A WORLD TO WIN    #20   (1995)


Yankee Free Market Means More Misery for Peru's People

By Inika O'Hara

[Inika O'Hara is an activist in the International Emergency Committee to Defend the Life of Dr. Abimael Guzman.]

In the 16th century, Europeans told stories of a country that was unimaginably rich, a country where there was gold and silver for the taking. They told of galleons returning to Spain loaded with precious metals, and of the empire that was being built with the spoils. Five centuries later the pages of the New York Times and slick brochures designed by US advertising agencies sound like an echo from the past, as they trumpet promises of the quick profits that can be made by exploiting the natural resources and the labour of the people of Peru.

For 500 years the people of Peru have been forced to dig the riches from their own land and to hand them over to rich and powerful foreign countries - first Spain, later Great Britain, and then the US. During the 20th century, as imperialism's tentacles drew impoverished third world countries ever more tightly into its net, Peru did not escape. By the early 1970s Peru's government had become more and more dependent on the imperialists for infusions of capital in a desperate attempt to modernize a country which for centuries had seen its life-blood sucked out of it by those same foreign dominators. The noose of foreign debt tightened around the necks of the people, forcing them into ever deeper poverty.

During the same period the Communist Party of Peru (PCP), led by Chairman Gonzalo, was training and preparing itself politically, ideologically, and organizationally to wage a protracted Maoist People's War aimed at overcoming the "three mountains" which oppressed the Peruvian people: imperialism, feudalism and bureaucrat-capitalism. They trained new revolutionaries, mainly students from the peasantry in the Ayacucho area, in the basic principles of Marxism-Leninism-Maoism, and sent them back to their villages to carry out a detailed study and analysis of the social conditions in Peru. Deep roots were established among the peasantry and an organizational network was built to enable them to unite and fight in such a way as to withstand the assaults the revolutionaries knew were inevitable.

When the People's War was launched in 1980, it resonated deeply in the hearts of the people, many of whom knew there would be no way out of their misery if they continued to rely on the Peruvian state and the imperialists. Beginning with only a small group of armed combatants, the People's War developed into a flexible and mobile force, capable of preserving itself and destroying the enemy. The Peruvian military, unable to destroy an invisible army rooted among the most oppressed, tried to wipe it out by indiscriminately killing the peasantry in the areas where the People's War had its deepest roots. The crude methods of the Peruvian military exposed the regime even further. Rather than accomplishing its aim of drowning the People's War in blood, the massacres had the opposite effect. More and more people recognized that there could be no peace with the genocidal regime.

When Alan Garcia ran for president in 1985 he promised to eliminate poverty and misery and to place the social needs of the people of Peru before the payment of the rising foreign debt. He promised a revolution without violence and sang the praises of the then popular Sandinista revolution in Nicaragua. He promised to pay the International Monetary Fund and the World Bank only 10% of the value of all of Peru's exports - a promise which was popular especially with the middle class. However, when Garcia became president not only did he fail to deliver on his promises but the economic crisis got even worse during his presidency. The multilateral lending agencies suspended all loans to Peru. The government was deprived of new loans which it was depending on to survive, and interest and arrears began to accrue at a tremendous rate. Peru's junkie economy was in a shambles. Inflation reached run-away levels and industry stagnated.

Peru's crisis sounds remarkably like economic crises in dozens of other Third World countries caught in the claws of imperialist domination, except for one thing: the very existence of the Peruvian state was being challenged by a People's War and the laying of the foundations of a New State in areas controlled by the PCP.

As the People's War extended throughout the country, rural areas under revolutionary control were transformed into base areas from which the People's Guerrilla Army could grow even stronger and carry out successful battles against the reactionary Armed Forces. The Peruvian military was forced to withdraw from large areas and by 1987 one third of the country was under the control of the revolutionaries. In these areas People's Open Committees were formed, which established a new economy, a new politics, and a new culture. As people from rural areas immigrated to the shantytowns surrounding the capital city of Lima, new forms of revolutionary organizations were built up there too which conformed to the class interests of the poor and mobilized them to serve the People's War. The future the oppressed were fighting for began to assume a real form, even further strengthening the determination of the people to advance the war to destroy the old state and take power throughout the entire country.1

Faced with the prospect of a protracted people's war that could not be crushed by the crude methods of the Peruvian military, the US, with its "Vietnam training", stepped up its involvement. The People's War faced an increasingly complex and highly developed strategy of low-intensity counter-revolutionary warfare. The US intervened directly with their so-called "War on Drugs". The Peruvian military and state were armed with the latest weaponry and means of surveillance. A highly sophisticated psychological war aimed at dividing the people assaulted the population daily and attempted to isolate the People's War from the broad international support it enjoyed.

