President García Comes to Washington on Tuesday with Sierra Exportadora and Peru’s New Path on His Agenda

On October 5, COHA issued an analysis of Peru’s regional foreign policy, including initiatives now being undertaken by recently inaugurated President Alan García. Tomorrow, October 10, President García will be visiting the White House where he is expected to be warmly greeted by President Bush. Among the issues likely to be discussed is Peru’s new Andean commercial exploitation initiative Sierra Exportadora, a project that could ultimately vindicate his political career, depending on its outcome.

On August 24, the Peruvian legislature approved President Alan García’s Sierra Exportadora initiative to cultivate an additional two thousand hectares of niche market crops in the Andean highlands. This would be the first wave of a plan that would allocate $102 million over the next five years for infrastructural investments in the Andean provinces. An additional $4.5 million, under the “Integral Plan of Repairs,” promises to improve the quality of public health in some of Peru’s poorest regions. The expansion of roads and construction of airports, in conjunction with improvements to be made in the public health sector, should boost the area’s productivity. However, García faces a polarized regional environment that may hinder the success of his plan. For example, Venezuelan President Hugo Chávez has casually referred to him as a “Washington lapdog,” and García has responded in kind.

In the campaign leading up to the general election, Washington was somewhat cool on García’s bid for the presidency, as it was in favor of a more pro-business candidate. Now, it feels more than comfortable with him due to his rancorous spat with the Venezuelan leader. Yet, García must walk a fine line, as the success of the Sierra Exportadora program depends heavily on access to foreign markets, preeminently that of the U.S.

¿Qué es Sierra Exportadora?
Sierra Exportadora is part of García’s plan to combat the poverty which presently engulfs 52 percent of the nation’s population. It also conforms with the U.N.’s Truth and Reconciliation Commission mandate to alleviate the destitution found in predominantly indigenous areas. These are volatile regions where poverty poses a significant challenge to Peru’s stability, as some inhabitants have turned to guerrilla warfare, which promises more benefits than the government was able to provide. The last election showed clear class divisions, with rural populations giving their near unanimous support to García’s leftist presidential opponent, Ollanta Humala, himself indigenous. Aware of the resurging social tension in the country, Sierra Exportadora is designed to invigorate some of the country’s most depressed provinces. The provinces of Huancavelica and Puno, with 85.7 percent and 79.2 percent of their respective populations living in poverty, will be the first provinces to receive aid from this project.

In order to guarantee its success, García has created the Decentralized Public Organism (OPD) to coordinate the full integration of rural Peruvian production to the national economy. At its core, García’s Exportadora program will help finance the exportation of agricultural products that are traditionally traded domestically. Also, it will encourage farmers to work in cooperatives as to ensure trustworthy and continuing supply chains. Once this program working at its capacity, the García administration hopes that it will bring 150,000 hectares into cultivation, employ 300,000 Peruvians, and record exports of over 730,000 tons of agricultural products.

Economic Ideologies at Odds
García and his economic minister, Luis Carranza, are both keenly aware of the need for “a shock of investment in favor of the poorest,” but have opposing ideas regarding its implementation. Presently, García shuns the rigidity of neo-liberal stabilization programs by “shock therapy,” which decimated the country’s poor during the 1990s. On the other hand, Carranza has an equally powerful distaste for excessive public spending and other programs that threatens the Nuevo Sol’s stability. With a current budget of $22 billion a year, $102 million over five years seems a reasonable figure for the Exportadora initiative. However, García’s intentions are unnerving for fiscal conservatives. As he vamps up social spending, Peruvians painfully recall the 7500 percent inflation rate that helped destroy his first presidency (1985-1990). In hopes of avoiding his previous mistakes, García has submitted an austerity package that maintains the moderately successful macroeconomic policies of his predecessor, Alejandro Toledo. This new approach, which serves as a compromise for the two competing views, shows potential but is far from being a guarantor of success.

Some agricultural specialists are uncertain about the viability of García’s program. Antolin Huascar, president of the National Agricultural Confederation (CAN), argues that the plan was hastily improvised and doubts that the nation will see the promised results. He is concerned that there has not been an adequate analysis of the agricultural capacity of the regions affected by the proposal. Meanwhile, Humala, now a congressman of the Partido Nacionalista Peruano (PNP), voted against the initiative because it fails to revise international mining contracts, which he views as being overly favorable to multinational corporations. In an attempt to placate Humala, Prime Minister Jorge Del Castillo has announced that international mining companies based in Peru have pledged $776 million to help the government tackle poverty in the Andean departments.

The International Scene
The success of Sierra Exportadora will depend heavily on the status of special trade preferences extended by the U.S. to Peru. These preferences were intended to weaken the Andean nation’s dependence on coca production by eliminating tariffs on traditional agricultural products. In order to preserve its special access to the U.S. market, which is set to expire January 1, 2007, Peru has been pursuing a bilateral free trade agreement with Washington. For the U.S., however, the treaty would be as much a political matter as trade driven.

By simultaneously signing a free-trade agreement with Peru and reviewing Brazil’s status under the Generalized System of Preferences — in which the U.S. exempts developing countries from the 20 percent tariff rate which is applied to most imports — Washington would be giving Peru a competitive advantage in the export of its agricultural commodities. The threatened removal of such preferences is an attempt by the U.S. to pressure Brazil into supporting its plan for regional economic integration. It is yet to be determined how long Brazil’s agro-industry could withstand the loss of such advantages, or what the Lula government will do as a riposte.

Currently, the Peruvian bilateral free trade agreement has stalled as the U.S. Senate questions Peru’s ability to comply with international labor standards. Former President Toledo had signaled that Peru would have no trouble in meeting these benchmarks, an argument García will reiterate when he arrives in Washington on October 10. Although the pact is economically trivial to the U.S., it is of the utmost importance to the Andean region’s perception of Washington’s preparedness to go the mat when faced with competition from Brazil and Venezuela.

Peru Caught in the Middle
García is aware of the possibility of civic conflict and economic unrest caused by privation and inequality in his country, having witnessed the early phases of the Shining Path guerrilla insurgency during his previous presidency. He is therefore trying to minimize the yawning gap between the upper and lower classes. Possibilities for poverty reduction via the Sierra Exportadora initiative are considerable, but will depend heavily on foreign market access. A free trade agreement with Washington thus becomes essential to the program’s survival, but first, Peru must secure preferential agricultural treatment from the U.S. This does not mean that Peru has to become a “Washington lapdog.” Instead, García’s administration should chart an independent path in its foreign relations, including its continuing associate membership in MERCOSUR and the Andean Community. Furthermore, with Carranza expounding orthodox economic policies and a president advocating liberal social spending, Peru could produce some well-balanced solutions that will not necessarily thwart creative populist pressures or disturb the macroeconomic stability of the country. As for García, with some pessimistic observers dismissing his efforts as an attempt to put a human face on his new de facto conversion to neo-liberalism, this balance is not exactly promising. Call it a centrist path, but with Venezuela’s radical populism to the north and Chile’s economic orthodoxy to the south, and with a man of proven inconsistency in the Peruvian presidency, Lima may be hard put to provide everything to everybody.

COHA recently published an article on Garcia foreign policy, you can read the report by visiting the following link: https://coha.org/2006/10/05/welcome-to-washington-mr-peruvian-president-alan
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