When
speak-
ing of
the oligarchy in
Peru or elsewhere
in Latin America,
one automatically
thinks back to the
beginning of the
twentieth centu-
ry. Until the late
1920s, Peru’s eco-
nomic, political Corporate headquarters of the Banco de Credito, Peru’s largest financial group, in Lima.
and social land-
scape was completely dominated by the landed oli- held sway in a country that was primarily n
garchy, which included the owners of huge sugar planta- small cities and a tiny middle class. The o
tions on the coast and the landlords who ruled over semi- important economic actors were foreign comp
feudal haciendas in the Andean highlands. The oligarchy Standard Oil and W.R. Grace that dominated ki
Carlos Reyna is a sociologist andjfi
Center for the Study and Promotic
He is a regular contributor to the I
Translated from the Spanish by NA
rural, with
nly other
anies like
ey sectors
of the economy such as oil, banking and mining. The journalist at the Lima-based n of Development (DESCO). state was a skeletal administrative apparatus, and the
imonthly magazine, Quehacer. armed forces and the Congress were firmly subordinated
1CLA. to the interests of the oligarchy. Elections were held, but
32 NACLA REPORT ON THE AMERICAS
4
4
0
4
4
32 NACIA REPORT ON THE AMERICASREPORT ON WEALTH
women and illiterates were denied the vote, which effec-
tively excluded large segments of the indigenous popula-
tion. By the 1920s, though anti-
oligarchic sentiment was brewing in the emerging trade
union movement and reformist political parties, the old
oligarchy held onto the illusion that it ruled over an eter-
nal society, that struggles between social classes were
nonexistant, and that politics was its exclusive domain.
Gradually, however, through a long process of social
and political struggle that culminated with the reforms
implemented by the nationalist military regime of Gen.
Juan Velasco Alvarado (1968-75), the old Peruvian oli-
garchy was displaced. But the dreams of the anti-
oligarchic forces that economic progress would come
through state-led industrialization also turned out to be
More than five decades
of social struggle
brought an end to the
domination of Peru’s
old landed oligarchy.
Thanks to the
neoliberal
counterreforms
imposed by the
Fujimori government,
wealth and political
power have again
become highly
concentrated, leading
to the consolidation of
a new oligarchy in
Peru.
illusory, giving way to the emergence of a
new constellation of
socio-economic and
political forces in the
1990s favoring free-
market policies.
Thanks to the neolib-
eral counterreforms
imposed by the gov-
ernment of Alberto
Fujimori, wealth and
political power have
again become highly
concentrated, lead-
ing to the consolida-
tion of a new oli-
garchy in Peru.
While the old oli-
garchy derived its
wealth primarily from
the land, this new oli-
garchy consists of a
small number of
grupos, or huge con-
glomerates, with di-
versified business
holdings in mining, banking, fisheries and
construction. Until
the recent counter-
reforms in the agrarian sector, the new oligarchy has
not been widely involved in agriculture. Also unlike the
old oligarchy, the new oligarchy prefers to avoid a
direct role in politics (though a few key business lead-
ers have held important posts in Fujimori’s govern-
ment). The new oligarchy is also more dependent on
foreign capital, which has again come to play a pre-
dominant role in the economy, particularly after the
wave of privatizations since 1990. But this dependency
doesn’t seem to bother Peru’s grupos, even though it
means that they must operate in an economy that is
increasingly controlled by outside interests. For this
new oligarchy has its own illusion: that progress-both
its own and that of Peru as a whole-depends on for-
eign investment, which in turn depends on consolidat-
ing a radical free-market economic regime.
This free-market neoliberal ideal has become power-
ful in Peru at least in part because of the dramatic fail-
ures of the state-led model of import-substitution indus-
trialization (ISI). The social and political reformers that
fought against the oligarchy in the 1920s and 1930s
shared a belief, common in Latin America at the time,
that the path to progress passed through heavy state
protection of industry. Such protectionism did redistrib-
ute national income downward to some degree and pro-
vided the social basis for the development of the trade
union movement. But it also promoted lopsided devel-
opment that favored the city over the countryside, and
often lapsed into periodic balance-of-payments crises
and bouts of inflation that led to widespread protests.