The Peruvian people suffered mightily but continued their assault. Like a wildfire, the People's War flared up in one area, subsided and smouldered, then flared up in another. Three governments declared it all but defeated, only to be forced to later admit that it was continuing to gain popular support.

The People's War made it impossible for foreign companies and investors to keep on extracting enormous profits from Peru. Not only was the People's War a threat to the future existence of the state, but they were threatened in the immediate sense. The infrastructure they relied on to get their plunder out of Peru was under continuous attack. Electrical pylons were bombed, causing massive black-outs. Roads from the jungle over which they tried to transport lumber to the ports were destroyed. Railways from the mines were blown up. Agronomists attempting to develop new crops for international agribusinesses were attacked. When Mobil Oil set up a heavily secured base for oil exploration in the Amazon it was attacked and destroyed along with its helicopters. When ASARCO Petroleum discovered the immense Camisea Oil Field in 1981 they could not exploit it because of the certainty of attack.

When Alberto Fujimori became president in 1990 his mandate from the ruling class in Peru and his Yankee masters was to try to crush the People's War and to make the country safe for foreign investment. To accomplish this he had to get back into the good graces of the international lending agencies. Following their dictates, he instituted "Fujishock" - an economic austerity programme designed to pay back the foreign debt.2 He announced a privatization program and promised new laws to protect foreign investment.

Faced with an increasingly urgent need for successes in the counter-insurgency war and with the threat of collapse of his own regime, on 5 April 1992 Fujimori took the extraordinary measure of a "self-coup" and suspended the Constitution. While so-called democratic countries pretended concern about such dictatorial measures, potential investors were jubilant. It was widely revealed that the CIA started to play a crucial direct role in the Fujimori regime. Fujimori was clearly not held back by "human rights concerns" and would go to any length to hold power and protect the interests of the imperialists and reactionaries. The Fujimori regime instituted massive house-to-house searches of entire neighbourhoods, and arrested and imprisoned anyone even suspected of opposing the government. When Chairman Gonzalo and some of the other leaders of the People's War were captured in September 1992, Fujimori's triumphalism went into high gear. The regime and its Yankee bosses boasted that Peru was now safe for foreign investment.

Fujimori immediately announced that all of Peru's nationalized industries would be auctioned at incredibly low prices. Peru's privatization commission advertized:

"Look again at Peru. A breathtaking opportunity.

"Freedom to operate in a free market economy - freedom to enjoy the same legal treatment as nationals - freedom to invest in any business, economic sector or activity - freedom to transfer abroad hard currency capital gains, profits, and royalties - freedom to trade stocks and obtain tax-free returns... - freedom to apply for concessions to build and manage public facilities and supply public utility services - freedom to participate in the privatization of state-owned mines, ports, banks, telecom, electricity and oil companies. Freedom. We really mean it."3

The U.S. stepped up its economic aid to Peru in order to prop up the Peruvian state against the danger posed by the People's War. US spokesmen squawked a few times about their "human rights concerns" in order to cover up that Peru received $137 million in US aid in 1993, making it the top recipient in South America and second in all of Latin America. The US also facilitated Peru's reintegration into the international financial community.

