When speak- ing of the oligarchy in Peru or elsewhere in Latin America, one automatically thinks back to the beginning of the twentieth centu- ry. Until the late 1920s, Peru's eco- nomic, political Corporate headquarters of the Banco de Credito, Peru's largest financial group, in Lima. and social land- scape was completely dominated by the landed oli- held sway in a country that was primarily n garchy, which included the owners of huge sugar planta- small cities and a tiny middle class. The o tions on the coast and the landlords who ruled over semi- important economic actors were foreign comp feudal haciendas in the Andean highlands. The oligarchy Standard Oil and W.R. Grace that dominated ki Carlos Reyna is a sociologist andjfi Center for the Study and Promotic He is a regular contributor to the I Translated from the Spanish by NA rural, with nly other anies like ey sectors of the economy such as oil, banking and mining. The journalist at the Lima-based n of Development (DESCO). state was a skeletal administrative apparatus, and the imonthly magazine, Quehacer. armed forces and the Congress were firmly subordinated 1CLA. to the interests of the oligarchy. Elections were held, but 32 NACLA REPORT ON THE AMERICAS 4 4 0 4 4 32 NACIA REPORT ON THE AMERICASREPORT ON WEALTH women and illiterates were denied the vote, which effec- tively excluded large segments of the indigenous popula- tion. By the 1920s, though anti- oligarchic sentiment was brewing in the emerging trade union movement and reformist political parties, the old oligarchy held onto the illusion that it ruled over an eter- nal society, that struggles between social classes were nonexistant, and that politics was its exclusive domain. Gradually, however, through a long process of social and political struggle that culminated with the reforms implemented by the nationalist military regime of Gen. Juan Velasco Alvarado (1968-75), the old Peruvian oli- garchy was displaced. But the dreams of the anti- oligarchic forces that economic progress would come through state-led industrialization also turned out to be More than five decades of social struggle brought an end to the domination of Peru's old landed oligarchy. Thanks to the neoliberal counterreforms imposed by the Fujimori government, wealth and political power have again become highly concentrated, leading to the consolidation of a new oligarchy in Peru. illusory, giving way to the emergence of a new constellation of socio-economic and political forces in the 1990s favoring free- market policies. Thanks to the neolib- eral counterreforms imposed by the gov- ernment of Alberto Fujimori, wealth and political power have again become highly concentrated, lead- ing to the consolida- tion of a new oli- garchy in Peru. While the old oli- garchy derived its wealth primarily from the land, this new oli- garchy consists of a small number of grupos, or huge con- glomerates, with di- versified business holdings in mining, banking, fisheries and construction. Until the recent counter- reforms in the agrarian sector, the new oligarchy has not been widely involved in agriculture. Also unlike the old oligarchy, the new oligarchy prefers to avoid a direct role in politics (though a few key business lead- ers have held important posts in Fujimori's govern- ment). The new oligarchy is also more dependent on foreign capital, which has again come to play a pre- dominant role in the economy, particularly after the wave of privatizations since 1990. But this dependency doesn't seem to bother Peru's grupos, even though it means that they must operate in an economy that is increasingly controlled by outside interests. For this new oligarchy has its own illusion: that progress-both its own and that of Peru as a whole-depends on for- eign investment, which in turn depends on consolidat- ing a radical free-market economic regime. This free-market neoliberal ideal has become power- ful in Peru at least in part because of the dramatic fail- ures of the state-led model of import-substitution indus- trialization (ISI). The social and political reformers that fought against the oligarchy in the 1920s and 1930s shared a belief, common in Latin America at the time, that the path to progress passed through heavy state protection of industry. Such protectionism did redistrib- ute national income downward to some degree and pro- vided the social basis for the development of the trade union movement. But it also promoted lopsided devel- opment that favored the city over the countryside, and often lapsed into periodic balance-of-payments crises and bouts of inflation that led to widespread protests. When these crises emerged, the ISI reformers- whether they were linked to civilian or military regimes-pirouetted to the right with austerity mea- sures to reduce their deficits and to states of seige to maintain public order. This was the case