Soto in the ILD, but later moved to the United States. After some years,
he went back to Perú to lead the ministry of finance, and by this time his allegiance
to the free market was total. Boloña greatly extended the scope and depth of the
reforms initiated by his predecessor and began the implementation of structural
reforms that changed Perú’s economy across the board. His strong faith in the free
market motivated him to simultaneously implement the reforms he had envisioned
and at a speed that surprised even the IFIs. All reforms–the liberalization of the
capital account, the opening of the internal market, and the liberalization of the labor

759
Unless otherwise noted, the content of this and the following paragraphs referred to Minister
Carlos Boloña have been drawn from my personal interview with him in Lima, 1999.
360

market–were either started or deepened simultaneously. He proudly notes that he
pursued reforms beyond the requirements suggested by the IFIs.
Boloña firmly believed in the need to stabilize Perú’s economy, bring down
inflation, and apply market-oriented reforms. Therefore, despite the fact that during
the first two years of the Fujimori government Perú did not receive any funding from
the IFIs, Boloña insisted on consolidating the stabilization of the economy as soon as
possible, “with or without external financial aid.”
760
Nonetheless, he also believed
that the financial support from the IFIs was crucial for Perú. Therefore, during his
appointment as Minister of Finance he worked hard to obtain this financial support.
For his economic team, Boloña recruited professionals with international
training, technical expertise, and especially a strong pro-market commitment. Some
of the technocrats who participated in his economic team during the 1990s had also
worked with Manuel Ulloa during the unsuccessful attempt at implementing some
market reforms in the 1980s. Thus they had been strong supporters of market-
oriented policy ideas long before Vargas Llosa and his followers had initiated their
pro-market campaign. Among these technocrats were Roberto Abusada, vice
minister of commerce in the Belaunde administration; María Jesús Hume, who had
also served as vice minister of commerce; and Iván Rivera, a University of Chicago
graduate and functionary of the World Bank, who during the Belaunde government
had worked as a top-level advisor.

Most of the rest of the professionals appointed to

760
“Instituciones multilaterales vacilan para el grupo de apoyo,” El Comercio, April 6, 1991.
361

the economic team had also been strong supporters of market-oriented reforms long
before 1990.
761

According to Boloña and his colleagues, they could pursue the difficult task
assigned to them because all shared pro-market ideas, talked the same policy
language, and agreed on the need to simultaneously apply structural reforms, the
opening of capital accounts, and the program of stabilization.
762
In fact, the members
of Boloña’s economic team were convinced not only of the feasibility of market-
oriented policies “for transforming the Peruvian economy and put the country in the
track towards development,”
763
but of their own particular way of tackling the
application of these reforms. Fritz Du Bois, a member of Boloña’s team, notes,
We did not consider it viable to apply the reforms sequentially: stabilization,
structural reform, and then the opening of the capital account. We did
everything simultaneously and that was a good decision. Otherwise, the
results would have been just a little opening of the market and lesser growth.
Instead, we achieved great results during the first six years.
764

Boloña’s presentations in the media and in various public and private
institutions dominated the political agenda during the early years of Fujimori’s
government.
765
After Boloña resigned in January 1993, various members of his

761
For instance, Octavio Chirinos, economist graduated from the Universidad Católica had pursued
graduate studies at the Massachusetts Institute of Technology. At his return to Perú he was professor
in the Department of Economics at the Universidad Católica and later at the Escuela Superior de
Administracion de Negocios ESAN. In his teaching he had strongly supported market oriented policy
ideas.
762
Personal interview with Carlos Boloña (October 1999), Fritz Du Bois, (November 3, 1999), María
Jesús Hume (July 27, 2001) and Roberto Abusada (July 2, 2003).
763
Like the members of Libertad, for the members of the Boloña’s economic team, there was no other
way to achieve development.
764
Personal interview with Fritz Du Bois, (November 3, 1990).
765
Julio Carrión, “La opinión pública: ¿De identidades a Intereses?, in Los Enigmas del Poder,
Fernando Tuesta Soldevilla, 291 (Lima: Fundación Friedrich Ebert, 1997).
362

economic team continued working in the ministry of finance under the direction of
Jorge Camet, a renowned businessman whose appointment to this ministry lasted for
five years–by far a historical record in Perú. Camet, who had participated in Vargas
Llosa’s movement Libertad, continued along the same line as Boloña. During his
appointment, the process of privatization formulated by his predecessor was
executed and the structural reforms of the economy continued.
766

In congress, the majority of the members of FREDEMO, which obtained the
largest number of seats in both the Chamber of Deputies and the Senate, belonged to
Libertad, the political group that within that coalition had been in charge of
formulating the market-oriented economic program promoted by Vargas Llosa.
Thus, the majority firmly believed in the need to apply radical adjustment measures.
A similar case was that of the representatives of SODE, whose technocrats had
largely contributed to the elaboration of FREDEMO’s economic program. Within the
FREDEMO coalition, the candidates of PPC have obtained the second largest
number of representatives elected to Congress. The majority of these representatives
also strongly supported the FREDEMO’s economic program.
767
Therefore, when the
Fujimori government announced the application of economic policies that largely
resembled the ones proposed by Vargas Llosa, the congressmen from Libertad,

766
For a very interesting study regarding the performance of Camet and his economic team, see
Francisco Durand, “La Mano Invisible del Estado,” Lima, 2003, Fundación Friedrich Ebert.
According to Durand, although under Camet neoliberalism continued, the invisible hand of the market
was replaced by the invisible hand of the state which granted special favors to certain economic
conglomerates in the private sector.
767
Personal interview with FREDEMO’s former members of Congress Lourdes Flores (July 25,
2001), Javier Silva Ruete (October 27, 1999) and Miguel Vega Alvear (July 9, 2003).
363

SODE, and PPC approved the government’s initiative and were able to coordinate
support for these reforms with his colleagues from AP.
With respect to the members of Cambio 90, although some resented the fact
that Fujimori had left them aside in the conducting of the government, the majority
opted to support the stabilization measures and the initiatives regarding the
reinsertion of Perú within the international financial community. As a result,
Fujimori could overcome the congressional opposition of APRA and the Left,
political parties that had much fewer representatives.
With respect to the deepening of the program of stabilization and the
initiation of the structural reforms, the massive support of FREDEMO and by the
majority of Cambio 90 was crucial. FREDEMO and Cambio 90 also strongly
supported the appointment of Carlos Boloña to the ministry of finance with the
expectation that he would emphasize the reforms initiated by Hurtado Miller.
768

Likewise they massively approved and promoted the package of reforms initiated by
Boloña.
769
Within FREDEMO, especially the members of Libertad strongly
promoted the wave of economic reforms approved by the executive branch, and
presented to Congress additional information and projects along the same line.
770

Vega Alvear notes that

768
“Políticos discrepan por designación de Boloña para dirigir la economía,” La República, February
16, 1991, 4.
769
Personal interview with former members of Congress, Lourdes Flores, Javier Silva Ruete, and
Miguel Vega Alvear.
770
For instance, projects related to issues such as foreign investment, the incorporation of Perú to
MIGA, the creation of institutions to protect free competition and avoid monopolies, among others,
364

Although we [Libertad] felt that Peruvians had lost a great opportunity not
electing Vargas Llosa as president, we firmly believed that the projects of
reform elaborated by Libertad had been designed for Perú’s sake, having in
mind the future of our country and not exclusively who could apply them.
Therefore, we shared our proposals and intensely promoted the process of
economic reform implemented by the Fujimori government.
771

Most of the congressmen of Libertad and SODE had been assiduous
promoters of market-oriented policy ideas before the creation of Libertad, at a time
during which very few in Perú dared to advocate a free market system. Among these
congressmen, for instance, were Javier Silva Ruete and Miguel Vega Alvear. As
mentioned early, Silva Ruete, in his position of minister of finance during 1978-
1980, had implemented some reforms to liberalize the market and reduce the size of
the state. Vega Alvear had been co-founder of the ILD and participated in the first
forums that Hernando de Soto had launched with the purpose of disseminating
market-oriented policy ideas during the early 1980s. In 1987, Vega Alvear had
opposed the nationalization of the banking sector and had co-founded Libertad, in
which he served as general secretary. He belonged to Vargas Llosa’s circle of
advisors that had travelled throughout the country “predicating from town to town
that instead of a state that was not devoted to the service of its citizens but to its own
service, a market system would bring well-being for all the population.”
772