Not surprisingly, the most advertized offerings in the privatization campaign were Peru's mines. (In 1992 Peru was the world's largest producer of lead and zinc, and the second largest of copper and silver. It has some of the world's largest deposits of gold and a great oil potential.) One of the first big investors was Newmont Mines (the US's largest gold producer, which also has mines in Indonesia and Uzbekistan). Newmont bought Yanacocha Gold Mine for $36 million and within seven months their profits had exceeded the initial sales price. Everything after that was sheer profit.4

This unheard of investment success caused a veritable gold rush to Peru. Huge mining giants snatched up 9 million hectares of land (6 times the total arable land) at $2 per hectare; within 6 months, more claims were staked out by foreign investors than during the previous 200 years. With the success story of Yanacocha Mine as the bait, foreign investors were assured that Peru was an investor's paradise.5

But in spite of all the media hype which advertises that only 5% of Peru's natural resources have been mined, that there is a huge pool of cheap labour, and that there are still untold fortunes to be exploited, Fujimori's privatization program is not proceeding according to plan. Many of the companies Fujimori is trying to auction off have gone up for auction several times without being sold. Other companies have been sold at ludicrously low prices, and include contract clauses which allow the new owner to abandon the investment (and promised payments) at any time. Most facilities are old and weighted down with the legacy of the past. Many are located in isolated areas, and the infrastructure in Peru is not adequate to get materials to refineries or ports. Potential investors want to be sure that Peru will make the promised improvements to the highways, electrical system, and other infrastructure needed to guarantee their investment. Most importantly, it has been two years since Fujimori announced that the People's War was defeated but instead it has continued, and, for these investors, the political stability of Peru is still an open question.

"Attempts by the Peruvian government to attract foreign investment could be set back by an upsurge in activity by the country's Maoist guerrilla group... Any resurgence in guerrilla activity... would set back government moves to draw foreign investment back to Peru and, more immediately, would dampen investor interest in the forthcoming sell-off of dozens of state companies."6

The centrepiece of Peru's privatization program was to be the sale of Centromin, Peru's largest diversified mining company and its largest producer of zinc, silver, copper, and lead. It was opened by a US mining company in 1902 and, until it was nationalized in 1971, Centromin was the source of direct superprofits to the US. Even today it accounts for a full 10% of all of Peru's exports. But Centromin has been dubbed the "sale of hell" by potential investors.

Centromin miners and their families live in one-room company shacks, without access to clean water or basic sanitation. The company used to provide a pair of boots and overalls each year but now even that has been discontinued. A miner who has worked more than 20 years makes less than $7 a day. Miners and their families suffer from lung, skin and eye diseases. In one of Centromin's company towns, the hospital that last year treated 40 new patients each day is now closed. People have to travel over 30 miles of dirt road on the back of a truck in freezing weather in order to get medical treatment. Miners seldom live past the age of 50 years.

The hills surrounding Centromin's mining towns are bleached white. Trees and crops can't grow there. The rivers are dead - contaminated with acids and heavy metals. Slag heaps cover the land farther than the eye can see. Smoke fills the sky and copper particles are visible in the air.

To make the sale attractive, Peru's government assumed all of Centromin's potential environmental liability for past operations, permitted Centromin to close its hospital and decrease its employee benefits to reduce its operating costs, and laid off 7,000 of its workers before it was put up for auction. It has been for sale three times at auction at $280mn, and no one has bid. In 1992 a Chilean subsidiary of Anglo-American Corporation of South Africa paid $12mn for a copper deposit owned by the state. In Chile it paid $190mn for a similar copper deposit.7

These are living examples of the rape and plunder of the people and resources of Peru. International prices for copper, zinc, and lead are going down. Many countries with huge foreign debts have large deposits of these metals. In order to pay the debt they are mining more than ever before. As these huge stocks come onto the market, the prices drop. They cannot stop mining in order to control the prices so they are forced to increase production and sell at lower prices. This vicious cycle has the poor countries in an iron grip.

Finally, while the government can change their laws to make the investment climate better, they cannot change the fact that the People's War is continuing, and investors are not free from continuing attacks. Mining companies, as well as other industries, operate under constant fear of attack, and the cost of security at newly privatized industries ranks among the highest in the world. Newmont Mines is employing two security personnel for every miner. One of Centromin's main mines was shut down for an entire year as the result of a single guerrilla attack. There have been more than 300 known guerrilla attacks on mines over the past 15 years, and miners have themselves been strong supporters of the People's War and have appropriated large amounts of dynamite and other material.8

Foreign investors continue to worry about whether the government will be able to hold back the People's War and protect their investment. At the same time, the government's plan for holding state power depends on increased imperialist penetration and foreign investment.

