ABSTRACT

Peru and Venezuela in Latin America represent two cases of countries caught on the elephant track. A flurry of overseas funds had driven the stock market up by 30 percent per month during the last quarter of 1991, as analysts chased the “great opportunity” of Peruvian economic reform. Peru’s latest difficulties are only magnified by a glance at its potential. Peru’s economy today is characterized by minimal development levels despite abundant mineral resources. The economy had contracted by an estimated 30 percent between 1987 and 1991, and had been battered by terrorism, capital flight, and hyperinflation. Foreign exchange reserves declined precipitously, and investor and creditor confidence further tumbled, especially following García’s ill-timed and ill-conceived move to nationalize banks. The role of the Sendero Luminoso guerrillas in inhibiting economic development in Peru has been well documented. The Sendero Luminoso rebels do not make direct racial appeals; indeed, leaders insist that they are motivated purely by class struggle, not race.