From July 1990 to April 1992, Congress delegated its legislative power to the
executive on two occasions in which it authorized the Fujimori administration to

were proposed by the members of Libertad and SODE. Personal interview with Miguel Vega Alvear,
Lima, July 9, 2003.
771
Ibid.
772
Ibid.
365

legislate in economic policy issues. As a result, the executive passed into law
hundreds of legislative decrees that largely transformed the Peruvian economy.
Although various politicians from APRA and the Left opposed the reforms generated
by the executive, at the end the majority of Congress approved them.
773
As early as
November 1990, the press reported that the opposition to economic reform was
getting smaller as days passed by, and by the same token, support in Congress for the
reforms was increasing.
774

The situation between Congress and the executive, however, turned tense
regarding the measures of security taken by the president, especially certain policies
about the fight against terrorism. On April 11, 1992, in a flagrant attack against
democracy, President Fujimori closed Congress, although not until after Congress
had already approved the economic reforms proposed by the executive.
Seven months after the president had closed Congress, he called for elections
for a Constitutional Assembly, the so-called Congreso Constituyente Democrático.
In these elections the wider public considerably supported the president’s slate of
candidates. Fujimori’s coalition “Nueva Mayoría-Cambio 90,” received the largest
number of votes, obtaining 44 out of 80 seats, followed by PPC, which obtained 8
seats. The Congreso Constituyente approved dramatic modifications to the
Constitution. The economic regime that had been the legal framework within which

773
Personal interview with Miguel Vega Alvear, Javier Silva Ruete, and Lourdes Flores, former
members of Congress. Furthermore, Henry Pease, Congressmen for Izquierda Unida, a Leftist
coalition, also stressed that the Congress had approved virtually all of Fujimori’s economic proposals
from 1990 to 1992. Cited by Weyland, 150.
774
“Los primeros cien días de Fujimori,” La República, November 5, 1990, 12.
366

prior governments had regulated the economy was totally modified into one that
established free-market and the promotion of foreign investment as the pillars of the
new economic order. During the following years public opinion approval for the
Fujimori government continued. (Tables 53-54)
Table 53: Support for the Fujimori Government (September 1993)
Support for the Fujimori
Governmet
September
1993
Economic Stratum
Total Low
Inferior
Low
Superior
Medium/
High
Approve 61.4 59.8 59.6 67.4
Disapprove 25.7 23.2 27.6 27.0
No answer 12.9 17.1 12.8 5.6
Source: Carmen Rosa Balbi and Julio Gamero “El Otro Divorcio de Fujimori,” in Perú Hoy,
La Clase Media, existe?, ed. Julio Gamero and Molvina Zevallos, 158 (Lima: DESCO,
2003).

Table 54: Support for the Fujimori Government (September 1996)
Support for the Fujimori
Governmet
September
1996
Economic Stratum
Total Inferior Low Medium/High
Approve 52.5 55.8 50.3 50.6
Disapprove 40.7 35.2 44.3 44.4
No answer 6.8 9.1 5.4 4.9
Source: Carmen Rosa Balbi and Julio Gamero “El Otro Divorcio de Fujimori.”

Epilogue
As of 1992, Lowenthal and Hakim
775
in their insightful analysis of the
context prevailing throughout Latin America after the initiation of neoliberal reforms
pointed out that these policies must generate economic growth and greater attention
367

to the problem of poverty. Otherwise, these scholars warned, the proponents of
alternative policies might increase their own electoral backing, leading to processes
whose outcome may be far from democratic. Later, in 1994 with the proximity of the
elections to be held in April 1995, some observers believed that the situation in Perú
was fragile and that nothing could ensure that the market-oriented reforms
implemented by the government would survive the upcoming elections.
776

Meanwhile, as of the end of Fujimori’s first term in 1995, a wave of
opposition to the neoliberal agenda had arisen throughout Latin America. This
included a general strike of workers and peasants in Bolivia; guerrilla movements in
Chiapas, Mexico; urban popular and military uprisings in Caracas, Venezuela;
industrial and public employee revolts in various provinces of Argentina; and land
occupation as well as a growing wave of strikes in major Brazilian cities.
777
Scholars
such as Veltemeyer et al. named this period “the context of decline of
neoliberalism” because by this time, they argued, neoliberalism no longer had the
economic resources, political reserves, and social support of the earlier years of its
implementation in Latin America.
778
However, and paradoxically (especially with
respect to social support for market-oriented reforms) the winds in Perú were not
blowing the direction diagnosed by these scholars.

775
Abraham Lowenthal, and Peter Hakim, “Latin American Democracy in the 1990s: the challenges
ahead,” in Evolving US strategy for Latin America and the Caribbean, ed. E. Kjonnerdod.
(Washington, D.C.: National Defense University Press, 1992).
776
See for instance, Teobaldo Pinzás, “Political Conditions, Economic Results, and the Sustainability
of the Reform Process in Perú,” in The Peruvian Economy and Structural Adjustment, ed. Gonzales
de Olarte, 141.
368

As of April of 1995, in Perú the reforms had begun to pay off in the form of
growth in GDP, employment, trade, and foreign investment. (Tables 55-56) A report
by CEPAL indicated that in 1994 the Peruvian economy had grown 11%. This was a
considerable increase compared to that of 5% obtained in 1993, and the largest
increase experienced throughout the Latin American region.
779

Table 55: Average Pre-Reform and Post-Reform Economic Indicators
Average pre-reform
(1985-90)
Average post-reform
(1990-95)
Growth 2.8 4.7
Inflation 2464.9 35.7
Fiscal - 5.3 - 0.8
Source: Igor Paunovic, “Growth and Reforms in Latin America and the Caribbean
in the 1990s,” Serie Reformas Económicas # 70, Santiago,Chile: ECLAC, May
2000. (http://www.eclac.cl/publicaciones/Desarrollo Economico/7/lcl)
Table 56: Economic Growth Average Annual Compound Growth Rates
1973-1980 1980-1989 1989-1998
Total GDP 3.6 -0.7 3.5
GDP Per Capita 0.9 -3.1 1.6
Source: André A. Hofman, “Long Run Economic Development in Latin America
in a Comparative Perspective: Proximate and Ultimate Causes,” Serie Reformas
Económicas, Santiago, Chile: ECLAC, December 2001.
(http://www.ecla.cl/publicaciones/DesarrolloEconomico/5/LCL)

Nonetheless, a word of caution is in order here. While by 1995 GDP had
considerably increased, GDP per capita was still modest and in real terms not higher
than in the mid-1960s.
780
In the late 1990s, Peru’s GDP ranked fifth in Central and

777
Henry Veltmeyer, James Petras, Steve Vieux, Neoliberalism and Class Conflict in Latin America,
21.
778
Ibid.
779
Cited in El Comercio, January 15, 1995.
780
Even after years of continuous economic growth, as of 2000, the WTO warned about the low
levels of GDP per capita (some US$2,500 per person). See World Trade Organization, Trade Policy
Reviews, Peru, May 2000.
369

South America and 47th in the world, but its per capita GDP ranked significantly
lower – ninth in Central and South America, and 120th in the world.
781

With respect to employment, in comparison to the deteriorated rate at the end
of the García administration, employment increased throughout the 1990s. However,
as noted in chapter 1, due to the reforms in labor policy and the hiring strategies
utilized by the employers, the increase in employment occurred at the expense of an
overwhelming proportion of unstable and unprotected contracts. Besides, during
1991-1999, more than 120,000 jobs were lost in the public sector –the most drastic
reduction having occurred prior to 1995– and only one third of these jobs were
absorbed by the new private operators
782

Furthermore, as many studies point out, the fact that unemployment in Perú
has not increased during the 1990s does not mean that employment is optimal.
783

Instead, it responds to a set of varied circumstances that go from Peru’s peculiar
labor market dynamic to the characteristics of the standards utilized in the
measurement of employment.
784
For instance, since in Perú there is no welfare

781
Samuel A. Morley, The Income Distribution Problem in Latin America and the Caribbean,
(Santiago, Chile: Economic Commission for Latin America and the Caribbean, 2001), 11.
782
Comisión Investigadora del Congreso de la República sobre delitos económicos y financieros cited
by Ariela Ruiz Caro, El Proceso de Privatizaciones en el Perú, Instituto Latinoamericano y del Caribe
de Planificación Económica y Social – ILPES, Serie Gestión Pública, 22, Santiago de Chile, July
2002, 64.
783
See Instituto Nacional de Estadística e Información,“Dinámica del Desempleo,” Serie:
Investigaciones, Lima, INEI, 2005. http://www.inei.gob.pe/biblioineipub/bancopub/est/lib0174/cap-
03.htm. Information retrieved on November 30, 2005. Also See Pascó-Font, Op.Cit., and Norberto
García, Op. Cit.
784
With respect to this latter, the item “economically active population” is overestimated because it
considers employed those individuals working not necessarily in “formal” jobs but instead in eventual
activities. On the other hand, the number of “unemployed” people is underrated since in order to
classify an individual in this category it is a requisite that he/she is actively looking for a job. In this
370

system to support those unemployed, people that cannot find formal jobs, even
professionals and technicians unable to find jobs in their own fields, seek any
occupation that could help them to obtain income. Likewise, the number of workers
in permanent jobs (those that have a formal occupation throughout the entire year)
represents only 37.9% of the working-age urban population, while 19% are
permanently unemployed. This means that 41.3% constantly change their labor
status (underemployed-unemployed) throughout the year.
785
Consequently, the
employment problem in Perú is not primarily one of open unemployment (although
this is still a huge problem). Rather, as noted by Norberto García, people have very
low expectations of obtaining a decent and stable job that may improve their
standard of living.
786