When these crises emerged, the ISI reformers-
whether they were linked to civilian or military
regimes-pirouetted to the right with austerity mea-
sures to reduce their deficits and to states of seige to
maintain public order. This was the case not only under
the reformist military regime, but also under civilian
reformist governments like that of Alan Garcia (1985-
90). When Garcifa’s demand-led economic boom went
bust in 1988, for example, his government reverted to
harsh austerity measures in an attempt to reduce the
deficit and beat inflation. The measures failed and
hyperinflation surged, dramatically cutting back real
salaries and living standards of ordinary Peruvians.
By the end of the Garcia period, Peruvians were
increasingly skeptical of the reformist parties that had
governed for the past 30 years and their discourse about
the benefits of industrialization, protectionism, agrarian
reform and democracy. As a result, many Peruvians
were receptive to the hard-hitting neoliberal discourse
attacking the statist ogre as the source of all Peru’s evils
sounded by Mario Vargas Llosa, the leading candidate
in the 1990 presidential elections. But fears of harsh
structural-adjustment measures, coupled with Vargas
Llosa’s growing identification with unpopular members
of the conservative political establishment, led to an
upset victory by political novice Alberto Fujimori, who
highlighted his political independence from Peru’s
political and economic elite and promised a gradual
economic adjustment strategy. After winning the presi-
dency, however, Fujimori applied an extremely harsh
adjustment program, known popularly as the
“Fujishock,” that liberalized basic prices and the
VOL XXX, No 6 MAY/JUNE 1997 33 VOL XXX, No 6 MAY/JUNE 1997 33REPORT ON WEALTH
exchange rate. The measures worked in
slashing inflation, which dropped from
7,649% in 1989 to 10.5% in 1995, but at the
cost of dramatic increases in poverty, malnu-
trition and un- and underemployment.
With these measures, the business elite for-
got its qualms about Fujimori’s Japanese ori-
gins and his populist rhetoric and became one
of his staunchest allies. For example, the gru-
pos firmly backed Fujimori’s April 1992
autogolpe, or self-coup, in which he closed
Congress, suspended the Constitution and
granted the military a blank check to repress
guerrilla groups-measures the economic
elite saw as essential to establishing a stable
business climate. Despite the return to consti-
tutional rule with new congressional elec-
tions in 1992 and a constituent assembly in
1993, real power remains concentrated in the
hands of the executive. This allows the
Fujimori regime to assure the continuity of its
neoliberal reforms, thereby appeasing both
the local business elite and multilateral lend-
ing agencies like the International Monetary
Fund (IMF), whose nod of approval is crucial
in assuring the flow of foreign loans and
investment that keep the entire neoliberal Dionisio R economy afloat. Banco de
The neoliberal regime has facilitated a new con-
centration of wealth in Peru which actually
began in the late 1980s with hyperinflation. High
inflation depreciates the price of labor, resulting in a
transfer of real wages from salaried workers to proper-
ty owners. By 1990, after three consecutive years of
hyperinflation, real wages were 18% their 1973 value.
But the shock treatment applied between 1990 and
1992 to bring down inflation also helped concentrate
wealth upwards. The goal of economic adjustment is to
cut back consumption by allowing prices, interest rates
and exchange rates to free-float to their “true” levels by
cutting subsidies and abolishing all price controls. The
end result is the same: the slashing of incomes, and
therefore the living standards, of the nonpropertied
classes. Not all of the high-end economic groups bene-
fit from inflation and posterior structural-adjustment
policies, however. Those groups that depend more on
the internal market, such as industrialists and agrobusi-
nesses, are harder hit than export industries like mining
and fishing, or the banking sector, which can frequently
convert its debt into equity. Indeed, those grupos who
owned banks were better placed than those that didn’t
during the structural-adjustment period, since they were
able to seize assets from debtors, move capital from one
34
omero leads the Grupo Romero, owner of Peru’s largest bank, the Credito.
sector to another, and multiply their ability to turn
assets into money.
Structural adjustment was just the first phase, how-
ever, of a broader neoliberal program that has made the
wealthiest groups in society even wealthier. And just as
the gains from the “Fujishock” were selectively distrib-
uted, not all of the economic grupos benefited equally
from neoliberal reforms. Free-market policies have
seriously undermined the industrial sector, while con-
sistently favoring two other sectors of the economy:
primary-product exports and the financial sector.
Neoliberalism has thus helped displace some grupos in
favor of others, while helping new ones emerge.
