Flair, Firmness And Ideas

By Michael S. Serrill

The noontime sun beat down on a weather-beaten throng of 20,000 assembled in the dusty market town of Casa Grande. Normally toiling in nearby sugarcane fields, the villagers stood in the withering heat waiting for an apparition from the sky. As a whining white air force helicopter came into view, the crowd spotted the broad, beaming face of President Alan Garcia Perez, waving a white handkerchief in greeting. "Alan!" thundered the crowd as the helicopter set down in a swirl of dust. "Alan! Alan!"

After wading to the platform through a sea of outstretched hands, the lanky, self-assured Garcia, 36, delivered the kind of rousing, nationalistic exhortation that audiences across Peru have come to expect. "A government of the people," he declared, "is a government where the people produce their own history." In countless speeches in the countryside, in the slums of Lima and from the balcony of Government Palace, Garcia has spread the same message: the 19 million people of his hardscrabble country can shape their own destiny, even in the face of desperate poverty.

In office a mere six months, Garcia has already established himself as one of the most admired and influential leaders in Latin America. Part preacher, part pedagogue, he is praised for injecting new vigor into a crippled government and moribund economy. In addition, he has shaken boardrooms from Wall Street to Tokyo with his defiance of the multinational banks that hold many of Latin America's burdensome loans. His July inauguration made front-page news in Western capitals when he used it to announce that Peru would spend no more than 10% of its export earnings for interest and principal payments on its $14 billion foreign debt. Said he, with a typical rhetorical flourish: "President Alan Garcia, may the world hear me, knows that Peru has a first great creditor--its own people."

With his bold declaration, the young leader had spawned a new idea: that he and other Latin American leaders had a right to limit the sacrifices of their countrymen. And while bankers have been relieved that no other South American country has yet adopted Peru's guideline, several have followed Garcia's lead by stiffening their resolve not to let their debt problems further damage either their national pride or their fragile domestic economies.

If proof was needed that Latin America's $360 billion debt burden is a time bomb with unpredictable implications, politically as well as economically, it came last week in Argentina, where a visit by retired Chase Manhattan Bank Chairman David Rockefeller touched off the most serious street violence since the country's return to democracy more than two years ago. Rockefeller, whose former employer remains a major Argentine creditor, was in Buenos Aires to discuss Latin American economic development. Seven people were injured and 81 arrested when 1,500 leftist demonstrators hurled rocks and eggs, smashed windows and set fires to protest what one group called "our dependence on North American imperialism." The continent's debt was also on the agenda last week in Washington, where Ronald Reagan praised visiting Ecuadoran President Leon Febres Cordero for his handling of the problem, calling him "an articulate champion of free enterprise."

While Peru's combative Garcia is not likely to receive any such encomiums, he has so far gone out of his way to avoid picking a direct fight with the U.S. Even when he nationalized the Peruvian assets of a U.S. oil company in December, he insisted that he was not taking a swipe at the U.S., but meting out economic justice. The company, Belco Petroleum Corp. of New York, had refused to go along with Garcia's demand that it pay millions of dollars in taxes it had "illegally" avoided, increase its tax burden to more than 68% and reinvest more of its profits in Peru. On the debt question, Garcia has aimed most of his barbs at the International Monetary Fund, calling its policies "incoherent" and based on "colonial" concepts. The IMF generally imposes stringent austerity measures on debtor countries in exchange for easier payment terms. Garcia has declared a moratorium on all private debt payments until at least Jan. 31 and has refused to get the IMF involved in negotiating new terms. The new President says Peru will pay ("because we are honest"), but on its own terms. However, at a meeting between the banks and a Peruvian official in New York last week, the mood, said one banker, was "conciliatory."

Even if Garcia backs off a step or two on the volatile debt issue, it is unlikely to tarnish his shining image at home, where he has become a national hero because of his moves to improve salaries, housing and food supplies and, in general, to re-establish respect for a crumbling government. He has done all this with the kind of flair that invites comparison, in its populist flavor, with Argentina's late Juan Domingo Peron or Cuba's Fidel Castro. A recent poll by Economist Felipe Ortiz de Zevallos gave the new President a 79.6% "good" or "very good" rating among residents of Lima, the sprawling capital. Only .8% deemed his performance "bad" or "very bad."

Garcia has of course benefited considerably from the weakness of his predecessors. The military regime that ran the country from 1968 to 1980 sowed the seeds of the current crisis by borrowing heavily from abroad for prestige projects and by creating bloated new state enterprises that soaked up scarce government funds. Under the democratic government that followed, led by Fernando Belaunde Terry, now 72, things went from bad to worse. External causes were partly to blame. Low world prices for copper, silver and zinc helped reduce Peru's export earnings from $3.9 billion in 1980 to $2.9 billion in 1985. Fishing and agriculture were severely damaged when the meandering Pacific current called El Nino caused heavy rains and flooding. At one point, as many as 65% of Peru's potential workers were either unemployed or working only part time. Annual per capita income plunged to a 20-year low of less than $1,000. At the same time, Belaunde's government was assaulted by twin devils in the form of an insurrection by Maoist guerrillas who go by the name Sendero Luminoso (Shining Path) and a vast expansion of demand for Peru's abundant coca leaves, which now feed an illegal cocaine trade estimated at $800 million a year. Belaunde's response to this series of catastrophes was seen as lethargic and defensive. The fast-moving Garcia, a member of the center-left Popular American Revolutionary Alliance, seemed the perfect antidote.

Despite his rhetoric, Garcia has successfully imposed an economic austerity program as tough as any the IMF might envision. In his first month in office, he froze prices of consumer goods and rents indefinitely and devalued the sol by 12%. The result: a decline in the annual inflation rate from 192% to 30%. He slapped import restrictions on food and luxury goods and raised the minimum wage by 50%, to about $40 a month, giving teachers a 22% hike and other government workers 15%.

A hallmark of Garcia's program has been his vigorous attack on inefficiency and sloth. In recent weeks he has been engaged in a running argument with Peru's civil servants, who have resisted his effort to curb the five-hour workdays that have become traditional during the hot months, from January to March. The new President was even bold enough to attack extravagance in the pampered military, slashing an $800 million deal to purchase 26 French Mirage jet fighters back to twelve.

Garcia has been less surefooted in dealing with the relentless but ragtag Shining Path insurgency, which has killed more than 6,000 in five years. To weaken the rebels, he has promised new economic aid to the poverty-stricken Andean region where they are based, and created a Peace Commission to establish a dialogue with their leaders. Though it is by no means clear that government programs are responsible, military officials last week reported "a certain tranquillity" in the eleven-province emergency zone in which the guerrillas are most active.

Whatever their other differences, U.S. and Peruvian officials are united in the war against drugs. Joint U.S.-Peruvian antinarcotics teams have recently taken out of service 28 airfields used to fly coca leaves to Colombia for processing. Government estimates indicate that eradication of coca plants last year nearly doubled. "We are a long way from getting a handle on the problem," says a U.S. official. "But the program is not doing too badly."

That might be an apt description of Garcia's first six months in office. But if his greatest gains have been psychological, that is no mean accomplishment. "Peru, once the seat of the Inca Empire, is a country with a history," U.S. Assistant Secretary of State Elliott Abrams told a House subcommittee in November. "What Alan Garcia has said to his people is that Peru is also a country with a future. He has helped Peruvians to believe that they can better their fate." The test now will be to see if Garcia can convert the positive feeling he has generated into lasting economic progress. --By Michael S. Serrill. Reported by Gavin Scott/Lima

With reporting by Gavin Scott/Lima