With respect to income distribution, in urban Perú inequality decreased
slightly between 1985 and 1994, (Table 57). During that period the Gini reduced in
metropolitan Lima from 0.52 to 0.47. However, the Gini reduction has occurred in a
context characterized by the reduction of income. In 1994, wages and salaries
decreased in real terms by 34% and 41% respectively compared to the levels reached
in 1985, and most informal and agricultural workers were earning less than the
poverty line per person in the economically active population.
787

sense, there is a ratio of “hidden unemployment” corresponding to people that are not looking for job
anymore because they have lost any hope on finding one. INEI, ibid.
785
INEI, Op. Cit.
786
Norberto García, 98.
787
Pascó-Font, 58. Furthermore, as a share of GDP, remuneration fell from 37% in 1978 to 32% in
1992 and 24.5% in 2001. See Jaime Saavedra and Maximo Torero, 32.
371

Table 57: Distribution of Familiar Expenditure in Perú (1985-1996)
Gini Coefficient
1985-86 1991 1994 1996
Perú .3977 .3493 .3408 .3093
Rural .3973 .3600 .3256 .2792
Urban .3856 .3317 .3325 .3076
Source: Jaime Saavedra and Juan José Díaz, “Desigualdad del Ingreso y del Gasto en el Perú
Antes y Después de las Reformas,” Santiago, Chile, Economic Commission for Latin America
and the Caribbean. Serie: Reformas Económicas 34, July (1999)

Moreover, it is important to take into consideration that like many countries
in Latin America, Perú has one of the most unequal distributions in the entire
world.
788
During 1981-1996, the income of rich people reduced from 51.4% to
42.9%, but still there is a great difference with respect to the income of people in the
inferior quintiles. (Table 58) The difference between rich and poor is even larger if
we consider the rate of family income per capita. (Table 59)
During the 1990s the people in the three inferior quintiles improved their
relative position, but without a significant impact in the reduction of poverty rates.
789

In 1994, poverty represented 53.4% of the population and extreme poverty 19%.
Although as of 1997 these percentages had reduced to 50.7% and 14% respectively,
this may be a result of the fact that inflation had been significantly reduced. Since the
poor are less able to defend themselves against very high inflation than are the rich,
after the reduction of inflation the poor are relatively better off. However, poverty is
still a huge problem, representing as it does 50% of the family households.
790
In

788
Morley points out that regardless of the method for measuring income inequality, the rich in Latin
America are in average much richer relative to the remainder of the population than they are
elsewhere. This has been true for as long as statistics have been kept. Besides, Morley notes, what was
lost by the poor in the recessions of the 1980s was not recovered in the 1990s. Morley, 15, 21.
789
Saavedra, 69.
790
Saavedra, 31-32.
372

addition, there is more unemployment in the segment consisting of poor people.
Reyes notes that during the 1990s in metropolitan Lima the rate of unemployment
among those with the lowest income was three times the average rate.
791

Table 58: Distribution of Familiar Income in Perú (1985-1996)
1985-86 1991 1994 1996
50% Most Poor 18.8 21.0 22.9 24.5
20% Most Rich 51.4 46.6 45.4 42.9
GINI 0.48 0.43 0.41 0.38
Source: Saavedra and Díaz, 1999.
Table 59: Distribution of Familiar Income and Expenditure Per Capita in Perú (1985-1996)
Percentage Income Accumulated (1) PercentageExpenditureAccumulated Quintile
1985 1991 1994 1996 1985 1991 1994 1996
I 4% 5% 5% 5% 5% 6% 7% 7%
II 8% 9% 9% 10% 10% 11% 11% 12%
III 13% 14% 14% 15% 15% 16% 15% 16%
IV 21% 21% 22% 21% 22% 22% 22% 22%
V 56% 50% 50% 48% 48% 45% 45% 43%
I quintile poor; II quintile medium; III quintile rich
(1) Annual Familiar Income Per Capita (2) Annual Expenditure Per Capita
Source: Saavedra and Díaz, 1999

Furthermore, during the 1990s a drastic redefinition of social stratification
occurred in Perú. There was a dramatic reduction in the category corresponding to
the middle class. As a consequence of unemployment and the reduction of wages, a
large percentage of the middle class has descended to a lower economic position.
(Table 60) Thus although the news that poverty declined and uneven income
distribution lessened is gratifying, it is tempered by the fact that the levels of poverty
are still very high and income has largely deteriorated.

791
Cited by INEI, Op. Cit.
373

Table 60: Distribution of economic/social stratum in Perú (1989-1996)
1989 1990 1991 1992 1993 1994 1995 1996
Low inferior 28.4 32.1 29.8 24.7 39.3 40.5 41.1 40.4
Low superior 36.6 35.9 40.0 44.6 36.6 39.9 40.7 39.0
Medium/high 35.0 32.0 30.2 30.7 24.1 19.6 18.2 20.6
Source: Carmen Rosa Balbi and Julio Gamero, “El Otro Divorcio de Fujimori,” 156.
% corresponds to April of each year, but in 1990 and 1992 % corresponds to March.

Despite these economic problems, the predictions and doubts stated by
political analysts, and the tumultuous situation in neighboring countries with respect
to the application of neoliberal policies (a situation that could have been emulated in
Perú) on April 1995 president Fujimori was elected for a second term. An
overwhelming majority, two of every three Peruvians, voted for Fujimori.
792
This
permitted him to continue with the process of reform, and especially with
privatization.
Furthermore, Fujimori’s endorsed candidates for Congress – who strongly
supported the government’s economic program – obtained the majority of seats. This
outcome “turned what initially looked just as a personal triumph into a domineering
victory.”
793
In contrast, the political parties of the opposition that criticized the
president’s economic policy obtained the lowest number of votes. APRA (center-
left) obtained just more than 4% and Izquierda Unida (Left) 0.57% of the vote.
794

792
In Perú all Peruvian citizens older than 18 years have to vote. It is mandatory, by law, to vote in
general, municipal, and regional elections.
793
Mario Pasco Cosmopolis, “Crónica de una reeleccion anunciada,” El Comercio, April 11, 1995.
794
“De los Respaldos Mayoritarios de Antaño, a la Mínima Expresión de Hoy,” El Comercio, April
14, 1995.
374

It could be said that these results were in response to the general decline of
traditional political parties in Perú. Nonetheless, in 1995 Fujimori faced a very
important contender who did not represent any traditional political party: Javier
Perez de Cuellar, former General Secretary of the United Nations and a man of
extraordinary qualities who represented a coalition of varied political forces. Perez
de Cuellar obtained an important number of votes and was the second-runner but
received far less support than the one Peruvians gave to Fujimori.
It could also be argued that Fujimori’s victory was due to the fact that his
government had captured Abimael Guzman, the head of the terrorist group Shining
Path and other terrorist leaders. Besides, the Fujimori government had also defeated
another great enemy: hyperinflation. The increasing rate of monthly inflation was
reduced to only one digit: 3% in 1995. Indeed, these events brought relieve and hope
for Peruvians who after a decade of violence and economic instability could enjoy a
relatively normal and peaceful situation that they were thankful for.
Although the aforementioned facts must be taken into consideration, it is also
important to pay attention to another and not any less important issue. As noted in
the present study, prior to the capture of Abimael Guzmán in October 1992,
Peruvians had come to support the economic reforms initiated by the Fujimori
government. Moreover, Carlos Boloña the minister of finance who applied these
reforms had enjoyed high ratings of popularity, even before Guzmán was captured.
As of the end of the 1990s, there was among Peruvians a deep and justifiable
concern about the authoritarian trend the Fujimori government had taken. There were
375

large demonstrations against the government demanding the installment of
democratic institutions, respect for human rights, and the end of corrupt practices.
The largest mobilization that had ever occurred against the government in Perú was
named the Marcha de los Cuatro Suyos (the march of the 4 Peruvian corners) and
was led by economist Alejandro Toledo. Despite social opposition, in 2000 Fujimori
was elected for a third presidential term but this time in an electoral process whose
lack of transparency was evident and criticized by international and national
observers. Six months later Fujimori had to leave the presidency. Serious and
irrefutable accusations of corruption motivated the abrupt end of the Fujimori era.
In 2001, Alejandro Toledo was elected president. It is worth noting that in his
electoral campaign Toledo did not run with an anti-neoliberal discourse.
Furthermore, no substantial changes in economic policy were implemented during
his presidency. On the contrary, with the objective of promoting Perú abroad and
attracting foreign investment President Toledo in his declarations to the press and
during his visits to other countries, constantly made reference to his administrations’
efforts to improve Peru’s economic stability through the application of market-
oriented policies. Likewise various state institutions, especially those in charge of
promoting Peru’s image, highlighted in their reports this country’s economic
achievements resulting from the instauration of the market-oriented model of
economic development. The promotion of market-oriented policy ideas initiated as
of the end of the 1980s had a wide and lasting effect.

