Fujimori's Legacy

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 country."

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 jobs.

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 difficult."

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.

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