Peru's foreign debt is now estimated at $26.1 billion. Over 20% of Peru's budget ($1.28bn of $5.9bn in 1994) is currently appropriated to pay multilateral lending agencies like the IMF and World Bank. Yet Peru continues to borrow more from the lending agencies than it repays them ($2.7bn in 1994), largely to provide the infrastructure required by potential foreign investors.

In 1994 Peru's prime minister announced that Peru will require $5-$6 billion in new foreign investment each year in order to realize a 5% medium term growth. In 1993 (the first year of privatization sales) total foreign investment was $226 million and a total of $3 billion is predicted for 1994 (due largely to the sale of Peru's telecommunications system for $2.1bn). Most of Peru's assets are being sold at ridiculously low prices and, once gone, will no longer be a source of revenue for the government.

Bourgeois economic analysts are openly worried. While Peru's economy is increasingly geared toward export, and more goods are being exported, the amount of profit Peru is realizing from these exports has gone down due to falling world prices. The gross national product has increased, but the areas of the economy vital to the well-being of the Peruvian people - agriculture, manufactured goods, and social services, are declining. The majority of the people of Peru are so poor that overall consumer power has dropped steadily. Economists warn that Peru's economy is stagnant.9

While a very small number of people in Peru have been able to profit from increased foreign investment, the majority of the people of Peru have only gotten poorer. Less than 10% are fully employed. While the government boasts of privatization, newly privatized companies have, on average, laid off 52% of their workers in order to increase profits. Money appropriated for "social services" is being used to build roads to help foreign investors get their goods to market, and the government's budget for social services (health, education, etc) has fallen from 4.7% of GDP in 1980 to 0.9% in 1993. Even the schools and hospitals are being privatized. More than 26,000 schoolteachers have tuberculosis; tens of thousands of children die each year from preventable diseases. Most of Lima's 6 million "recognized" residents live in old working class neighbourhoods where 7-10 people live in a single windowless room opening onto a common dirt alleyway where an average of 67 people share a single water faucet and 85 people share a toilet.10 Another 3 million "unrecognized" Lima residents live in "illegal" shantytowns on the outskirts of Lima, where they have neither water nor sanitation facilities. At the same time, increasing numbers of peasants are being forced from their land en masse because they are unable to pay new land and water taxes imposed by the IMF; they will join the unemployed in Lima. With about half of all Peruvians living in critical poverty and unable to purchase adequate food to provide for basic nutritional needs, potential investors worry about whether the Peruvian state can provide the workers with such essentials as basic health and education to ensure a dependable labour force.

The "La Cantuta case" has also raised some anxiety among investors concerning the political stability of Peru. While it was common knowledge that the government was responsible for the disappearance and massacre of the nine students and the professor from La Cantuta University, the outcome of the case has had many repercussions. Not only were "human rights violations" exposed to the world, but Fujimori's handling of the case has been unsettling. On the one hand, foreign investors were delighted when Fujimori showed he was willing to protect their investment with an iron fist with his self-coup on 5 April 1992 as part of the effort to "pacify" the country. However, when Fujimori defied his own newly enacted Constitution in February 1994 by moving the La Cantuta case from the civil court to the military court, he effectively allowed the open subordination of the judiciary to the military. Not only were the crimes of the Peruvian regime exposed to the world, but there could now be no question that the Fujimori regime was under the military's control. Opposition parties in Peru and foreign investors became worried. Both depend on Peru's laws to protect their interests. Peru's new Constitution is extremely favourable to foreign investors, for example, guaranteeing that foreign debts will be paid before social needs are met. But the fact that the laws can be changed arbitrarily and replaced with open military rule at whim does not convey a picture of a predictable and stable situation to these investors.

All of this also tends to divide the Peruvian ruling class, as is evidenced in manoeuvring for the upcoming 9 April 1995 elections. Some candidates want to retain more of the profits from Peru's resources for Peru's upper classes, and claim that they could cut a better deal with the imperialists. Some others promise to preserve certain "democratic" privileges for those who do not threaten the state. Others promise tax breaks for Peruvian industrialists, who cannot compete with the multinationals. Some openly worry that Peru's generals will once again roll their tanks into the street in order to guarantee Fujimori's victory in the elections and squash their own bids for power.