376

CHAPTER 8: CONCLUSIONS

Market-oriented policy ideas have had a causal effect on the pace, scope, and
sustainability of the economic reform program implemented in Perú during the early
1990s. Because Perú is a developing country and thus largely exposed to structural
constraints, the effect of these in its economic policy obviously cannot be
disregarded. Nonetheless, as the observations and conclusions in chapters 3-5
indicate, situational and material factors surrounding the adoption of economic
policy reforms, while important, are not sufficient to explain why these reforms were
adopted nor to account for their consolidation over time. Arguments based only on
the effect of economic crisis, the IFIs’ leverage, or the material interests of the
business elite cannot by themselves explain the extent of the Peruvian experience of
economic reform.
At the end of the 1970s, Perú was one of the first countries affected by the
external debt problem. As such, the worsening of its economic problems during the
early 1980s not only enhanced its vulnerability to economic crisis and other external
constraints, but also made it one of the most logical candidates to be included under
the framework of after-crisis neoliberal reform. Nonetheless, in their attempt to solve
the economic crisis, the Peruvian administrations consecutively rejected the
possibility of applying reforms in line with the IFIs’ prescriptions.
It is undeniable that the deepening of the economic crisis at the end of the
1980s completely changed the social, political, and economic panorama for
377

Peruvians. Hyperinflation especially reverberated throughout society seriously
hitting the already empoverished sectors and greatly limiting the potential to grow of
other sectors. The direct and compelling effect of economic crisis was to increase
uncertainty among state and social actors. Nonetheless, it did not bring about the
recipe for tackling such uncertainty.
In this regard, the concept of Knightian uncertainty is very useful for
describing the impact of policy ideas in the Peruvian case of economic reform. Blyth
notes that situations of extreme economic crisis should not be understood as
situations of risk in which agents are sure of their interests but unsure of how to
achieve them.
795
Instead, these are situations of what he calls Knightian
uncertainty,
796
in which contemporary agents see themselves as facing unique events
and are unsure as to what their interests actually are, let alone how to realize them.
797

As of 1987, in the middle of crisis the various agents in Peruvian society did
not know with precision what their interests were and thus what to do. For instance,
for years the business elites had supported the protection of the domestic market
since such a policy directly benefited their firms. Nonetheless, as of the end of the
decade the businessmen realized that the way in which this policy was being applied
constituted part of an economic program that was strangling the economy, reducing

795
Blyth, “Great Transformations,” 8-9.
796
In his analysis of the economic crisis of the 1930s (deflation) and 1970s (inflation) affecting the
U.S. and Sweden, Blyth refers to “Knightian uncertainty”, a concept he draws upon Frank H. Knight,
Risk, Uncertainty and Profit (Boston and New York: Houghton Mifflin Company, 1921) and Jens
Beckert, “What Is Sociological about Economic Sociology? Uncertainty and the Embeddedness of
Economic Action,” Theory and Society 25, no. 6 (1996).
797
Mark Blyth, “Great Transformations,” 9.
378

Peruvians’ purchasing power and thus, affecting negatively their firms. Furthermore
a political event, the announcement of the nationalization of the banking sector,
increased the uncertainty that economic crisis has already created within the business
elite. The business groups realized that they could not continue interpreting their
interests under the same framework they had been doing before.
It is in the middle of uncertainty, when a country is experiencing political or
economic crisis, that state and non-state actors need tools that could guide them in
the search for adequate solutions. I argue here that as of the end of the 1980s, in the
context of crisis and Knightian uncertainty that Peruvians were experiencing,
market-oriented policy ideas acted as road maps. These policy ideas guided first non-
state actors and subsequently state actors to interpret and narrate the situation they
were facing, to name its causes and plausible solutions, to redefine their interests and
accordingly to opt for the policies that should be applied.
Taking market-oriented policy ideas out of the Peruvian scenario in 1990, the
active cooperation of the business sector and the acquiescence of large sectors of
Perú’s population regarding the application of market-oriented reforms do not make
any sense. Indeed, it is difficult to explain the wide acceptance that these sectors
gave to policies that, less than a decade earlier, they had vehemently confronted in
the middle of an economic crisis conceived at the time as the worst the country had
ever experienced. It is also difficult to explain the continuous support for the market-
oriented reform program prior and during its implementation despite the serious
economic constraints it brought for all the population. Furthermore, ignoring the
379

impact of policy ideas in one’s analysis makes it difficult to understand the
seemingly outrageous decision of President Fujimori, a political outsider at the
beginning of his first term, to apply a radical reform program that risked the political
viability of his government.
The study of how ideational factors shape perceptions and help actors define
their interests helps us understand why the application of economic reforms and their
sustainability are more feasible in some circumstances than in others. Without the
examination of policy ideas, any explanation of sustained economic policy change is
not complete. Top-down economic policy change may occur, but is far less likely to
survive over time (unless coercive means) than if it is accompanied by state and non-
state actors’ support resulting from the assimilation of policy ideas that presented the
reform as the best path to the nation’s economic recovery.
As long as policy makers who are the driving force in policy reform, and
other state actors that occupy key positions within the state are not convinced of the
need to pursue a radical program of stabilization and market-oriented reforms, the
application of these policies will not occur even in the middle of economic crisis.
Furthermore, as long as ample sectors of civil society are not convinced of the need
to pursue stabilization and market-oriented reforms, the consolidation of these
reforms would not follow their implementation.
These reflections are also applicable for the analysis of the role of the IFIs in
Perú’s economic policy change. Despite the IFIs’ powerful position with respect to
developing countries experiencing economic crises, the influence of the IFIs cannot
380

be effective unless the mediation of ideational factors is able to persuade domestic
actors about the supposed benefits that the application of these institutions’
recommendations will bring to the national economy. Former Peruvian
administrations (1975-1990) whose priorities did not include the application of
policies in the line of the IFIs were incapable of or resistant to delivering economic
programs that agreed with these institutions’ prescriptions. Pressured by domestic
opposition to the IMF austerity programs, or by their own political interests, former
administrations did not support the continuous application of IFIs’ policies.
The analysis in chapters 5 and 7 makes the case that that the pro-IFI stance
taken by the Fujimori government and the resultant economic policy change was not
the direct result of pressure or coercion on the part of those institutions. IFIs leverage
was a considerable factor in the Peruvian context previous to the application of the
reforms and external influence did have an impact in this regard, but accompanied by
a sort of consensus between the policy ideas prevailing in the Peruvian arena and
those promoted by the IFIs. Such a consensus existed during the early 1990s not only
between the members of the government and the IFIs, but also between the
government and ample sectors of the Peruvian society.
Thus policy ideas are crucial in explaining economic policy change in the
Peruvian case. Nonetheless, how do ideas effectively impact policy making? Some
scholars note that the choice of economic policies is the result of a learning process,
of the gradual and cumulative spillover effect from the policy choices and outcomes
381

of other countries.
798
However, how does this learning process evolve? The
experiences of other reforming countries do not per se have a direct teaching effect
on the country still experiencing crisis. For instance, while neighboring countries
such as Chile and Bolivia had pursued stabilization and structural adjustment
programs promoting market-oriented reforms as early as 1976 and 1985,
respectively, in Perú the Peruvian government and local interest groups deliberately
rejected such reforms.
Furthermore, even when certain social actors—technocrats, business groups,
and even some policy makers—may be aware of the potential of the reforms applied
in other countries to solve economic crisis, that does not mean that the average
citizen automatically becomes aware of the dynamic of those reforms. Due to their
access to specialized information (as in the case of technocrats) or their direct
exposure to other countries’ reform experiences (as in the case of businessmen in the
foreign trade sector), particular groups may learn about the effects of certain policies
in other countries’ economies. As a result, these social actors may pressure the
policy-making sector for reforms similar to those applied in other countries. Yet this
does not guarantee the effective application of these reforms. For instance, since
neoliberal reforms are usually very unpopular, their application without the support
of considerable sectors of civil society can cause social unrest. Voters’ lack of