Grupos linked to the export of primary products like tin
and copper, fish products and some agricultural goods
have been favored by the neoliberal economic model.
But because the prices of these goods are highly sensi-
tive to competition and changes in the international
market, Peru’s grupos have been forced to diversify
their investments into other sectors. Many, for example,
have become active in the banking and financial sector,
and some have merged with or participate in joint ven-
tures with transnational companies.
This can be clearly seen by briefly examining the tra-
jectory of two of Peru’s most important grupos, the
NACLA REPORT ON THE AMERICASREPORT ON WEALTH
Grupo Brescia and the Grupo Romero. Fortunato
Brescia, leader of the Grupo Brescia, is an Italian immi-
grant who made his initial fortune in the real-estate
industry in the 1940s. His son, Pedro Brescia, expanded
the family’s holdings to mining and manufacturing. In
the era of greatest state assistance and protection of
national industry, the Grupo Brescia controlled La
Uni6n, one of the largest textile complexes in Peru,
making the grupo one of the most formidable in the
country. The free-market reforms of the 1990s, however,
seriously undermined La Uni6n’s viability as radical
tariff reductions and the establishment of a free-floating
exchange rate brought a flood of imports into the
country. With government subsidy cutbacks, local
manufacturers like the Grupo Brescia were hard hit,
and many industrialists were bought out by larger
grupos with greater staying power. Even the most sol-
vent industrial grupos were forced to merge with for-
eign companies to avoid going under completely, and
many switched gears altogether, abandoning their activ-
ities in industry to
become importers. The
Grupo Nicolini, for ex-
ample, which used to
be a leader in the
Peruvian food industry,
is now one of the coun- Dionisio Romero, try’s top importers.
one of Peru’s The Grupo Brescia was
wealthiest men,
adeptly switched
from the
nationalist ideology
that brought him
fortune in the
1970s to the
globalism of the
neoliberal model.
able to regroup, howev-
er, because it retained
control of some of the
country’s key mining
companies. One of
those companies,
Minsur, Peru’s largest
tin producer, has been
one of the Brescia
Group’s most profitable
ventures. In 1995 alone,
Minsur earned $47 mil-
lion, and it was the
twelfth-most profitable
export industry in the
country. Neoliberalism
has clearly favored the
development of the pri-
mary-product export
sector, especially min-
ing, by granting this
sector special benefits
such as tax cuts, complete access to the foreign exchange
they generate and even a tax-and-tariff moratorium.
These benefits were justified, according to the govern-
ment, because this sector generates foreign exchange and
attracts foreign investment.
The Grupo Brescia has also taken advantage of the
opportunities for private investment that were opened up
by the privatization process. In 1995, the Brescia family
won a bid with the Spanish bank, Banco de Bilbao y
Vizcaya, for control of Banco Continental, the third-
largest bank in the country. In 1994, when the Banco
Continental was still a state-owned bank, its profits were
a few million dollars. After being privatized a year later,
its profits shot up to an amazing $46 million. Profits are
estimated to have reached $50 milllion in 1996, which
would make it the country’s second-largest bank.
The neoliberal reforms applied after 1990 opened up
new frontiers of investment for the powerful Grupo
Romero, which owns the Banco de Cr6dito, Peru’s
biggest bank. Dionisio Romero, the founder of the
Grupo Romero, had consolidated his empire under the
reformist military regime in the 1970s. He used nation-
alist-inspired legislation on bank ownership, for exam-
ple, to out-leverage the Italian owners of the Banco
Italiano, which later became the Banco de Cr6dito. The
first set of financial measures implemented under the
neoliberal regime greatly benefited financial giants like
the Grupo Romero. The dissolution of the state-run
development bank and the creation of new regulations
that effectively forced public savings-and-loans coop-
eratives to go bankrupt, for example, resulted in a huge
transfer of capital to the private commercial banks and,
therefore, to the grupos who own these banks. In addi-
tion, the neoliberal dictum that interest rates should be
allowed to float to their “natural” free-market levels has
proven-in the short run at least-to be very profitable
to the banks. And Romero has been adept at switching
from the nationalist ideology that brought him fortune
in the 1970s to the globalism of the neoliberal model.
His Banco de Cr6dito, which had accumulated net prof-
its of approximately $110 million in 1996, was one of
the first Peruvian companies to sell stock on the New
York Stock Exchange.