But one thing every electoral candidate agrees on is the necessity to ruthlessly attack the People's War and its leadership, the PCP. This is nothing new. It has been the mandate of three successive regimes in Peru over the past 15 years. When Chairman Gonzalo was arrested the imperialists were euphoric. Everywhere they shouted: "Mission accomplished!" "The End of the Civil War is now Guaranteed!" "Peru is the new investor's paradise!" "Now the military can be used for building roads!" But over the past two years the People's War has continued, and the government's pronunciations have been proven to be empty phrases. And as of late 1994 Fujimori had to confess that the People's War is indeed a continuing threat to his state.

A full year after Chairman Gonzalo's arrest, Fujimori announced his plan to carry out what he called a "Little Vietnam" in the jungle! International lending agencies provided loans to move peasants loyal to the government into the Amazon. Strategic hamlets were set up near military bases. An orchestrated media campaign released "news" of alleged PCP massacres of indigenous Ashaninkas in these same areas in an effort to discredit the People's War internationally and prepare the way for even greater military genocide against the people inhabiting the area.

In April 1994 the military launched a massive offensive in the jungle areas. Peasant villages were bombed by helicopter gunships. Peasants were massacred in cold blood. Women and children were raped by the uniformed military. Bodies of peasants lined the banks of the Ene River, and the crimes of the military were so exposed that even the usually silent government's loyal "human rights groups" were forced to denounce them. The desperate regime retaliated by accusing human rights groups and International Red Cross of helping the PCP, and claimed that it was because of them that their military offensive had ended in defeat.

During autumn 1994, Peruvian television showed one military offensive after another "wiping out the last remnants" and repeatedly announced the "capture of leaders of the People's War", only to have to later admit that they had "escaped through tunnels" or had "disappeared among the people". Huge sections of the country continue to be under "Emergency Control", and the forces of the People's War and the forces of the military continue to contend for control.11

Over the past two years, foreign investors have come under constant attack. Offices of newly privatized businesses and banks have been bombed. For example, within days of the sale of Peru's telecommunications system to Spain, two of its Lima offices were attacked (one on the day of its opening). Leaflets left at the sites denounce the government's privatization program and warn foreign investors that they will be driven out. Railways, oil pipelines, and electrical pylons have continued to be targeted. In October 1994, as Peru's electricity company was being prepared for privatization, an attack on the electrical system, described by the government as the PCP's strongest attack since the arrest of Chairman Gonzalo, disrupted electricity for more than a week.

At the same time, more than 20,000 oil workers staged a 2-day strike to protest the upcoming privatization of Petro-Peru, and were joined by dockworkers. Miners joined striking electrical workers and denounced privatization. Schoolteachers went on strike for a 300% pay increase and students are protesting the increased costs of education.

Factions of the ruling class in Peru have called for a delay in the privatization program, which Fujimori promised would be completed by 1995. They say that the prices companies are being sold for are too low and that political stability in Peru is still too tenuous to create a favourable investment climate. What the foreign investors are seriously worried about is the same thing that has hindered their investing greatly in Peru for the past fourteen years!

For fourteen years the people of Peru have taken up arms against the three mountains oppressing them. There is a highly aroused peasantry. There is a protracted People's War, led by a Maoist Party, which is continuing their resolute fight to establish a new state encompassing all of Peru. Millions of the poor - in both the countryside and in the shantytowns of Lima - have experienced the beginnings of their power. They have been part of building a new economy, a new politics, and a new culture. In the face of this, what do the foreign investors have to offer? The continuation of 500 years of oppression, and even greater misery and impoverishment.


1. Back issues of AWTW are available, with extensive coverage of the People's War and the PCP, including original documents. See page 2. A good starting place is "Our Red Flag Is Flying in Peru", AWTW no. 16.

2. See especially IEC Emergency Bulletin no. 46 on foreign domination of Peru.

3. Financial Times, 29 Sept 1993, London. Also New York Times, 28 Sept 1993.

4. The Mining Journal, April 1994.

5. The Mining Journal, April 1994.

6. Inter-Press Service, 10 Sept 1993.

7. Los Angeles Times, 19 Jan 1994; San Francisco Examiner, 27 Mar 1994.

8. Associated Press, 29 Nov 1993.

9. For example, Latin America Weekly Report, 7 Apr 1994.

10. Peruvian Institute for Civil Defence statistics.

11. IEC Emergency Bulletins 46, 47, 51.