798
With respect to social learning see for instance Kahler “External Influence, Conditionality, and the
Politics of Adjustment;” and Perktold and Tomassi, cited by Eduardo Lora and Mauricio Olivera in
“What Makes Reforms Likely: Political Economy Determinants of Reforms in Latin America,”
Journal of Applied Economics VII, no. 1, May (2004): 130. A relatively similar approach is taken by
382

support—sharpened in times of economic crisis—may reduce the scope or even
truncate the implementation and consolidation of those reforms. As noted earlier, this
was a crucial problem in the failed market-oriented reform attempted in Perú during
the early 1980s.
Policy makers might play an important role in the phase of initiation of the
reform program, but it is precisely the support of the social actors—especially in
times of crisis—that is crucial for the consolidation of the reforms. Therefore, it is
important to analyze the process through which the various social actors, influential
interest groups and average citizens, learn about the supposed benefits of certain
economic reforms. How do these actors clarify their uncertainty about the post-
reform environment and accept the challenges and risks inherent to the reform
process? How does the communication between the proponents of reforms and the
wider public (the ultimate decision-makers, at least in democratic and pseudo-
democratic contexts) about the beneficial nature of policy change operate?
In order to tackle these issues, it is crucial to pay attention to the process of
diffusion of economic policy ideas throughout society, to the actors that activate this
process, and to the interaction of institutions, interests and ideas. Especially this
latter aspect is very important since this interaction may produce different policy
outcomes, as noted in chapters 3, 6, and 7 of the present study.

Beth A. Simmons and Zachary Elkins, “The Globalization of Liberalization: Policy Diffusion in the
International Political Economy.” American Political Science Review 98, no.1, February (2004).
383

Ideas need to be effectively communicated by individuals and institutions
whose technical expertise, resources, and ability make possible the assertive
promotion of these ideas and their impact in policy-making sectors and society.
Precisely, one of the important findings of the present work is the decisive role that
non-state actors—individuals and institutions—have played in the Peruvian process
of economic policy change as generators, receptors, and promoters of market-
oriented policy ideas.
During the late 1970s and early 1980s market-oriented policy ideas were
present in the Peruvian context, as evidenced in the efforts of few individuals
directed at promoting these ideas. However, these few individuals had not yet
become affiliated with solid institutions that could help them to effectively promote
their ideas. At that time, there were not think tanks or other institutions in Perú that
embraced market-oriented policy ideas. While the press did not oppose these ideas, it
did not expressly support them, either. With respect to the academia and political
parties, there was an evident option for policies that envisioned development
objectives radically different than the primacy of the market, with very few or no
space for the discussion of alternative policies. Labor and business coalitions openly
and actively opposed market-oriented policy ideas. This was so that for instance, in
1984 the business coalitions created an institution (CONFIEP) to represent them and
jointly defend their own interests, which they saw at that time as being opposed to
the application of market-oriented reforms attempted by the Belaunde government.
In sum, substantive predispositions against market oriented policy ideas abounded.
384

In that scenario, the few individuals from the private sector who supported
market-oriented policy ideas were unable to effectively reach large sectors of the
society and promote support for the reforms that the government’s economic team
was trying to apply. For its part, the government’s economic team, constituted of a
small number of technocrats working mainly in the ministry of finance, strongly
supported market-oriented policy ideas and was initially able to adopt some reforms.
However, given the fact that these ideas did not find an institutional home within or
outside the state, those policies could not be effectively implemented and even less
consolidated.
Consequently, during the late 1970s and early 1980s, without an effective
institutional support market-oriented policy ideas were unable to influence
individuals and institutions in the private and public sectors and make these actors
change their perceptions about the economy and the definition of their interests.
Despite the fact that these actors were facing a context of crisis and uncertainty,
market-oriented policy ideas alone could not have any impact and thus, did not
significantly affect economic policy.
Almost after a decade of the first attempts to promote market oriented policy
ideas, the situation was very different in Perú. As of 1987, pro-market policy ideas
and their advocates were backed by the important institutional support of think tanks
that at this point in time had acquired a prominent position in the Peruvian setting. In
the middle of crisis and uncertainty motivated by the government’s deficient
management of the economy and the lack of effective proposals by political parties
385

that were supposed to offer adequate alternatives, these ideas took an important place
in Peruvian politics. It can be affirmed, utilizing the terms mentioned by Goldstein
and Keohane, that market-oriented policy ideas acted as road maps and glue.
Indeed, market-oriented policy ideas and their advocates were able first to
influence individuals and institutions in the private sector and make these social
actors reconsider their perceptions about the economy and their own interests. For
instance, the business elite represented by CONFIEP began to criticize the ISI policy
and the intervention of the state in the economy, and, by the same token, to
extensively support market-oriented policy ideas. To some extent, that can also be
said about the press. Since then the efforts of these institutions to promote these ideas
were added to that pursued for years by think tanks such as the ILD and APOYO,
and to the efforts of the new breed of think tanks that openly supported these policy
ideas. Furthermore, the large diffusion of market-oriented policy ideas permitted
these to influence large sectors of the wider public whose role as supporter of the
eventual application of reforms based on these ideas would be paramount for effects
of economic policy change.
The impact of market-oriented policy ideas with respect to institutions and
interests at the state level was also significant. Utilizing the terms coined by Blyth,
during the 1990s market-oriented policy ideas were able to act as “weapons and
blueprints” in the reorganization of the Peruvian state apparatus. During previous
decades leading state actors had defined as crucial for the objectives of development
promoted by the state to enhance the participation of this latter in the economy
386

through the creation of state-owned firms and institutions charged with the control of
private actors’ economic activities. From 1990 onwards with the entrance of
advocates of market oriented policy ideas to state institutions, the interests of the
state were redefined and consequently, dramatic downsizing of the public sector and
privatization of state-owned firms follow. In the name of “national interest” private
investment was promoted in areas that before had been monopolized by the state.
Moreover, as noted in chapter 1, the state reorganized important state institutions
with the objective to adequate these to the exigencies of a free-market economy that
promotes free trade and investment, and especially foreign investment. Likewise, the
state created new institutions such as the INDECOPI, which was granted with power
to enforce free market policies in both the private and the public sectors and to
diffuse market oriented policy ideas.
In a nutshell, from the late 1980s onward in Perú institutions in the private
sector effectively promoted market oriented policy ideas. Both ideas and institutions
were able to motivate key private institutions to redefine their interests in direction of
the free-market. Then the joined efforts of all these institutions permitted that market
–oriented policy ideas had impact in the wider public and in the policy making
sector. Subsequently, state actors redefined the interests of the state and thus,
economic policy change and institutional change at the state level followed.
I am aware that since the qualitative analysis made in the present work relates
to a single country, relying on its findings might be considered a weakness in efforts
at greater theory building, and thus of limited generalization regarding the influence
387

of ideas in policy change. Nonetheless, the focus here applied may also be
interpreted as a particular strength. Checkel notes that single-country studies where
the role of ideas is compared over time (longitudinally) can better control for the
relative importance of new ideas in cases that are complex and detailed, and thus can
also make several contributions for middle-range theory building.
799

Indeed, the reference to particular events specific to the Peruvian case does
not affect the generalization of the conclusions drawn in the present study. For
instance, the attempt of the García government to nationalize the banking sector is
described here as a turning point event that ignited in Perú demands for economic
policy change and contributed to the wide diffusion of market-oriented policy ideas.
Although this event may be considered unique,
800
it can also be seen as an indicator
of a general context of economic and political crisis.
801
Scholars in the ideational
literature such as Odell and Blyth note that the introduction of reforms is easier when
a crisis or a special event arise (for example, a political crisis or elections).

In such an
opportunity, as these scholars argue and the present study demonstrates it is more
probable that an entrepreneur’s ideas will meet a receptive audience.
Moreover, as discussed in length by Checkel, one factor that clearly varies
cross-nationally is the process through which new ideas reach key elites.
802
This

799
Checkel, 131-132.
800
For instance, in Mexico the nationalization of the banking sector did not have the same
consequences, and in other countries such an event simply did not even occur.
801
Edelman notes that crisis may be precipitated by an event that suddenly makes clear the serious
consequences of activities that have been going on for a long time without occasioning much concern.
Edelman, “Political Language, Words that Succeed and Policies that Fail,” 47.
802
Checkel, 129 (emphasis added).
388

process, of course, responds to the particularities of each case. Thus, instead of being
a weakness, the analysis of a specific case can bring about important evidence and
thereby lay the ground for comparative, cross-national work on the role and
influence of ideas in policy change. Definitely, further research is necessary in order
to construct more accurate generalizations. Nonetheless, the findings and conclusions
included here may contribute in various ways to both the ideational research and to
the literature of policy reform in developing countries.

