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Peru Table of Contents


Impact of the "Fujishock" Program

In 1990 Peru's political spectrum and party system were polarized to an unprecedented degree. In addition, the vote for Fujimori was to a large extent a vote against the shock stabilization plan that Vargas Llosa had proposed to implement. After less than a month in government, however, Fujimori was convinced--both by domestic advisers and prominent members in the international financial community--that he had to implement an orthodox shock program to stabilize inflation and generate enough revenue so that the government could operate (see The Search for New Directions , ch. 3). During his visits to the United States and Japan in July 1990, it was made very clear to Fujimori that unless Peru adopted a relatively orthodox economic strategy and stabilized hyperinflation, there would be no possibility of Peru's reentry into the international financial community, and therefore no international aid. At this point, Fujimori opted for an orthodox approach and appointed Juan Carlos Hurtado Miller as minister of economy and prime minister. Later that month, many of Fujimori's original advisers, who were heterodox economists, left the Cambio team. Thus, on August 8, 1990, Fujimori implemented precisely the program that he had campaigned against (see The Search for New Directions , ch. 3).

The shock program was more extreme than even the most orthodox IMF economist was recommending at the time. Plans for liberalization of the trading system and for privatization of several state industries were made for the near future. Overnight, Lima became a city which had, in the words of several observers, "Bangladesh salaries with Tokyo prices."

Despite widespread fears that the measures would cause popular unrest, reaction was surprisingly calm for several reasons. First of all, the measures were so extreme that they made day-to-day economic survival the primary concern of the majority of the population, including the middle class. Taking time to protest was an unaffordable luxury. Second, street protest and violence were increasingly associated with insurrectionary groups and political violence, with which the average Peruvian had no desire to be associated. Third, the benefits from ending hyperinflation and recovering some sort of economic stability were immediately evident to Peruvians at all levels, even the very poor. Even several months after the shock, the most popular man in Peru was the architect of the program, Hurtado Miller. Although Fujimori's popularity suffered a decline after his first few months in office, it was not necessarily a result of the economic program. Finally, and perhaps most importantly, most people voted for Fujimori not only because of his vague promises, but also because of the perception that, unlike Vargas Llosa, he was much more a man of the people. Thus, his implementing an "antipopular" economic program was far more acceptable politically than Vargas Llosa's doing virtually the same thing.

Data as of September 1992