Democracy and Governance in Peru
The Development Challenge: Throughout the 1990s, Peru made significant progress combating terrorism, reducing the production of coca, stabilizing its economy, and increasing access to social services. Since 2001, under President Toledo, the Government of Peru (GOP) has pursued an ambitious program to re-establish democracy, following a decade of increasingly authoritarian rule and rampant corruption under the former Fujimori government, and is promoting a market-based economy that will benefit all citizens. While Peru has maintained unprecedented economic performance averaging over 4% growth for the past three years, the reality is that even higher growth rates for many years will be necessary to reduce poverty, which impacts over half of the population or 14 million Peruvians.
The limited state presence in large portions of the country's interior challenges the Government's ability to ensure broad-based development for all Peruvians. Per capita gross domestic product (GDP) of approximately $2,150 for 2003 is the same in real terms as it was in 1967, a result of years of flawed economic policies. Income remains unevenly distributed, with over 50 percent of the population living below the poverty line, almost half of whom live in extreme poverty. The country's total debt servicing requirement is estimated at 29.5% of exports in 2005. Unemployment and underemployment rates remain very high (approximately 10% and 50%, respectively). Social services, especially in isolated, conflict-prone regions in Peru's highlands and jungles, are inadequate. For example, in USAID's geographic focus areas, 36% of children under five years old are malnourished, 31% of women are illiterate, 39% of the population do not have access to electricity, and 69% do not have access to acceptable sanitation services. Peru's tropical forests are the fourth largest in the world, but they are increasingly threatened by shifting migration patterns, unsustainable exploitation of the forest, and the destructive impact of illicit coca production and processing. The lack of state presence allows drug trafficking, illegal logging, terrorism and other criminal practices to flourish, creating a corrupt, violent and conflictive environment that discourages investment, limits economic opportunities, and prevents sustainable economic growth and development.
While Peru's 2003 economy outperformed most of Latin America (Peru experienced 3.8% GDP growth in 2003 with 4.5% projected in 2004), the government remains politically weak and social discontent prevails. To move forward, Peru must accelerate structural economic reforms, take full advantage of the recent extension and expansion of tariff-free entry of Peruvian products to the U.S. market under the Andean Trade Promotion and Drug Eradication Act (APTDEA), complete negotiations of a free trade agreement with the United States, and conclude trade agreements in the Latin America and Caribbean (LAC) region and with Asia to stimulate economic growth and reduce poverty levels. Likewise, Peru's mandates are many. It must move forward with its efforts to bolster democratic institutions and increase citizen confidence. It must successfully complete its decentralization process to facilitate more representative and effective governance throughout the country. The justice system must continued to be reformed to ensure predictable and equitable application of criminal and commercial law. The government must increase its investment in critical infrastructure and services as well as comprehensively restructure its institutions to reduce corruption, control government expenses, and provide appropriate and effective services.
In the Toledo Government, the U.S. Government has a partner that is committed to advancing the mutual national interests of building the infrastructure of democracy, promoting sustainable development, and defeating narco-terrorism. U.S. assistance can play a decisive role in addressing the obstacles of corruption and conflict where there is a lack of state presence and of economic competitiveness.
(Excerpted from the 2006 Congressional Budget Justification for Peru)
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