Contributions to Idea-Based Research
Sikkink, writing about the lack of systematic theoretical attention to the role
of ideas in this literature, proposes that instead of isolated studies, scholars interested
in this issue should borrow insights from one another or build a common
framework.
803
In that line, in the present work I have tried to relate my findings to
other studies that tackle the role of ideas in policy making. In the introductory
chapter and in chapter 2, which reviews ideational literature, I have called attention
to certain coinciding points and different approaches between this work’s
methodologies, questions, and conclusions and those posited by other works in the
ideas-based research area.
In general, at the theoretical level, this work supplements and extends the
scope of the ideas-based research program, and in so doing contributes to middle-
range theory building. First, the study of the influence of ideas in the Peruvian case
389

of market-oriented reforms constitutes an important step for extending the scope of
analysis within a research area focused primarily in the study of policy change in
developed countries. The present study has demonstrated that even in the case of a
developing country usually more pressured by structural concerns than developed
countries, policy ideas may affect economic policy decisions.
Furthermore, one of the crucial findings of the present work has been the
active role played by non-state actors as carriers, supporters, and receptors of policy
ideas, and thus their impact in economic policy change. This finding is an important
contribution to ideas-based research. Recognizing that much of that literature
portrays society as a passive actor in the process of ideas-based change, scholars in
this field have recommended that future work should broaden its focus beyond
elites.
804
The present work has responded to this demand, taking it not only as an
imperative for a broader focus in this research area, but also because a
comprehensive analysis of the Peruvian case required paying attention to these
generally overlooked actors.
Thus the present work’s contribution to the ideas-based research area is
twofold. First, it adds to the findings of some studies within the ideational literature
that have pointed out the role of non-state actors in facilitating the impact of ideas in
policy change. Second, it supplements studies within the ideational literature focused
on Latin American cases that have analyzed only the role of state actors. The

803
Sikkink, 243.
390

incorporation of non-state actors in the analysis of the application of market-oriented
reforms under a democratic (or quasi-democratic)
805
government takes a step
forward in the ideational literature focused on Latin America, which with respect to
market-oriented reforms has analyzed mainly cases under military rule.
Besides, by exploring the ideas-institutions nexus in a different national
context from that explored by previous studies,
806
the present work may help
advance the ideational-institutional approach. Scholars in the ideas-based research
area who have pursued this approach have recognized that the institutionalist
approach’s main shortcoming is its emphasis on explaining continuities over time
and leaving aside the equally important task of understanding policy change.
807
To
explain the sources of institutional dynamism, Checkel and Blyth have studied the
interactions between ideas and institutions. Like these scholars, here based on the
findings described in chapter 7 I argue that although institutions may limit the
boundaries of policy choice over time, it is also plausible that new ideas change the
institutional terrain, igniting the creation of new institutions or the modification of
those already established.

804
Checkel, 131. Checkel expressly makes this recommendation but recognizes that a salient
exception is the work of Sikkink and Adler who devote attention to the role of social actors. Likewise,
on their own works Sikkink, Adler, and Blyth had noted the need to focus on non-state actors.
805
As noted in chapter seven, the present study covers the process of promotion of market-oriented
policy ideas which was pursued prior to the application of reforms in this line while a democratic
government was in power (1987-July 1990) and during the early years of the Fujimori government
before the president closed Congress. Support for the application of market-oriented reforms was
evident prior to the interruption of democracy in Perú in 1992.
806
Such as Checkel’s study of Russia in the area of security and foreign policy; and the studies by
Sikkink and Blyth about Argentina and the U.S. respectively in the area of comparative and political
economy.
807
Checkel, 4.
391

The present work also provides important evidence to support the
institutional-interpretive approach posed by Sikkink.

In fact, like Sikkink, I here
point to the need to focus not only on state institutions and individuals, but also in
the dynamic interaction between the institutions of the society and the people,
groups, and ideas in political life.
808
For that interaction to occur, and especially for
persuasion to take place, the role of language is paramount. Chapter 7 of the present
work has described in detail how language was an important tool used by the
promoters of market-oriented policy ideas to persuade the wider public about the
appropriateness of market-oriented reforms for solving Perú’s economic problems.
Furthermore, the present study provides important insights for scholars
working in the field of economic constructivism, a major intellectual movement that
has emerged in the past decade in the field of political economy, constituted by
social researchers interested on the “ideational” or “socially constructed” elements of
markets and economic governance.
809
In contrast to the various rationalistic
traditions that treat economic action and institutions as direct responses to only
material problems or interests, they portray economic arenas as shaped deeply by the
subjective elements through which people interpret their surroundings. The present
work’s findings provide factual evidence that supports the concerns and goals
pursued by this emerging intellectual movement.

808
Sikkink, 25.
809
This information has been retrieved on May 12, 2005 from the web page of the Radcliffe Institute
of Advanced Study at Harvard University http://www.radcliffe.edu/research/adv-expl_05.php
392

Contributions to the Fields of Political Science and International Relations
The present study adds to the recent wider disciplinary interest in think tanks
pursued by scholars from the fields of comparative politics, public policy, and
international relations that considers think tanks as significant subjects of social
science inquiry.
810
The contribution in this regard is twofold. First, this study
incorporates the analysis of the Peruvian case to broaden the range of national
contexts in which think tanks are being evaluated. Second, its findings contribute to
the school of analysis that within the think tanks research area views the study of
these institutions as a vehicle for learning about the policy process and the role of
ideas and expertise in decision making.
811
Within that framework, scholars and
executives of think tanks are seen as policy entrepreneurs playing a double role:
delivering and pushing ideas higher on the public agenda, and “softening up” actors
in the political and policy system to the reception of new ideas.
812
Think tanks are
catalogued as able to generate cross-coalition learning, and pays attention to the

810
Rich notes that think tanks in the U.S. despite having grown considerably (more than quadrupled
since the 1970s), have received by far little scholarly attention compared to that received through
scores of books and articles by other types of nongovernmental organizations, particularly interest
groups. Andrew Rich, Think Tanks, Public Policy, and the Politics of Expertise, (New York:
Cambridge University Press, 2004) 6-7. The analysis of think tanks has grown during the last decade
especially outside of the United States. See Diane Stone and Andrew Denham, Think tank traditions.
Policy research and the politics of ideas. Op. Cit. Current research trends are increasingly focused on
think tanks’ achievements in the developing world and post-communist transition countries.
811
According to Weaver and Denham, analysis of think tanks has fallen into two broad schools.
Besides the one mentioned above, another school of analysis is constituted by scholars focused on the
organizational form – such as Weaver (1999), McGann (McGann and Weaver, 2000) and Smith
(1999) – interested in explaining why and how think tanks have emerged and their organizational
ingredients. Diane Stone and Andrew Denham, 1-2. Prior study about think tanks in Peru has been
done only within the school of analysis focused on the organizational form of think tanks. See Gabriel
Ortiz de Zevallos, “Instituto APOYO,” in McGann and Weaver, 551-566.
812
Diane Stone and Andrew Denham, 14.
393

language that think tanks use and their ability to create and reinforce specific
discourses about economic issues.
813

To date, no other study has tackled the aforementioned issues with respect to
the Peruvian think tanks studied here.
814
The present work, although not entirely
focused in the study of think tanks, offers findings that can contribute to a larger
study in that vein. Chapter 7 discusses the ideas coming from think tanks as among
the ideational factors that decisively contributed to economic policy change in Perú,
altering policy orthodoxies at the state and non-state levels through the intensive
promotion of market-oriented policy ideas.
With respect to the study of non-state actors, in addition to the analysis of
think tanks, the present work has taken into consideration the important role of the
press, especially the written press, in the diffusion of market-oriented policy ideas. It
has incorporated into the analysis news texts published during the period under
study, and has considered these news both as sources of information of the historical
events under analysis and as possible producers of events that can affect the
formation of public support for market-oriented reforms. In doing so, the present
work joins studies from the ideas-based research area that recognize that the media
may play an important role in empowering new ideas on macroeconomic policy

813
See for instance, Su Ming Khoo, “Think Tanks and Malasyan Development,” in Diane Stone,
Think tank traditions, 179-196.
814
As noted above, Gabriel Ortiz de Zevallos has referred to the think tank APOYO in Perú but
explaining its organization, not necessarily its impact and even less its participation in a concrete case
of economic reform. Likewise, Javier Avila has referred to the IEP and DESCO but under a
framework relatively similar to that followed by Ortiz de Zevallos, and included in a broader research
about non-governmental organizations in Perú. See Javier Avila, Op. Cit.
394

making,
815
and works from other research areas that analyze political communication
and see the media as an important political actor.
With respect to these latter, during the last decade a growing number of
studies have taken seriously the influence of the media in political and economic
outcomes.
816
Without denying the possibility of audience resistance, these studies
have recognized the no less important one of audience consent, which implicates the
media’s role in the construction of social meaning. Generally these studies have
analyzed the influence of the media in developed countries. The present work does
not pretend to be an in-depth and specialized study of press influence in developing
countries. Nonetheless, the evidence gathered here and the conclusions ventured in
this regard may be of interest to researchers in the field of political communication.
Likewise, the present study provides evidence that corroborates the claims of
the epistemic community literature which affirms that experts have the ability to
frame, develop, and clarify ideas and information and thereby may limit the range of

