by Gregory N. Heires
In These Times magazine, September 2002
Peru is one of the most striking examples in Latin America
of people saying "Basta!' ("Enough!") as they repudiate
privatization and other free-market policies.
A recent congressional report on economic crimes under the
regime of Alberto Fujimori substantiates the skepticism of privatization
opponents, exposing the political cronyism and corruption behind
the process. "In the case of Peru, a mafia took control of
the state apparatus," says Javier Diez Canseco, the congressman
who headed the investigation. "Privatization was a marriage
of neoliberal ideas with concrete corrupt interests."
Peru continues to be mired in economic funk after more than
a decade of free-market economic policies that were supposed to
lift the living standards of the poor majority. "Privatization
was supposedly done to spur development of the country,"
says Alvaro Cole, head of the public employees union known as
CITE. "But that's not what happened, because the proceeds
from the sales were not used for the long-term benefit of the
Of the 27 million people in Peru, more than half live in poverty,
with a quarter eking out an existence on $1 a day. As foreign
debt payments eat up a quarter of the country's budget, millions
lack running water and electricity. Only about 10 percent of workers
occupy positions on company or government payrolls with protections
and benefits, while millions of others work off the books. More
than 50 percent of workers are unemployed or underemployed.
"We privatized, and we do not have less poverty, less
unemployment," says Juan Manuel Guillen, the mayor of Arequipa
and a leader of the fight against the privatization of the utility
companies that forced the government of President Alejandro Toledo
to put its policy of selling off state assets on hold. "We
have more poverty and unemployment. We are not debating theoretically
here. We are looking at reality."
During his 10 years in office, Fujimori violated human rights,
destroyed the labor movement, undermined the political system
and created a nexus of business, military and government leaders
who stole millions. The sell-off of more than 200 state companies
allowed the government to fund programs and create an artificial
boom without addressing the country's underlying problems of a
weak revenue base, an inequitable tax structure and lack of full-time
All told, the privatization sales during the Fujimori years
amounted to $9 billion. The state dedicated $1.5 million of that
to payments of the foreign debt. About $1 billion of the proceeds
were used for purchases of armaments of dubious or low quality.
Most of the rest was spent on government programs.
According to the congressional investigation, Victor Joy Way,
a former congressman and Fujimori loyalist, was the principal
intermediary in the arms purchases. The commission also charged
Joy Way, who is of Chinese descent, with profiting illegally from
a deal to import medication and medical instruments from China.
Dozens of other military and high-ranking government officials
were charged with illicit arms dealing in the ensuing months after
Fujimori's resignation in November 2000.
Fujimori's flight to Japan and his resignation via fax from
there followed the release of video tapes that showed his spy
chief Vladimiro Montesinos bribing politicians to support Fujimori's
reelection effort, which the congressional commission charges
was partly funded by proceeds from privatization. (In July, Montesinos
was sentenced to nine years in jail for embezzling public funds,
and he faces dozens of other charges, ranging from money-laundering
to directing a death squad.)
As the commission report shows, privatization destroyed unions
and caused the loss of 120,000 public sector jobs. In some instances-most
notably telephone service- improvements occurred, but prices skyrocketed.
The Fujimori government sold off state companies at artificially
low prices, causing the state to lose millions of dollars in proceeds
while permitting purchasers to make huge profits. Buyers reaped
big tax breaks and failed to live up to commitments to invest.
And the state agreed to assume $765 million of the debt of the
privatized companies. "It didn't matter if a state company
was well-run and profitable," says Oscar Ugarteche, who headed
the 20-member team that wrote the report. `"The Fujimori
government wrote a new constitution that said the state shouldn't
own public firms, and they were committed to carrying that out."
Diez Canseco charges that Fujimori profited politically from
the sales since the government used a big portion of the proceeds
to fund government programs. That helped create a "fictitious
boom" in the country, which also benefited from an influx
of foreign capital from international banks and lending institutions
during the early years of the Fujimori government. But from a
policy standpoint, the reliance on privatization to pay for government
programs is misguided because it relies upon "one-shot"
infusions of funds that should ordinarily be obtained from taxes.
In recent years, foreign investment in Peru has dropped as most
of the state firms have been gobbled up.
The embattled administration of Alejandro Toledo faces a daunting
economic challenge. "The cost of privatization has been very
high," Diez Canseco says. "You now have foreign control
of the country's national assets and the decision-making centers
have been transferred outside the country. Today, the principal
economic sectors are in foreign hands. As a result, the possibility
of having a national plan for economic development is extraordinarily
Gregory N. Heires is senior associate editor of Public Employee
Press, the official publication of District Council 37 in New
York. He visited Lima, where he worked during the '80s, in July.