Peru is in the news again. Not just because President George W. Bush has just made a visit there—the first by a sitting American president—but because the bloom is clearly off the rose of that country's much-heralded democratic renaissance. In recent weeks the U.S. media has been full of bad news from Peru—of a breakdown of the government's coalition, of strikes and labor disorders, even of a possible revival of the murderous Sendero Luminoso (Shining Path) guerrilla movement.

All of this is particularly disappointing given the high expectations that attended the inauguration last year of Alejandro Toledo. The son of impoverished parents who would not have been able to afford even a secondary education for him, Toledo was discovered—if that is the right word—by U.S. Peace Corps volunteers and sent to study in the United States, where he received a doctorate in economics. He has spent most of the past decade living and working outside Peru. Therefore he cannot be accused of collaboration with the fallen Fujimori regime. (The other politician who benefited from a lengthy expatriation, former President Alan García, was his opponent in last year's presidential race.) Toledo was also in a position to exploit his mixed-race background—except for a military dictator in the 1920s, he is the most obviously "Indian" of Peruvian presidents.

In some ways the rapid disillusionment with Toledo is understandable. Anyone who followed the televised debates between him and García during the campaign could not but be struck by the air of unreality. Peru is one of Latin America's poorest countries, yet both candidates talked as if prosperity were a matter of technical solutions. Both blithely promised to create hundreds of thousands of new jobs, spend more money on education and community development, and end abuses of power conspicuous during the recent regime (1990–2000) of exiled president Alberto Fujimori. Neither explained where the money would come from. The wonder of it all is that both candidates—but especially García, who returned to the country last year to run for reelection after having bankrupted it a decade before—were capable of arousing so much enthusiasm.

Some Recent History

Peru is not merely poor—it is big and important, at least in regional terms. What happens there affects other Andean countries, particularly neighboring Bolivia and Ecuador. It is also a country sharply divided by regional and ethnic differences—not merely between Indian and "white," but between mixed-race cholos, Afro-Peruvians, and even some Asian-Peruvians (of either Chinese or Japanese origin). For most of its independent history, the country has been ruled by the coastal "white" elite, while the indigenous population was scattered about the great estates of the highlands. For the past half-century, however, those in the latter group have been slowly emigrating to the coast in search of work or better public services. The result is a tremendous imbalance between coastal cities overburdened by excessive population and a depopulated countryside, much of which has also ceased to be economically productive except for the narcotics trade.

Peru is also a country that continually reinvents its political institutions. Throughout the twentieth century, it alternated between elected civilian governments and de facto military regimes, the most recent of which (1968–1979) styled itself "socialist" (and in fact pursued policies very similar to those of Allende in neighboring Chile, and with much the same results). In more recent years the pendulum has swung from moderate right to populist left—in this case, from Fernando Belaúnde Terry (1980–1985) to García (1985–1990). Widespread disillusionment with politics and politicians led to the advent of two newcomers in the 1990 presidential election, which pitted novelist Mario Vargas Llosa against Alberto Fujimori, a Japanese-Peruvian engineer and academic; neither had ever run for office before.

The 1990 election attracted regional and even worldwide attention, not only because Vargas Llosa is a glamorous cultural figure of international reputation, but because he was running on a platform advocating free-market economics and deregulation of a type that had never before been put before the Peruvian electorate. Fujimori, however, proved more than a match for his opponent. A clever and unscrupulous politician, he accused Vargas Llosa of being an atheist, a practitioner of incest, and a heartless cad planning to throw thousands of Peruvian government employees out on the streets. Defeating Vargas Llosa in the second round, Fujimori then proceeded to appropriate his entire program. He also revealed an authoritarian streak of his own; in 1992 he launched a coup, dissolving the courts and the Congress, erasing constitutional protections, and instituting military tribunals. (Eventually he yielded to international pressures and held new elections and appointed new judges. But he continued to exercise more power than any Peruvian president.)

Fujimori's undisputed achievement was his decapitation of the Sendero Luminoso guerrilla movement by capturing its leader, Abimael Guzmán, a would-be philosophy professor who claimed to be inspired by the writings of Mao Zedong. In the short run at least, this bought the president nearly uncritical support from the vast majority of Peruvians. For more than a decade, Sendero had killed thousands of Peruvians—not just police and security personnel, but shopkeepers, farmers, small businessmen, even Marxists of a different ideological flavor. Fujimori also showed himself a creative and daring military tactician; when in December 1996 the Tupac Amaru guerrilla organization took a group of diplomats hostage at the Japanese embassy residence in Lima, he personally supervised the planning and execution of the rescue operation, which involved, among other things, constructing a full-scale replica of the building so that soldiers could practice under the most realistic conditions possible.