not only under the reformist military regime, but also under civilian reformist governments like that of Alan Garcia (1985- 90). When Garcifa's demand-led economic boom went bust in 1988, for example, his government reverted to harsh austerity measures in an attempt to reduce the deficit and beat inflation. The measures failed and hyperinflation surged, dramatically cutting back real salaries and living standards of ordinary Peruvians. By the end of the Garcia period, Peruvians were increasingly skeptical of the reformist parties that had governed for the past 30 years and their discourse about the benefits of industrialization, protectionism, agrarian reform and democracy. As a result, many Peruvians were receptive to the hard-hitting neoliberal discourse attacking the statist ogre as the source of all Peru's evils sounded by Mario Vargas Llosa, the leading candidate in the 1990 presidential elections. But fears of harsh structural-adjustment measures, coupled with Vargas Llosa's growing identification with unpopular members of the conservative political establishment, led to an upset victory by political novice Alberto Fujimori, who highlighted his political independence from Peru's political and economic elite and promised a gradual economic adjustment strategy. After winning the presi- dency, however, Fujimori applied an extremely harsh adjustment program, known popularly as the "Fujishock," that liberalized basic prices and the VOL XXX, No 6 MAY/JUNE 1997 33 VOL XXX, No 6 MAY/JUNE 1997 33REPORT ON WEALTH exchange rate. The measures worked in slashing inflation, which dropped from 7,649% in 1989 to 10.5% in 1995, but at the cost of dramatic increases in poverty, malnu- trition and un- and underemployment. With these measures, the business elite for- got its qualms about Fujimori's Japanese ori- gins and his populist rhetoric and became one of his staunchest allies. For example, the gru- pos firmly backed Fujimori's April 1992 autogolpe, or self-coup, in which he closed Congress, suspended the Constitution and granted the military a blank check to repress guerrilla groups-measures the economic elite saw as essential to establishing a stable business climate. Despite the return to consti- tutional rule with new congressional elec- tions in 1992 and a constituent assembly in 1993, real power remains concentrated in the hands of the executive. This allows the Fujimori regime to assure the continuity of its neoliberal reforms, thereby appeasing both the local business elite and multilateral lend- ing agencies like the International Monetary Fund (IMF), whose nod of approval is crucial in assuring the flow of foreign loans and investment that keep the entire neoliberal Dionisio R economy afloat. Banco de The neoliberal regime has facilitated a new con- centration of wealth in Peru which actually began in the late 1980s with hyperinflation. High inflation depreciates the price of labor, resulting in a transfer of real wages from salaried workers to proper- ty owners. By 1990, after three consecutive years of hyperinflation, real wages were 18% their 1973 value. But the shock treatment applied between 1990 and 1992 to bring down inflation also helped concentrate wealth upwards. The goal of economic adjustment is to cut back consumption by allowing prices, interest rates and exchange rates to free-float to their "true" levels by cutting subsidies and abolishing all price controls. The end result is the same: the slashing of incomes, and therefore the living standards, of the nonpropertied classes. Not all of the high-end economic groups bene- fit from inflation and posterior structural-adjustment policies, however. Those groups that depend more on the internal market, such as industrialists and agrobusi- nesses, are harder hit than export industries like mining and fishing, or the banking sector, which can frequently convert its debt into equity. Indeed, those grupos who owned banks were better placed than those that didn't during the structural-adjustment period, since they were able to seize assets from debtors, move capital from one 34 omero leads the Grupo Romero, owner of Peru's largest bank, the Credito. sector to another, and multiply their ability to turn assets into money. Structural adjustment was just the first phase, how- ever, of a broader neoliberal program that has made the wealthiest groups in society even wealthier. And just as the gains from the "Fujishock" were selectively distrib- uted, not all of the economic grupos benefited equally from neoliberal reforms. Free-market policies have seriously undermined the industrial sector, while con- sistently favoring two other sectors of the economy: primary-product exports and the financial sector. Neoliberalism has thus helped displace some grupos in favor of others, while helping new ones emerge. Grupos linked to the export of primary products like tin and