Peru

Current Political and Economic Issues Political Situation. On June 4, 2006, former President Alan García defeated populist Ollanta Humala 53% to 47% in a close election. García won in the second round after garnering support from Peru’s business community, which had been reluctant to support him in the first round. President Alan García has taken steps to assure the international financial community that he is running Peru as a moderate rather than as the leftist he had been in his early career. President García seems to have embraced sound economic policies, and the Peruvian economy has continued to perform well. However, his government has faced periods of social unrest and popular protests over lingering concerns about poverty and inequality. Key political challenges facing the García administration include: ! Reducing poverty and inequality. According to the World Bank, the wealthiest 10% of the Peruvian population control 41% of the country’s income whereas the poorest 10% control just 1% of the income. In recent years, Peru has seen rising popular demands for a solution to economic inequality. Poverty is more prevalent among indigenous households at 63% compared to 43% among non-indigenous households. President García has pledged to increase public investment and social spending in order to reduce poverty and inequality, but has struggled to meet popular expectations. Counternarcotics policies. The government has increasingly relied on forced eradication to reach its coca eradication targets, which has in turn produced violent clashes between coca farmers and police. In 2006, the government eradicated 12,688 hectares of coca, making it the second year in a row that it surpassed its goal of eradicating 10,000 hectares.8 Former Shining Path guerillas have reportedly been involved in coca growing and in providing security for drug-traffickers in Peru.9 Economic Issues. President García has continued the pro-market economic policies of his predecessor, Alejandro Toledo, who presided over one of the highest economic growth rates in Latin America throughout his term, with 8% growth in 2006. García has embraced the U.S.- Peru Trade Promotion Agreement (PTPA), appointed a fiscally conservative finance minister, and cut government pay. Economic growth has been fueled by Peru’s strong exports of minerals, textiles, and agricultural products such as sugarcane, potatoes, and asparagus. Peru is the world’s second largest producer of silver and sixth largest producer of both gold and copper. It is also a significant producer of zinc and lead. The Peruvian economy has been boosted by U.S., Brazilian and Argentine investments in the Camisea natural gas project, which by 2009 is expected to be exporting liquified natural gas to the United States and Mexico.10 President García has sought to reassure poor Peruvians that he is addressing their needs by pledging austerity measures such as halving the Government Palace’s annual spending and redirecting the funds to a rural irrigation project. García says he will also find ways to use trade to reduce the level of poverty in Peru and widen income distribution. His government is seeking to boost rural development by increasing its investments in road construction, sanitation projects, and water connections. U.S. - Peruvian Relations Peru enjoys strong ties with the United States, characterized by extensive economic linkages and significant counternarcotics and security cooperation. Since the presidency of Alejandro Toledo in 2001, Peru has focused on strengthening those ties. Some 200,000 U.S. citizens visit Peru annually and over 400 U.S. companies are represented in Peru. President García met with President Bush at the White House in October 2006 and again on April 23, 2007, at which time the leaders discussed their shared commitment to fighting the production and consumption of illicit drugs and to securing congressional approval of the PTPA. On December 14, 2007, Presidents Bush and Garcia met again for the signing of H.R. 3668, the implementation bill for the PTPA. Issues in U.S.