Commentary: Peru: How Fujimori Let Reform Fall Flat

Peruvian President Alberto Fujimori is hard to peg. He is by turns an ardent free-marketer and a drum-beating populist. But more than anything else, Fujimori is a wily politician. Though Peru's constitution limits presidents to two terms, the country's pliant courts and Congress have allowed him to stand for a third.

The prospect of another five years of Fujimori, 61, does not seem to trouble most Peruvians, who credit this son of modest Japanese immigrants with slaying hyperinflation and crushing terrorist groups. But those who hope Fujimori will resume work on an unfinished economic agenda once campaigning for the Apr. 9 election is over are bound to be disappointed.

Fujimori is more intent on hanging on to power than on tackling remaining economic trouble spots. Indeed, for vigorous reform there has been nothing quite like the early days of his mandate. When Fujimori first took office in 1990, Peru's economy was in shambles. The president embarked on a radical course, slashing price controls and drastically lowering tariffs. Scores of state-owned companies were privatized and rigid labor laws were relaxed. Last, but not least, he waged war on the left-wing Shining Path and Tupac Amaru rebels that terrorized Peruvians and kept investors at bay.

The shock therapy worked. In 1994, growth in gross domestic product surged to a record 13.1%, while annual inflation fell to 15%, from over 7,000% in 1990. But then the reform momentum dissipated as Fujimori turned his attention to reelection. And despite his overwhelming victory in the 1995 poll, the much-predicted second wind never materialized.

Privatization income, for instance, fell to a mere $300 million in 1999. That was down from a peak of $2.6 billion in 1994, and below the announced target of $800 million. What's more, the President has backtracked on plans to auction off remaining state assets. Playing up to voters' concerns that privatization of state-run utilities will result in tariff hikes, he has ruled out the sale of Lima's water company, Sedapal, and the country's largest electricity generating plant, Mantaro.

Reform of a weak, highly politicized judiciary is another nonstarter. Plans to overhaul existing property laws, which are vague and archaic, have gone nowhere. Without proper land titles, investors will remain wary of sinking money into agriculture, tourism, and forestry projects. "There is no political will to continue pushing market reforms at the pace they should be introduced," says Pablo Secada, an economist at the Lima office of Santander Investment. He and other analysts don't expect much from a third Fujimori term. "If there are, say, 30 key measures that Fujimori needs to introduce, he'll do five or six," he says.

Without a renewed reform push, the Peruvian economy is unlikely to log in the high growth rates needed to pull half of the country's 25 million citizens out of poverty. GDP growth was a respectable 2.1% in 1999 and is expected to hit 4.5% this year as prices rise for Peru's main commodity exports, including oil and copper. But that is well short of the 7% annual growth rates economists think Peru needs to cut unemployment, which government statistics put at near 10% but in reality is much higher.

Tellingly, the front-runner in Peru's presidential race has yet to present an economic plan. With the opposition weak and divided, Fujimori's prospects for winning reelection look assured. Polls put his approval rating at 45%, just shy of the 50% he needs to clinch a first- round victory in April.

A RETREAT? In announcing his reelection bid in December, Fujimori said he had no alternative but to run again. Without him at the helm, he said, Peru would end up back where it was 10 years ago. But if his reforms are fragile, Fujimori has no one but himself to blame. Institutions, from Congress to the courts, remain weak--just the way Fujimori likes them. Regulatory agencies lack clout. In the telecommunications sector, for instance, recent U.S. entrants such as BellSouth Corp. and FirstCom Corp. complain that the regulator is not policing adequately for abuses by the former monopoly, Telefonica del Peru.

Fujimori is still capable of surprises. There has been talk that he may draft Carlos Bolona for the post of Economy Minister in his next term. Bolona is a familiar face to foreign investors, since he presided over the first round of deep economic reforms. There is also a chance that a new Fujimori administration could include a greater number of respected economists and free-market proponents. Yet for the past 10 years, Peruvian politics has been a one-man show. And it's hard to imagine when Fujimori will be ready to share the stage.