copper, fish products and some agricultural goods have been favored by the neoliberal economic model. But because the prices of these goods are highly sensi- tive to competition and changes in the international market, Peru's grupos have been forced to diversify their investments into other sectors. Many, for example, have become active in the banking and financial sector, and some have merged with or participate in joint ven- tures with transnational companies. This can be clearly seen by briefly examining the tra- jectory of two of Peru's most important grupos, the NACLA REPORT ON THE AMERICASREPORT ON WEALTH Grupo Brescia and the Grupo Romero. Fortunato Brescia, leader of the Grupo Brescia, is an Italian immi- grant who made his initial fortune in the real-estate industry in the 1940s. His son, Pedro Brescia, expanded the family's holdings to mining and manufacturing. In the era of greatest state assistance and protection of national industry, the Grupo Brescia controlled La Uni6n, one of the largest textile complexes in Peru, making the grupo one of the most formidable in the country. The free-market reforms of the 1990s, however, seriously undermined La Uni6n's viability as radical tariff reductions and the establishment of a free-floating exchange rate brought a flood of imports into the country. With government subsidy cutbacks, local manufacturers like the Grupo Brescia were hard hit, and many industrialists were bought out by larger grupos with greater staying power. Even the most sol- vent industrial grupos were forced to merge with for- eign companies to avoid going under completely, and many switched gears altogether, abandoning their activ- ities in industry to become importers. The Grupo Nicolini, for ex- ample, which used to be a leader in the Peruvian food industry, is now one of the coun- Dionisio Romero, try's top importers. one of Peru's The Grupo Brescia was wealthiest men, adeptly switched from the nationalist ideology that brought him fortune in the 1970s to the globalism of the neoliberal model. able to regroup, howev- er, because it retained control of some of the country's key mining companies. One of those companies, Minsur, Peru's largest tin producer, has been one of the Brescia Group's most profitable ventures. In 1995 alone, Minsur earned $47 mil- lion, and it was the twelfth-most profitable export industry in the country. Neoliberalism has clearly favored the development of the pri- mary-product export sector, especially min- ing, by granting this sector special benefits such as tax cuts, complete access to the foreign exchange they generate and even a tax-and-tariff moratorium. These benefits were justified, according to the govern- ment, because this sector generates foreign exchange and attracts foreign investment. The Grupo Brescia has also taken advantage of the opportunities for private investment that were opened up by the privatization process. In 1995, the Brescia family won a bid with the Spanish bank, Banco de Bilbao y Vizcaya, for control of Banco Continental, the third- largest bank in the country. In 1994, when the Banco Continental was still a state-owned bank, its profits were a few million dollars. After being privatized a year later, its profits shot up to an amazing $46 million. Profits are estimated to have reached $50 milllion in 1996, which would make it the country's second-largest bank. The neoliberal reforms applied after 1990 opened up new frontiers of investment for the powerful Grupo Romero, which owns the Banco de Cr6dito, Peru's biggest bank. Dionisio Romero, the founder of the Grupo Romero, had consolidated his empire under the reformist military regime in the 1970s. He used nation- alist-inspired legislation on bank ownership, for exam- ple, to out-leverage the Italian owners of the Banco Italiano, which later became the Banco de Cr6dito. The first set of financial measures implemented under the neoliberal regime greatly benefited financial giants like the Grupo Romero. The dissolution of the state-run development bank and the creation of new regulations that effectively forced public savings-and-loans coop- eratives to go bankrupt, for example, resulted in a huge transfer of capital to the private commercial banks and, therefore, to the grupos who own these banks. In addi- tion, the neoliberal dictum that interest rates should be allowed to float to their "natural" free-market levels has proven-in the short run at least-to be very profitable to the banks. And Romero has been adept at switching from the nationalist ideology that brought him fortune in the 1970s to the globalism of the neoliberal model. His Banco de Cr6dito, which had accumulated net prof- its of approximately $110 million in 1996, was one of the first Peruvian companies to sell stock on the New York Stock Exchange. The Grupo Romero has also astutely exploited the opportunities afforded