815
For instance, Peter Hall argues that in Great Britain the media played a very important role
empowering new economic policy ideas in the Margaret Thatcher era. Likewise, Dezalay and Garth
point out that one of the strategies of power that has permitted a small core of dominated intellectuals
to place themselves (and their ideas) at the center of the field of state power and also the field of
learned economics is the use of the media. For example: Milton Friedman took extensive advantage of
the tribunals offered to him by the financial press and the television networks. See Yves Dezalay, and
Bryant G. Garth, The Internationalization of Palace Wars. Lawyers, Economists, and the Contest to
Transform Latin American States. (Chicago: The University of Chicago Press, 2002), 73.
816
For instance, Justin Lewis, Constructing Public Opinion. How Political Elites Do What They Like
and Why We Seem to Go Along With It. (New York: Columbia University Press, 2001). In the same
vein there are studies that see ‘journalism as propaganda” and take note that the links between politics
and the saturation of propaganda are not exclusive matter of totalitarian regimes, but also of
democracies. In these latter, these studies note, propaganda is more concealed because it is more
sophisticated and naturalized as part of supposedly objective mass media communication. See for
instance, Edward S. Herman and Noam Chomsky, Manufacturing Consent, The Political Economy of
the Mass Media, Op. Cit., and Ann Crigler Ed. The Psychology of Political Communication, Op. Cit..
395

policy options.
817
In doing so, the present work incorporates the study of the
Peruvian case into a wider range of national contexts and policy issues in which to
evaluate the role of epistemic communities. Furthermore, Risse Kappen notes that
one of the limitations of the epistemic community literature is that empirical research
has rarely demonstrated the domestic conditions under which governments adopt the
policy ideas promoted by these communities and when these fall by the wayside.
818

Here I describe these aspects when comparing the two efforts of market-oriented
reform in Perú during the governments of Belaunde and Fujimori respectively,
experiences in which despite the participation of like-minded economists in the
executive branch, the policy outcomes were totally different. With respect to the
experience of economic reform during the Fujimori government, I underline the role
played in Perú by the pro-market epistemic community especially during times of
uncertainty, and the sources and venues utilized in the interpretation of this
uncertainty and in the promotion of their policy ideas. As such this work adds
interesting findings to the epistemic community body of research.
Another important issue in the present study is the attention paid to language
in the diffusion of market-oriented policy ideas. Chapter 7 describes in detail the role
of language in the construction of the pro-market discourse. It tackles how language
was utilized by the promoters of market oriented policy ideas in the

817
See Peter Haas, “Introduction: Epistemic Communities and International Policy Coordination.” In
“Knowledge, Policy, and International Policy Coordination.” International Organization, 46, no. 1,
Special issue. (1992): 1-38.
818
Thomas Risse-Kappen, “Ideas do not float freely: Transnational Coalitions, Domestic Structures,
and the End of the Cold War, International Organization, 48, no.2 (1994), 209.
396

reconceptualization of both the role of the state and social actors in the economy, and
of the state’s policy towards core states, foreign capital, and international financial
institutions. In that sense, this work follows the line of studies that emphasize the
rhetorical or linguistic turn in International Relations and those that emphasize the
argumentative turn in policy studies.
The most recent studies that emphasize the rhetorical or linguistic turn in
International Relations
819
see language in contemporary international relations as an
inescapable component of the life, behavior, and identity of international
actors/agents, and as crucial in shaping the contemporary outlook of global politics.
They note that language is an investigative and transformative tool (since language
allows the pluralization of agency and politics) and that attending to linguistic
constructs is necessary to conduct critical reappraisals of the place and meaning of
political agency in IR and beyond.
820

Scholars pursuing the argumentative turn in policy studies are interested in
observing the ways in which policy makers/analysts formulate and construct their
definitions of the problems at stake, to whom and in what language and style they
make their claims, and to what threat and dangers they appeal.
821
Policy discourse is

819
As noted by Debrex, earlier studies made a conscious effort to place language at the forefront of
international practices and IR debates. However, their scope was limited since they situated their
analysis in relation (and opposition) to Realism mostly. In contrast, recent studies seek to explain the
importance of language in post-positivist IR/international relations and to reconsider the place, role,
and meaning of language in international relations, without necessarily having to suscribe to specific
disciplinary labels to make sense of language. Francois Debrex, ed. Language, Agency, and Politics in
a Constructed World, (New York, M.E. Sharpe Inc. 2003) xi- xv.
820
Francois Debrex, Ibid.
821
Frank Fischer and John Forrester, “Editors’ instruction” in The argumentative Turn in Policy
Analysis and Planning, ed. Fischer and Forester (Durham: Duke University Press, 1993), 5-6.
397

defined as the interactions of individuals, interest groups, social movements, and
institutions through which problematic situations are converted to policy
controversies, agendas are set, decisions are made, and actions are taken.
822

Like these two groups of scholars, I have also focused on how a policy
problem is defined, the discourse through which the problem is understood, and
social actors’ abilities and power to manipulate social myths, language and symbols.
I note that during the late 1980s in Perú, in the middle of uncertainty and policy
controversy, language helped the promoters of market-oriented policy ideas to
change –or at least to question- traditional perceptions about who and what were
responsible for the failure/success of the economy. Specific language tools—mainly
metaphors and analogies—were utilized to redefine the enemy and to locate it at the
domestic level (the state) instead of the international level (IFIs), where it had
traditionally been located by prior political discourse. Language and symbols were
utilized to redefine the role that the state, private capital, and especially foreign
investment should fulfill in the economy. It was under this new framework that
policies about the reform of the state as well as foreign economic policy were
formulated during the early 1990s.
In sum, the present study offers insights about policy change, knowledge
utilization, and the use of language and political symbolism by technocrats and
policy makers in the Peruvian case of market-oriented reform. In relation to

822
Martin Rein and Donald Schon, “Reframing Policy Discourse,” in The argumentative Turn in
Policy Analysis and Planning, ed. Fischer and Forrester, 146.
398

economic policy change in a developing country’s scenario, these findings may be of
interest to scholars pursuing the linguistic and argumentative turns in the fields of
international relations and policy analysis.
Furthermore, with respect to the impact of language in economic policy
change, the present work also offers insights for research on contemporary socio-
economic transformations of capitalism such as that pursued by Fairclough
823
that
considers these transformations as discourse-driven and thus underlines the need of
discourse analysis in social research. Fairclough notes that some social researchers
have pointed to a “new planetary vulgate” which includes terms such as
globalization, flexibility, and employability that are endowed with the performative
power to bring into being the very realities they claim to describe.
824
Fairclough
warns however that it is not enough to characterize the “new planetary vulgate” as a
list of words. Instead, he argues, it is necessary to analyze texts and interactions to
show how language has effectively influenced the neo-liberal political project (e.,g.,
making the socio-economic transformations of new capitalism and the policies of
governments to facilitate them seem inevitable).
825
The description set in chapter 7
regarding the construction of the pro-market discourse in the Peruvian setting tackles
some of these issues.

