As Alán García took office on 28 July 1985 – at thirty-six the youngest chief executive to assume power in Peru’s history – he seemed to awaken hope among Peruvians for the future. Although he had no previous experience in elected office, he possessed, as his decisive electoral victory illustrated, the necessary charisma to mobilise Peruvians to confront their problems. At the same time, the governing APRA party won a majority in the new Congress, assuring the new president support for his program to meet the crisis.

The crisis seemed daunting indeed. The foreign debt stood at over USD 13 billion, real wages had eroded by 30 percent since 1980, prices for Peru’s exports on the world market remained low, the economy was gripped in recession, and guerrilla violence was spreading. The future of Peru’s fledgling re-democratisation now hinged on García’s ability to reverse these trends and, at bottom, to restore sustained economic growth and development.

The Honeymoon

By 1985 García and APRA were well-positioned to win the presidential elections. García was a charismatic orator who was convinced that he needed to “open up” APRA in order to win the nation’s vote. He dropped all of APRA’s sectarian symbols, such as the Aprista version of the Marseillaise and its six-pointed star, and replaced them with the popular song, “Mi Perú,” and with slogans such as “my commitment is with all Peruvians.” His attacks on neo-liberal economics were directed primarily at foreign capital and the International Monetary Fund (IMF), a convenient beating board because Peru was unlikely to get any capital inflow in the near future; he carefully avoided attacks on domestic capital.

Thus, while cultivating the image of a radical among the poor, García also was perceived as the “mal menor,” or “lesser evil,” by the private sector, as opposed to the Marxist left. Finally, even conservatives recognised the need for reform in Peru by 1985, given the increasing presence of the maoist guerrtilla movement “Sendero Luminoso.”

The first two years of the APRA government were a honeymoon of sorts. García enjoyed unprecedented popularity ratings of over 75 percent, owing in part to his populist personality and oratorical talents, and in part to the “concertación” strategy (i.e. a political strategy based on “agreements” and “compromises”) the government pursued It was highly successful as a short-term strategy for a severely depressed economy, but obviously had its limits as a long-term plan. The private sector, meanwhile, gave García and his “concertación” strategy cautious support.

By mid-1987 it was clear that “concertación” had run its course, and a change of emphasis was necessary. At the same time, García was also under pressure from the left and from some sectors within his own party to implement more radical structural change. In June 1987 he suffered a defeat within the party when his main rival, former Prime Minister Luis Alva Castro, was elected president of the Chamber of Deputies. García at this point opted for a radical measure that was intended to retake the political initiative from his rivals.

Political Polarisation

In his annual Independence Day address on 28 July 1987, García announced the surprise nationalisation of the nation’s banks. The measure was designed with a small group of advisers in the two weeks prior to its announcement, and few members of the APRA party or government were consulted. For example, the octogenarian vice president of the Republic, Luis Alberto Sánchez, learned of the measure just prior to García’s announcement, and he was told by none other than former president Belaúnde. The measure in and of itself may not have been all that significant because only 20 percent of the nation’s banks remained in private hands in 1987. However, the manner in which García presented it clearly indicated a change of political course. His rhetoric pitted the rich, lazy bankers against the poor, exploited people, and from that point on he began to speak of the “bad” capitalists. He launched a tirade of attacks on the domestic private sector, using precisely the kind of rhetoric he had avoided in the campaign and for the first two years of his presidency.

The private sector’s fragile trust in García and the historically confrontational APRA was undermined. This was exacerbated by the manner in which APRA silently supported the measure, and those members of the party who spoke out against the measure were expelled. Foremost among these was the influential senator Jorge Torres Vallejo, who ironically was the person who launched García’s candidacy as secretary general of APRA in 1983.

The measure marked the beginning of the end. Political polarisation set in, and the government increasingly lost coherence. The then moribund right found a cause and a candidate for its renovation, and latched onto the protest movement against the measure that was launched by world famous novelist Mario Vargas Llosa and his Liberty Movement. The left had no real cause to support the measure or to ally with the highly sectarian APRA. The poor, who lacked savings accounts, were hardly likely to rally to García’s cause. The private sector withdrew its plans for investment as economic policy-making fell prey to political infighting in APRA and to García’s own erratic behaviour. In September 1988, the time when an austerity package was announced, García went into hiding in the palace and did not appear for a period of over thirty days.

“……. slipping away from the rest of the world.”

Although reserves had run out, the government continued to maintain unrealistic subsidies, such as the five-tier exchange rate, funded by a growing fiscal deficit, which fueled hyperinflation. This was exacerbated by the constant resource drain from inefficient state enterprises, whose bureaucracy increased markedly during the APRA government. The combination of hyperinflation and public sector debts that could not be paid resulted in a state that virtually ceased to function. Living standards dropped dramatically as real wages were eroded by inflation, and services for the public, such as public hospital staff, were curbed markedly. By the end of the APRA government, shortages of the most basic goods, such as water and electricity, were the norm. Harvard Economist Jeffrey D. Sachs, on a visit to Lima in June 1990, described the country as “slipping away from the rest of the world.”

To make matters worse, a host of corruption scandals involving APRA became publicly evident at this point. The atmosphere of chaos and economic disorder, the virtual non-functioning of the state, and the perception of corruption in the highest ranks of government and law enforcement all served to discredit state institutions and political parties, particularly APRA.

Economic decline was accompanied by a dramatic surge in insurgent and criminal violence. In addition to violence from the SL and MRTA, there was a rise in death squads linked to the government and armed forces. These included the Rodrigo Franco Command. Deaths from political violence in the 1980s approached 20,000, and in 1990 alone there were 3,384, a figure greater than that from Lebanon’s civil war that year. Peru also ranked as the country with the highest number of disappearances in the world. In the context of political violence and economic disorder, criminal violence also surged

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