The Garcia Government, 1985-90

By 1985 Alan Garcia Perez and APRA were well-positioned to win the presidential elections. Garcia 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 Peru," and with slogans such as "my commitment is with all Peruvians." His attacks on neoliberal economics were directed primarily at foreign capital and the 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, Garcia also was perceived as the mat menor, or lesser evil, by the private sector, as opposed to the Marxist left. Finally, even conservatives recognized the need for reform in Peru by 1985, given the increasing presence of the SL. Garcia defeated Alfonso Barrantes of the IU, taking 47.8 percent of the vote versus 22.2 percent for the IU.

A run-off election (required if an absolute majority is not attained) was not held because Barrantes declined to run. The first two years of the APRA government were a honeymoon of sorts. Garcia enjoyed unprecedented popularity ratings of over 75 percent, owing in part to his populist personality and oratorical talents, and in part to the concertacion strategy 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 Garcia and his concertacion strategy cautious support.

By mid-1987 it was clear that concertacion had run its course, and a change of emphasis was necessary. At the same time, Garcia was also under pressure from the left and from some sectors within his own party to implement more radical structural change. In June 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.

Garcia at this point opted for a radical measure that was intended to retake the political initiative from his rivals. In his annual independence day address on July 28, 1987, Garcia announced the surprise nationalization 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 Sanchez, learned of the measure just prior to Garcia' s announcement, and he was told by none other than former president Belaunde.

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 Garcia 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 Garcia and the historically confrontational APRA was undermined. The situation was exacerbated by the manner in which APRA silently supported the measure and by the fact that 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 had launched Garcia 's candidacy as secretary general of APRA in 1983.

The nationalization of the banks marked the beginning of the end. Political polarization 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 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 Garcia' s cause.

The private sector withdrew its plans for investment as economic policy-making fell prey to political infighting in APRA and to Garcia' s own erratic behavior. In September 1988, the time when an austerity package was announced, Garcia went into hiding in the palace and did not appear for a period of over thirty days. 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. The situation 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 had 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. 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 nonfunctioning 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 such deaths, 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.

2006 - Alan Garcia Perez

In 2006 the presidential race came down to a run-off between Alan Garcia and Ollanta Humala. Humala controls the south, with at least 60 percent support throughout the southern coast and highlands; much higher than the polls report. Considered a radical leftist twenty years ago, next to Humala, the newly transformed Garcia now comes across as a moderate. Promising to represent the poor, as well as international investors, business leaders and property owners, he says he can decrease Peru's wealth gap while maintaining macroeconomic stability.

APRA candidate Alan Garcia Perez won the 04 June 2006 runoff presidential election with 52.5% of the vote, defeating Ollanta Humala, who won the first round under the Union for Peru party banner, with the support of his Peruvian Nationalist Party. APRA also won 36 congressional seats and controlled the largest voting bloc.

After his disappointing presidential term from 1985 to 1990, Garcia returned to the presidency with the intention of turning around the perception of him that his first term had generated. After his famously disastrous first term as President, with hyperinflation, negative growth, increased poverty and massive capital flight, Alan Garcia settled for a very conservative management of the economy in his second try as president.

Generating an economic climate propitious for foreign investment and currying the favor of markets became his government’s overarching priorities. Those policies, coupled with a stroke of good luck (in the form of high international prices for the commodities that Peru exports such as cooper, zinc and silver), blazed a trail of remarkable economic growth. During his second term, Garcia oversaw a robust macroeconomic performance, including strong GDP growth and declining poverty levels (39.3% of Peruvians were “poor” in 2007, 36.2% in 2008, and 34.8% in 2009).

By February 2009, the half-way point in President Garcia's term, the political balance was mixed but positive overall. On the plus side, Garcia demonstrated sound economic and disciplined fiscal management, including in the face of the global crisis. He conducted a pragmatic foreign policy, whose centerpiece was the U.S.-Peru Trade Promotion Agreement (PTPA), while seeking to strengthen Peru's ties with like-minded neighbors and key European and Asian partners. These accomplishments, coupled with a mild leftward shift, fueled a rise in the President's poll numbers.

On the other side of the ledger, notwithstanding the government's expressed intentions and political will, weak institutions continue to hamper public service delivery and to complicate Garcia's ability to confront thorny problems, including drug trafficking and terrorism. In addition, an ongoing eavesdropping scandal caused the government further problems. Garcia's challenge remained clear: expand the system's reach and representation, and thereby reduce the political space for the many anti-systemic elements plotting for 2011.

Garcia faced the most acute crisis of his second term in June 2009, when indigenous protesters and police clashed violently nearly the remote Amazon town of Bagua. The conflict left 10 protesters and 24 police officers dead, and caused a dramatic drop on Garcia’s approval rating. Internationally, Garcia sought to reenergize Peru’s international relations and economic relations with the world and to showcase Peru's democratic and pro-free trade path as a model for the region. He successfully hosted two international summits in 2008, the European Union-Latin America and Caribbean summit and the Asia-Pacific Economic Cooperation (APEC) leaders’ summit, and the Organization of American States General Assembly in 2010. The U.S.-Peru Trade Promotion Agreement (PTPA) went into effect in February 2009.

In 2009, about 400 drug-traffickers were released from prison, as part of the massive reprieves and reduction of sentences applied to 5,000 prisoners under García's government. This dubious policy, linked with other potential corruption cases during García's second mandate (2006-2011), rased the interest of a parliamentary commission created under the successor president's government.

The García administration was elected on a platform that sought to implement social and political reforms and to provide continuity to the macroeconomic stability of the preceding years, as well as solidifying Peru’s relationships with its international partners. President García adopted policies that brought Peru closer to the United States and other developed economies, seeking to consolidate the existing relationships and sign trade agreements with these countries. President García also sought to achieve economic development for all Peruvians while ensuring economic and political stability. During President García’s term in office, Peru signed free trade agreements with the United States, Canada, Singapore, China and Chile, and continued with market-oriented policies that spurred economic growth.

Although he purposely placed himself on the left of the political spectrum, in office he governed squarely on the right, such that Peru under Garcia was not conventionally grouped as part of the Left turn in Latin America.

Peru's former president Alan Garcia died in a Lima hospital 17 April 2019 after he shot himself in the head as police were about to arrest him in connection with a corruption case. García was under investigation for bribes allegedly paid during the construction of Lima's metro during his 2006-2011 government. He had denied ever receiving money from Odebrecht, which is at the center of Latin America's biggest corruption scandal after admitting in a 2016 plea agreement with the US Justice Department that it paid corrupt officials across Latin America nearly $800 million in exchange for major infrastructure contracts.

García, 69, was a populist firebrand whose erratic first presidency in the 1980s was marked by hyperinflation, rampant corruption and the rise of the Shining Path guerrilla movement. When he returned to power two decades later he ran a more conservative government, helping usher in a commodities-led investment boom in which Odebrecht played a major supporting role.