The Grupo Romero has also astutely exploited the
opportunities afforded by the privatization of state-
owned enterprises and of the state-run social-security
system. In partnership with Chilean and Spanish capital,
the Grupo Romero purchased Edelnor, the company that
distributed electric energy. Like other state-owned
enterprises that have been privatized, the purchase pack-
age included certain conditions to assure profitability.
When purchased, for example, a significant number of
Edelnor’s employees had already been fired, which not
only cut production costs but effectively weakened the
trade union’s bargaining capacity to demand future ben-
efits. A program of rate hikes had also been put in place
before the company was privatized.
VOL XXX, No 6 MAY/JUNE 1997 35 VoL XXX, NO 6 MAY/JUNE 1997 35REPORT ON WEALTH
Again in conjunction with Chilean capital, the Grupo
Romero established a private pension-fund administra-
tion company (AFP) named
Uni6n. Originally, the AFPs were
supposed to compete on equal
terms with the state-run pension
system, but several measures
have been set up to make the
AFPs a more attractive option to
workers. For example, workers
are required to pay 13% of their
salaries to the state-run pension
system, but only 12% if they are
affiliated with an AFP. The AFPs
are such profitable investments
that virtually every grupo has
stock in an AFP. Controlling
AFP stock, moreover, allows a
grupo to decide how to invest the
funds channeled through these
private pension funds.
While the Romero and the
Brescia Groups are among the
most powerful and wealthy in the
country, the profits they have
made thanks to neoliberal eco-
nomic policies pale in comparison
to those garnered by transnational
companies that operate in Peru.
The U.S.-based Southern
Peruvian Copper Corporation, for
example, which owns the princi-
pal copper-mining company in
Peru, earned profits in 1995 of
$254 million. In the same year,
the Spanish-owned Telef6nica, A man protests the Fujij
which scooped up much of Peru’s neoliberal policies, whic
telecommunications industry after and underemployment.
it was put on the privatization block, earned $314 mil-
lion.
eru over the past few years has been touted as a
neoliberal success story. Thanks to the strict
application of free-market policies, advocates
claimed, hyperinflation was licked, economic growth
was on the upswing, and foreign investment was return-
ing. After his reelection in 1995, Fujimori was riding a
strong wave of optimism. In his inauguration speech he
announced a “leap toward the future,” affirming that
1994’s 13% growth rate was proof positive of the
soundness of the neoliberal model. By mid-1996, his
partisans within Congress were preparing a law that
would allow him to seek a third term, despite a consti-
tutionally imposed two-year limit.
hm. h
Five years after the autogolpe, however, the illusion
of progress brought by foreign investment and the free
market has started to dim. Prior to
the drawn-out hostage crisis
which ended on April 22 with
much heroic posturing and the
freeing of the high-profile
hostages at the residency of the
Japanese ambassador to Peru,
Fujimori’s popularity rating had
already begun to decline. While
he had a 74% approval rating in
January, 1996, that figure had
dropped to 41% on December 15,
just two days before the MRTA
action. This was partly because
economic growth had slowed to
an annual rate of 2.8%, down from
its high spurts of 13% and 7% in
1994 and 1995 respectively, and
little had been done to alleviate
poverty or provide sustainable
jobs for Peru’s poor majority.
Fujimori’s declining popularity is
due to the fact that the regime of
wealth and power concentration
that he has until now identified
himself with is increasingly seen
by ordinary Peruvians as not only
unjust and inequitable, but also
unworkable. Just as they withdrew
their support of the reformist par-
ties after their state-led economic
model proved unviable, Peruvians
are now withdrawing their support
ori government’s of Fujimori. But Fujimori is,
have exacerbated un- above all, a highly pragmatic man.
Perhaps he will redefine his priva-
tization and liberalization policies in order to shore up
his slipping popularity.
It took five long decades, from the 1920s through the
1960s, to get rid of the old landed oligarchy and its
dreams of eternal wealth and power. The way things are
going, it seems highly unlikely that the new oligarchy
will be able to maintain its neoliberal regime for half that
time. The problem, of course, is that a political project
capable of articulating the demands of civil society and
including those demands in a new proposal of democra-
tic and equitable national development has yet to appear
on the Peruvian horizon. But the supressed popular
demands that have been accumulating over the past sev-
eral years will surely serve as the boiling point for the
emergence of that new alternative. It’s just a matter of
time.
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