-Peruvian relations include democratic development, human rights, counternarcotics, and trade issues, which are at the forefront of the bilateral agenda. U.S. Aid. The United States provided $141.7 million in foreign aid to Peru in FY2006 and another estimated $138.9 million in FY2007. The FY2008 request for Peru is for $93.2 million, with the most significant cuts occurring in counternarcotics funds traditionally provided through the Andean Counterdrug Initiative (ACI). Beginning in FY2008, alternative development programs previously supported by ACI funds will be shifted to the Economic Support Fund (ESF) account. ACI has been the primary U.S. assistance program to help Colombia and its neighbors address drug trafficking and related economic development issues. The Consolidated Appropriations Act for FY2008 (H.R. 2764/P.L. 110-161) stipulates that funding from the Development Assistance and Global Health and Child Survival (formerly Child Survival and Health) accounts be made available for Peru at no less than the amount allocated in FY2007. It also provides funding for environmental programs in Peru at FY2006 levels. The joint explanatory statement to the Consolidated Appropriations Act recommends providing $30 million in Economic Support Funds and $36.8 million in ACI funds to Peru in FY2008. The U.S. Agency for International Development has four main goals for Peru: strengthening democracy; increasing governance in isolated areas where drug traffickers operate; reducing poverty; and decreasing maternal mortality and other health threats. Peru was recently selected to participate in the Millennium Challenge Account (MCA) Threshold Program. That program will focus on combating corruption, strengthening the rule of law, and improving resource management in Peru. Human Rights. The government of Peru has taken steps to expand and enforce its labor laws and to prosecute those accused of past and current human rights violations. According to Human Rights Watch, while the Peruvian government has made some progress in holding those accused of past abuses responsible for their actions, many are still able to avoid prosecution. The State Department’s Country Reports on Human Rights Practices covering 2006 says that while the Peruvian government generally respects the rights of its citizens, ongoing problems include abuse of detainees and inmates by police and prison guards; poor prison conditions; trafficking in persons; child labor in the informal sector; and failure to enforce labor laws, among others. Counternarcotics Cooperation. Peru is a major illicit drug-producing and transit country, accounting for 28% of global cocaine production. In 2006, according to United Nations figures, coca cultivation increased by 7% in Peru even though the government increased its coca eradication efforts by 4% from 2005 levels.12 The United States and Peru signed a five-year cooperative agreement for 2002-2007 that links alternative development to coca eradication more directly than past programs have. Peru is the second largest coca cultivating country in the world after Colombia, but receives less than one quarter of the funding Colombia receives through the Andean Counter Drug Initiative. In FY2008, counternarcotics assistance to Peru is estimated to total $66.8 million, down from the $106.5 million allocated in FY2006, and an estimated $103.3 million in counternarcotics funding provided in FY2007. Recent aid reductions appear to be due to overall budget cutbacks rather than any U.S. government dissatisfaction with Peru’s counternarcotics efforts. U.S. - Peru Trade Promotion Agreement. The United States is Peru’s largest trading partner. Since December 2001, exports from Peru have received preferential duty treatment through the Andean Trade Preference Act (ATPA), later amended by the Andean Trade Promotion and Drug Eradication Act (ATPDEA) in August 2002. These trade preferences were scheduled to end on December 31, 2006. However, the acts have been extended twice, and are now scheduled to expire on February 29, 2008.13 ATPDEA gives duty-free market access to selected Peruvian goods without requiring reciprocal trade concessions or addressing issues such as intellectual property rights. On December 7, 2005, the United States and Peru concluded negotiations on the U.S.-Peru Trade Promotion Agreement (PTPA). President Bush notified the Congress of the United States' intention to enter into the PTPA on January 6, 2006, and the agreement was signed on April 12, 2006. The PTPA was ratified by the Peruvian legislature in June 2006. Whereas the ATPDEA provides temporary trade preferences to some goods from Peru, the PTPA is a comprehensive trade agreement that will permanently eliminate tariffs and other barriers on U.S.-Peru bilateral goods and services trade. After several Members of Congress indicated that some of the provisions in the agreement would have to be strengthened, the Bush Administration and Congress reached an agreement on May 10, 2007 on a new trade framework that includes core labor and environmental standards. On June 27, 2007, Peru’s Congress approved the amendments to the PTPA. PTPA implementing legislation (H.R. 3668) passed the House on November 8, 2007, by a vote of 285 to 132; the Senate on December 4 by a vote of 77 to 18; and was signed by President Bush on December 14, (P.L. 110-138). During its second session, the 110th Congress is likely to be interested in implementation of the PTPA.