PERU is the most recent of the South American countries to adopt a stabilization program and, so far at least, the one where the quickest results have been obtained. In July of last year, faced with a falling currency, a growing deficit both in the budget and the balance of trade, and the necessity to request the International Monetary Fund to suspend credit, President Manuel Prado called in as Prime Minister and Minister of Finance his harshest critic, Pedro Beltrán, publisher of the influential Lima newspaper La Prensa and one of South America’s most articulate advocates of sound money and free enterprise.

The immediate psychological effect was tremendous; the sol strengthened at the mere rumor of his appointment and has remained stable during the ensuing months. Other improvements followed: the rise in the cost of living was halted; the balance of trade climbed into the black for the first time in years, owing not only to a reduction in imports but to an increase in exports. The Central Reserve Bank has already been able to reimburse the IMF, thus paving the way for future credits.

The actual measures by which this reversal of a disastrous trend has been effected have been few but efficacious. Beltrán emphasizes the importance of the restriction of credit and the refusal to resort to the printing press, the maquinita, to meet government obligations. Without the maquinita, Beltrán has been obliged to scrape the bottom of the till, to go after tax evaders, lift subsidies from such essentials as meat, rice, and guano fertilizer, and to switch the funds of various special accounts which had a surplus into the general till.

In order to reduce the size of the bureaucracy, which, as South American republics go, is not enormous, it has been decreed that no vacancies will be filled. Even so, the year ended with a deficit of about $32 million. The 1960 budget, it is hopefully stated, should show a deficit only about one tenth as great, although there is some skepticism about this in informed circles. The budget has not been reduced, but some taxes have been increased, and the institution of pay-as-yougo on the profits tax will provide double revenue in that sector, a bonanza that cannot be repeated. In the future, it is hoped that an expansion of the economy will increase government revenues and make further tax increases unnecessary.

Industrial expansion

Beltrán’s government has taken some striking measures to promote this expansion. The first, politically unpleasant, was to lift to remunerative levels the price of petroleum products and thus encourage further investment.

The second is an industrial promotion law, probably the most liberal in Latin America, which promises not only tax concessions — progressively greater the further the location from Lima and the more the industry falls into the “basic” category — but future tariff protection as well. This last is a major departure in Peruvian economic policy. Peru has hitherto been one of the bastions of free trade in the area. A number of investors are reportedly waiting to see how the new law will be interpreted. Two new mines, one producing copper, the other iron ore, are just coming into production and will further raise the level of Peru’s exports. The new fishing industry, producing some frozen and tinned fish but mostly fish meal, has had a banner year. Peru now ranks fifth among world producers of fish products.

On paper the Peruvian economic situation looks very promising. Peru has a diversity of exports, including agricultural products such as sugar, cotton, and coffee and a wide range of metals, from iron to gold. Inflation has been relatively mild in comparison with that in Argentina, Chile, Bolivia, or Brazil and appears now to be under control. There is a tradition of a free economy; there are no ingrained habits of state control to overcome. The government is businesslike and business-minded.

However, this satisfactory economic picture should not mask the tragic dilemma of Peru. The very rapidity with which recovery was made, the simplicity of the measures needed to bring it about indicate an economy of few complexities and limited social repercussions. But, of Peru’s ten million inhabitants, it is doubtful whether half live within the economic system. The rest, mostly Indians of the high sierras and some few in the Amazonian forests, rarely see money from one end of the year to the other. Most of them are illiterate.

The poverty of the highlands

According to a report of the United States Point Four Mission, these Indians are among the most underprivileged people in the world. Their diet contains less than 2000 calories a day, although most of them are living and working at cold heights of over 9000 feet. They cultivate minute plots of land on the steep Andean slopes or are attached like serfs to vast estates. For this half of the population, acts of God, like droughts and earthquakes, of which the violent Peruvian earth is prodigal, are more important than budgets and balances in Lima.

By contrast, laborers in the mines, the oil fields, and the coastal haciendas producing cotton and sugar for export are privileged. They receive a wage — less than fifty cents a day minimum in the sugar region — a house of sorts, some staple foods, elementary schools, and medical care.

This situation has existed since the time of the Conquest. What is new, however, is various factors which make the situation potentially explosive. World sympathies have shifted in favor of the underprivileged. The Bolivian revolution next door, however unsatisfactory, is a continuing example that it can happen in Peru. Most important of all is the familiar evil, the population explosion. Peru, with only 3 per cent of its land under cultivation — about half an acre a person, of which a significant part is devoted to export crops — cannot feed these constantly increasing legions. There was a 45 per cent increase in the population between 1940 and 1958.