by the privatization of state- owned enterprises and of the state-run social-security system. In partnership with Chilean and Spanish capital, the Grupo Romero purchased Edelnor, the company that distributed electric energy. Like other state-owned enterprises that have been privatized, the purchase pack- age included certain conditions to assure profitability. When purchased, for example, a significant number of Edelnor's employees had already been fired, which not only cut production costs but effectively weakened the trade union's bargaining capacity to demand future ben- efits. A program of rate hikes had also been put in place before the company was privatized. VOL XXX, No 6 MAY/JUNE 1997 35 VoL XXX, NO 6 MAY/JUNE 1997 35REPORT ON WEALTH Again in conjunction with Chilean capital, the Grupo Romero established a private pension-fund administra- tion company (AFP) named Uni6n. Originally, the AFPs were supposed to compete on equal terms with the state-run pension system, but several measures have been set up to make the AFPs a more attractive option to workers. For example, workers are required to pay 13% of their salaries to the state-run pension system, but only 12% if they are affiliated with an AFP. The AFPs are such profitable investments that virtually every grupo has stock in an AFP. Controlling AFP stock, moreover, allows a grupo to decide how to invest the funds channeled through these private pension funds. While the Romero and the Brescia Groups are among the most powerful and wealthy in the country, the profits they have made thanks to neoliberal eco- nomic policies pale in comparison to those garnered by transnational companies that operate in Peru. The U.S.-based Southern Peruvian Copper Corporation, for example, which owns the princi- pal copper-mining company in Peru, earned profits in 1995 of $254 million. In the same year, the Spanish-owned Telef6nica, A man protests the Fujij which scooped up much of Peru's neoliberal policies, whic telecommunications industry after and underemployment. it was put on the privatization block, earned $314 mil- lion. eru over the past few years has been touted as a neoliberal success story. Thanks to the strict application of free-market policies, advocates claimed, hyperinflation was licked, economic growth was on the upswing, and foreign investment was return- ing. After his reelection in 1995, Fujimori was riding a strong wave of optimism. In his inauguration speech he announced a "leap toward the future," affirming that 1994's 13% growth rate was proof positive of the soundness of the neoliberal model. By mid-1996, his partisans within Congress were preparing a law that would allow him to seek a third term, despite a consti- tutionally imposed two-year limit. hm. h Five years after the autogolpe, however, the illusion of progress brought by foreign investment and the free market has started to dim. Prior to the drawn-out hostage crisis which ended on April 22 with much heroic posturing and the freeing of the high-profile hostages at the residency of the Japanese ambassador to Peru, Fujimori's popularity rating had already begun to decline. While he had a 74% approval rating in January, 1996, that figure had dropped to 41% on December 15, just two days before the MRTA action. This was partly because economic growth had slowed to an annual rate of 2.8%, down from its high spurts of 13% and 7% in 1994 and 1995 respectively, and little had been done to alleviate poverty or provide sustainable jobs for Peru's poor majority. Fujimori's declining popularity is due to the fact that the regime of wealth and power concentration that he has until now identified himself with is increasingly seen by ordinary Peruvians as not only unjust and inequitable, but also unworkable. Just as they withdrew their support of the reformist par- ties after their state-led economic model proved unviable, Peruvians are now withdrawing their support ori government's of Fujimori. But Fujimori is, have exacerbated un- above all, a highly pragmatic man. Perhaps he will redefine his priva- tization and liberalization policies in order to shore up his slipping popularity. It took five long decades, from the 1920s through the 1960s, to get rid of the old landed oligarchy and its dreams of eternal wealth and power. The way things are going, it seems highly unlikely that the new oligarchy will be able to maintain its neoliberal regime for half that time. The problem, of course, is that a political project capable of articulating the demands of civil society and including those demands in a new proposal of democra- tic and equitable national development has yet to appear on the Peruvian horizon. But the supressed popular demands that have been accumulating over the past sev- eral years will surely serve as the boiling point for the emergence of that new alternative. It's just a matter of time.