Having brought an end to terrorism—at least in its most egregious expression—Fujimori was emboldened to creatively reinterpret his own 1993 constitution in such a way as to allow him to run for a third consecutive term in 2000. Moreover, with Peruvians (and foreigners) feeling a sense of security for the first time in years, the country experienced a modest economic revival and a return of foreign investment. Some free market economic reforms, many of them taken directly from Vargas Llosa's program, were also enacted.

Unfortunately, Fujimori's appetite for power proved far stronger than even the permissive limits of his own constitutional framework. His security chief, Vladimiro Montesinos, became the sinister eminence behind the throne, dispensing huge sacks of dollars to buy silence or support from politicians, publishers, businessmen, and labor leaders. Thanks to a series of covert videos showing this process in action—filmed by Montesinos himself presumably for purpose of blackmail and subsequently released to public view—much of the Peruvian establishment has been discredited. It was the uncovering of these "Vladi-videos" at the very time that President Fujimori was on a state visit to Japan that prompted his decision to resign by fax and remain indefinitely in the land of his ancestors.

The Coca Factor

Peru is also the source of some of world's most potent coca leaf, the raw material necessary to produce cocaine. Since 1995 the U.S. government has invested $110 million in key coca growing regions in an effort to convince farmers to divert to other crops. As Newsweek International (March 18) reports, "Bridges and roads were built and loans were granted. By the end of the 1990s, Washington was trumpeting statistics showing a 70 percent drop in the amount of land planted with coca." Just how accurate these estimates might be is anyone's guess. The State Department continues to claim a continued drop in coca production, but it is also true that it plans to triple the $50 million earmarked for counternarcotics in Peru this year. The same report cited above claims that "hundreds of small farmers are ripping out coffee plants, cacao trees and other crops. . . . Profit is the driving force: prices for coca leaf, rising steadily silence 1998, bring farmers up to three times the going rate for coffee and cacao beans." As in Colombia, apparently the drug war is being won only on U.S. government charts.

The boom in coca production also offers new opportunities for Sendero Luminoso. The guerrillas have resumed charging traffickers a fee to move shipments of the processed paste through the territories they control. Worse still, they use the money not only to buy modern weaponry, but also to pay local farmers for food crops in hard cash. This constitutes a new, more insidious tactic—one far more likely to win hearts and minds than terror alone. Indeed, in many ways the Senderistas are beginning to more nearly resemble the Colombian FARC (Revolutionary Armed Forces of Columbia) guerrillas, who are as much narcobusinessmen as politicians wielding AK-47s. (They have even begun to distribute poppy seeds—essential to the manufacture of heroin—to peasants free of charge.) To be sure, as of today the guerrillas do not threaten the existence of the government in Lima; they are, however, in a race with the government for support among the poverty-stricken and neglected farmers of the highlands. At this point no one dares to predict that Toledo (or any other civilian) is likely to prevail in that struggle.

The Terms of the Political Equation

President Bush's visit underscored several facts about Peru, and indeed about the Andean republics in general. These are desperate countries being driven to the production of illicit substances by market forces far more powerful than any conceivable counterincentive the United States or Western Europe might wish to offer. They are also societies whose elites do not believe in their nations, who do not identify with the majority of the population. (In one famous Peruvian novel, the father of the principal character keeps saying that until the country finds some way to subordinate the cholos—that is, people of mixed race—"Peru will never progress".) They are countries with weak institutions, corrupt judiciaries, and a political discourse completely divorced from reality. They are also countries with remarkably short memories, as attested by the revival of Alan García's political fortunes. If Toledo stumbles, García—arguably the biggest political charlatan in South America—is positioned to replace him.

All of this points to the otherworldly quality of the exchanges between President Bush and Peruvian journalists and politicians. The Peruvians need money—lots of it. Although Peru has other sources of income—industrial metals, sugar, fish meal, some light manufacturing—nothing provides so broad a financial safety net to the neglected rural population as the production of the coca leaf. The United States is offering small change, plus a few overflights and intelligence sharing, to persuade the Peruvian government to put an end to it. The latter is not about to refuse what is on offer, but neither is it in a position to deliver. While Toledo will probably turn out to be more civilized and thoughtful than most Peruvian presidents, he is not likely to be more successful, at least as long as these are the terms of the equation.

Mark Falcoff is a resident scholar at the American Enterprise Institute.