There is thus an increasing pressure for people to move from the highlands toward the coast. Shantytowns spring up overnight on the outskirts of Lima and other cities. Although there is little work for the unskilled labor from the hills, as one migrant put it, “At least here there is someone to beg from.”

Irrigation would help solve the problem. But since such projects are costly, they are more apt to concern land for the industrial production of export crops than for the small subsistence farmer. Various schemes for developing the lush Amazonian slopes have been put forward, but access is difficult. However, credit to build an all-weather road into the heart of the area at Pucalpa has just been granted by the World Bank and American agencies. Meanwhile, the Indians of the Titicaca region have undertaken a trek of their own. Descending from their heights twice a year to the rich subtropical lands below, they plant and harvest coffee which they then carry out on their backs over the dizzy mountain trails where no one but themselves can find a footing.

New hopes, old weaknesses

Several international agencies are at work trying to alleviate matters: among others, the Maryknoll Fathers, the United Nations Technical Assistance Board, the International Labor Organization, and our own Point Four. The latter is active in many fields, particularly agriculture, health, and education, and is remarkably successful on a minimal budget. Within the Peruvian government structure some 2700 Peruvians are working in collaboration with 70 American technicians; for every dollar the United States contributes, Peru spends nearly three.

Valiant as this effort is, it falls far short of the need. To the extent that it opens new horizons and creates new aspirations and desires without immediate possibilities of fulfillment, it increases the tensions within the social structure.

The problem is, of course, essentially one for Peruvians to solve. No foreign agency, however well endowed with money and good will, would presume to interfere with the patterns of Peruvian society. And this society is as conservative as any in the Western world today.

The power elite

It has become axiomatic to say that thirty or forty families rule Peru, a tightly knit oligarchy whose composition and methods of control have changed little since colonial times. They own most of the land, the banks, the press, commerce and industry, and many of the mineral resources. There is an almost unbridgeable gap between them and the small but emerging middle class. The middle class regards with illdisguised disdain those lower on the ladder, the cholos, or mixed bloods, who in turn disdain and exploit the illiterate Indian.

The survival of this power elite through revolution, war, and modern social ferment is a remarkable phenomenon. Their varying interests clash at times — this is the essence of Peruvian politics — but they have not found it difficult to dominate a colonial economy based on abundant, cheap, and submissive labor, divided by some of the most forbidding landscape in the world into small inaccessible units. Great deserts separate the fertile coastal valleys from each other, and the barrier of the Andes protects the rich coast from the poverty of the highlands. There is the apparatus of democracy in Lima, but it hardly goes further. In the hinterland, not even municipal councils are elected. All authority stems from Lima.

Challenge to the oligarchy

The only serious political challenge the Peruvian oligarchy has had to meet in this century has come from the APRA (Alianza Popular Revolucionaria Americana). This party was formed in exile in 1924 by Victor Raúl Haya de la Torre, with a program at that time resoundingly Marxist, revolutionary, and specifically anti-American. It emphasized the continent’s Indian heritage and would have liked it to be called IndoAmerica instead of Latin America.

It had ambitions to envelop the whole region, but has never been active anywhere but in Peru. Here its clientele is drawn from the pro, fessional middle classes, imbued with liberal ideas from abroad, and the workers. Its early history was marked by violence, it has often been outlawed, and its leaders have spent part of their lives in exile or in jail.

Contrary to most revolutionary movements, however, this one has grown milder in the heat of battle. It can no longer be labeled as anything but moderately left. And it is firmly anti-Communist, even to the point of throwing out members whose sympathies are with the Communists. Next to the army, it is probably the most effective antiCommunist force in Peru. Its antiAmericanism has long since been toned down, and it now welcomes enlightened investors and employers. On the key question of agrarian reform, it opposes sweeping, doctrinaire solutions and wants to adapt reform to the economic and social patterns of the various regions.

The APRA has traded its support of the present Prado government for the right to a legal existence. Both sides have kept their bargain, although neither has gone beyond it. The extent to which APRA’s new role as a pillar of constitutional government has lost the party support among the young and the desperate is difficult to evaluate. It is, however, the only organized party in Peru, the only one with a clear-cut policy and doctrine. Other “parties,”such as Prado’s own Movimiento Democrático Peruano or Acción Popular, led by Fernando Belaunde Terry, are movements rather than parties, emphasizing personality rather than policy. The emerging responsibility of the APRA party is one of the most encouraging aspects of Peru today.

Meanwhile, Peru is enjoying as stable and democratic a regime as it has known in a long time. The new Prime Minister, Beltrán, is, even in the opinion of APRA, more “socially sensitive" than most of those of his caste and position. His present emphasis on sound finance is considered to be only the indispensable prelude to future development in the fields of housing, education, and agricultural improvement.