July 26, 2006

Garcia takes power facing Peru poverty “time bomb”

By Robin Emmott

PUNO, Peru (Reuters) - President-elect Alan Garcia takes
office on Friday warning Peru is a "time bomb" that could
explode into crippling protests if his government cannot
combine its pro-business agenda with cutting chronic poverty.

Garcia, who is anxious to make amends for his disastrous
first term in 1985-1990 that sparked economic collapse, faces
the huge challenge of delivering the benefits of Peru's
unprecedented economic growth since 2002, while keeping
international bondholders happy with a careful fiscal policy.

Poor Peruvians make up half the country's 27 million
population, especially in the southern Andes bordering Bolivia,
and most did not vote for Garcia. They are impatient for jobs,
access to clean drinking water and schools and hospitals.

"We'll give Garcia six months to show some results. If
nothing's happened, we'll start the protests," said Luis
Vilcapaza, who represents some 100,000 farmers in Peru's
southern Andes province of Puno.

Investors are keen to avoid the kind of political
instability that almost toppled outgoing President Alejandro
Toledo in 2004 and take advantage of Peru's oil, gas and
mineral wealth. Peru is the world's No. 3 copper-producing
nation and aims to export natural gas to Mexico from 2010.

Garcia's presidential win in June was by a slim margin,
giving him a weak mandate in a fractured congress.

His left-leaning American Popular Revolutionary Alliance
party, known as APRA, is in the minority, while the party of
losing presidential candidate Ollanta Humala has promised
fierce opposition from its 45 seats in congress, nine more than


"We face a time bomb because during Toledo's term, the
economy grew to benefit only 30 percent of the population,"
Garcia said in a speech this month to residents of a shanty
town on the edge of Lima.

"We will create economic progress that will allow us to
confront these time bombs."

Peruvians in the south say they want the kind of economic
nationalism favored by Venezuela's anti-U.S. President Hugo
Chavez and Bolivian leader Evo Morales, not policies supported
by Wall Street such as privatization.


They say that is the only way to ease social ills in a
country where the gross domestic product per capita is lower
than in 1975.

About 62 percent of young Peruvians are poor, according to
a study by the U.N. Population Fund and the Peruvian health

The number of Peruvian women who die during childbirth is
one of the highest levels in Latin America. One in three women
in Peru's jungle region become pregnant before age 20.

Malaria, tuberculosis and sexual violence against women
also are all major problems in Peru.

"Garcia urgently needs to help the young," outgoing Health
Minister Pilar Mazetti told Reuters. "Otherwise we'll see
frustrations boil over into protests, the formation of gangs
and the spread of sexually transmitted diseases."

Farid Matuk, outgoing head of Peru's National Statistics
Institute, said the solution is not in faster economic growth,
as Garcia has pledged, because the economy only needs to grow
above 3.3 percent annually to alleviate poverty.

Rather, Garcia should aim to develop the economy away from
its historic dependence on mineral exports by helping small
businesses and improving the way public funds are spent.

Peru's mining regions will receive a record $800 million in
2006 from royalties and taxes, equivalent to slightly more than
the government's total annual health and education budget. But
locals and miners say the money is not being properly spent.

"We need to see jobs and better schools, working
hospitals," said 43-year-old rickshaw driver Gabriel Tipo, a
widower in Puno with five children. "If things don't get
better, I think Humala should stage a coup and take over