823
Norman Fairclough, “Critical Discourse Analysis in Researching Language in the New Capitalism:
Overdetermination, Transdisciplinarity and Textual Analysis.”
http://www.ling.lancs.ac.uk/staff/norman/ Retrieved on March 21.
824
Bourdieu, P & Wacquant L, “New Liberal Speak: notes on the new planetary vulgate,” Radical
Philosophy, 2001, 105: 2-5 Cited by Fairclough, Ibid.
825
See Norman Fairclough, “Representaciones del cambio en el discurso neoliberal.” Cuadernos de
Relaciones Laborales, 16, 2000, 13-36, cited by Faiclough, Ibid.
399

The present study could also be of interest for scholars who analyze
developing countries’ foreign policy. It suggests that the application of economic
reforms by an economically dependent state is a more complex process than the
direct result of international structural constraints (i.e., core states and IFI leverage).
Domestic political and social conditions, and especially the role played by societal
actors who can promote or reject the application of certain reforms, can determine
the route of economic and foreign policy outcomes. As such, this work coincides
with and offers evidence to second-generation studies of foreign policy making in
economically dependent states. These studies, in contrast to first generation research,
maintain that explanations of foreign policy require detailed analysis of domestic
political conditions and processes in Third World states just as they do in the
developed world.
826

The present study’s findings also support in part emerging approaches in the
study of economic policy reform which claim that the most sophisticated political
economy models do not adequately capture influences on policy choices. For
instance, with respect to policy diffusion,
827
and prospective theory
828
approaches,
the present work shares with these the goal of paying attention to “non-obvious yet

826
Jeanne A. K. Hey, “Foreign Policy in Dependent States,” in Laura Neack et al. Foreign Policy
Analysis, Continuity and Change in Its Second Generation, 201-214.
827
Beth A. Simmons and Zachary Elkins, 171-189.
828
Kurt Weyland has authored the first book-length effort to apply prospective theory in the area of
comparative politics. Weyland, 4.
400

highly plausible explanations of policy change”
829
related to processes of learning
and emulation in policy making.
The policy diffusion approach posits that the adoption of reforms by other
countries provides policy-relevant information that may propel support for policy
change. According to this approach, the decision to liberalize the economy implies
learning policy ideas and giving deliberate attention to foreign experiences of reform
and their outcomes. Governments, it claims, learn from success via communication
networks.
830
As noted in chapter 7, during the late 1980s, the continuous reference to
the so-called successful experiences of reform implemented in the Asian countries,
and in Chile and Bolivia, was a constant refrain in the pro-market discourse that
preceded the application of market-oriented reforms in Perú. Likewise, although in a
lesser degree, the development of networks between the Peruvian advocates of
market oriented reforms and their counterparts in other Latin American countries that
had applied these sort of reforms, was among the efforts to promote market-oriented
policy ideas in the Peruvian arena. In the present work I consider these issues as
important, but only to the extent that they are part of a larger group of facts and
conditions in the domestic setting that permit economic policy learning and
emulation.
With respect to prospective theory studies, Weyland’s work suggests that
economic crisis puts countries in the domain of losses, prompting leaders and

829
Ibid, 15.
830
Beth A. Simmons and Zachary Elkins, 174-175.
401

citizens to opt for risk-taking solutions and to support neoliberal reforms. Once these
reforms have achieved their primary objective of stabilization and the crisis is
overcome, countries move to the domain of gains, and thus leaders as well as citizens
become more cautious in their policy options. Consequently, Weyland argues, after
the reforms have been applied for a certain period, the reform process becomes
slower because of the lesser or more conditioned public support.
831

The argument sketched in the present work is compatible with Weyland’s in
that it examines people’s choices around specific reforms as a causal explanation for
the initiation of the reform program. Weyland emphasizes that economic crisis
influences options and specific policies. The present work does not oppose such an
argument but completes it. While I also note that the context of crisis ignites
uncertainty and thus makes space for policy reform, I claim that it is not enough that
people be conscious of their situation in the domain of losses for them to be prepared
to embrace risky solutions. Rather, I argue, specific policy ideas guide people’s
policy choices. These ideas help people first to understand the causes of the crisis
and then to accept certain policies as if these were the most appropriate for
confronting that situation.
Weyland himself notes that the cognitive-psychological argument he invokes
in his explanations of policy reform does not stand alone and depends on changes in
the context of choice, which is conditioned by economic-structural, political-

831
Weyland, 4-9.
402

institutional, and (as I claim here) ideational factors.
832
He calls for an integration of
structure and choice, as I have attempted in this study. Indeed, I consider important
domestic contextual factors and emphasize the relationship between institutions,
ideas, and interests in the determination of policy change. Likewise, I pay attention
to choice, a process that, as stated by Weyland, may respond to perceptions about the
context of losses or gains. I emphasize, however, that such perceptions are molded
by policy ideas that guide policy makers and social actors in interpreting the context
around them.

Contributions to Practice
The findings here posited are particularly important for those people and
institutions working in the state or private sectors who attempt to introduce reforms
to current public policies or practices commonly addressed by state institutions.
First, there is a wider practical point that might be useful for governments,
think tanks, and NGOs. If materialist theorists in political economy are right in their
argument that policy ideas make no independent difference, then think tanks,
specialized journals, and other institutions that try to influence people’s ideas and
help researchers to study and diffuse their findings would be wasting their resources.
The present research, however, has demonstrated the importance of ideas in policy
making and of the institutions that act as carriers of these ideas even in a developing
country scenario, supposedely more affected by structural constraints in its
403

determination of policy choice. As such, this study shows that research institutions
provide a sounder basis for investing in future efforts by developing new ideas and
persuading leaders and societies to adopt them.
Second, the analysis of how certain economic policy ideas become influential
not only within but also outside of government circles may shed light on the
circumstances in which the application of certain laws is more feasible. This is
important for specialized studies about law and society, but also for government
institutions that generally pay more attention to the technical aspects of the
formulation and implementation of laws and disregard the equally important social
aspects related to the phase of consolidation of these laws.
Likewise, this study offers insights about the venues through which policy
ideas can be effectively promoted in civil society. This information may be useful for
practitioners and reformers interested not only in promoting economic policy ideas
but also for people and institutions tackling other policy issues. Today this
contribution may be especially important for state and non-state institutions in Latin
America dealing with issues such as the promotion of democracy, transparency in
government agencies, and civic and anti-corruption practices, to mention just a few.
By uncovering how neoliberal policy ideas made their way to intellectual hegemony
in a developing country like Perú, this work may enlighten NGOs concerned with
promoting alternative policy ideas that emphasize social and justice issues rather
than simply the laws of the market.

832
Weyland, 6.
404

Third, a particular issue of importance for those attempting to introduce and
pursue reform is this work’s conclusion regarding the role of non-state actors in
economic policy change. Studies of economic policy reform in developing countries
have focused almost exclusively on the role played by IFIs and state actors in these
countries. For instance, Grindle and Thomas
833
claim that reformers in developing
countries need to be centrally concerned with the attitudes, perceptions and actions
of policy élites. Although this advice is without doubt wise, it tackles just one of the
aspects of the larger task facing those attempting to reform.
Here I suggest that reformers need to also be centrally concerned with the
attitudes, perceptions, and actions of influential non-state actors, since these will be
fundamental to any efforts to adopt and sustain reforms. This could be good news for
some and an alert for others, depending on the eye of the beholder. When policy
ideas supporting certain set of economic reforms become part of the political
discourse, in other words when large sectors of the wider public accept a specific
economic program by persuasion and not by coercion, the continuation and
consolidation of this program will be more feasible. This does not mean however
that it will never be challenged. For sure its immediate modification will not be easy
since previously the political discourse that supports its continuation will have to be
modified. Although such a task will require a demanding effort, it will not be
impossible to achieve given certain conditions. New or challenging ideas may play

833
Merilee S. and John W. Thomas, Public Choices and Policy Change (Baltimore: Johns Hopkins
University Press, 1991), 68.
405

an important role in this regard, and again the access to networks of the civil society
as well as the use of venues through which ideas are promoted will be crucial to
activate a different political discourse. As long as non-state actors opposed to the
current economic program are able to capture the resentment of sectors of the
population that after years of standing the sacrifices linked to the application of that
program do not receive any benefits, the possibility for policy change will be open.
The current economic program will be seen as a major failure, even if it has brought
economic growth. Then those non-state actors opposed to that program will become
influential and the social-political arena will witness again the contest over whose
policy ideas can best capture the support from civil society.
In conclusion, the study of the Peruvian case of neoliberal economic reform
has been characterized by explanations that de-emphasize the role of idea in the
adoption of economic policies. By disregarding or diminishing the importance that
ideas might have on social and state actors as they evaluate and select their economic
policy options, those studies disregard the complex process of change under way that
has made possible the implementation and especially the consolidation of neoliberal
reforms. Furthermore, those studies also disregard the important role that non-state
actors and state actors other than policy makers and their ideas may play in
introducing and advancing the reform agenda. State actors’ and non-state actors’
understanding of international and domestic constraints and opportunities, and thus
their particular policy preferences, are largely influenced by specific "ideas" that
determine how those constraints or opportunities are perceived.
406

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Asset Metadata

Creator Hesselroth, Alba (author)

Core Title Ideas and economic policy change: The influence of policy ideas and non-state actors in the Peruvian case of market -oriented reform

School Graduate School

Degree Doctor of Philosophy

Degree Program International Relations

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag OAI-PMH Harvest,political science, international law and relations

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Hamilton, Nora (committee member), Lowenthal, Abraham F. (committee member), Odell, John S. (committee member), Wise, Carol (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c16-444899

Unique identifier UC11336009

Identifier 3237148.pdf (filename),usctheses-c16-444899 (legacy record id)

Legacy Identifier 3237148.pdf

Dmrecord 444899

Document Type Dissertation

Rights Hesselroth, Alba

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA