The new government of President Alberto Fujimori has announced emergency measures to curb runaway inflation and cut Peru's huge national debt.
The moves, made public late Wednesday by Prime Minister Juan Carlos Hurtado Miller, included removal of all government consumer subsidies and an increase in prices of staple foods and utility service. The price of gasoline was increased 30-fold to $2 a gallon, while the price of bread and milk nearly tripled.
During the presidential runoff campaign three months ago, Fujimori criticized his opponent, novelist Mario Vargas Llosa, for proposing economic shock measures and warned that such actions would reduce living standards. Some Peruvians accused Fujimori today of breaking his promise not to burden the poor in an attempt to repair the country's stumbling economy.
To offset the price increases, the government ordered employers to provide bonuses -- of at least $23 each -- to all employees within five days, but critics charged that this was far from satisfactory. Officials said further measures would be taken to guarantee that workers do not lose purchasing power.
The emergency measures appeared to be the first installment in a plan designed to show that the Fujimori administration, which took office July 28, is prepared to pay a stiff price to clean up public finances and improve Peru's standing in the international financial community. Fujimori apparently is gambling that a quick, harsh economic correction will win international approval and reopen the flow of development funds to Peru.
In Lima, combat-equipped troops were in the streets to reinforce national police units positioned to prevent looting. Most stores did not open today, both because owners feared pillaging and because they did not know what prices to charge.
{Three people were killed in Lima late tonight by troops seeking to clamp down on street protests, the Reuter news agency reported. Police sources said the deaths occurred when troops fired on residents of a shantytown who had erected roadblocks and were burning old tires. In a separate incident, police wounded a man when they opened fired on a crowd trying to loot a Lima food market, the sources said.
There was almost no public transportation in the city today, as bus owners withheld service to protest rises in fuel prices without corresponding increases in bus fares. The government later reached an agreement with transportation firms to supply fuel for five days until new fares are set.
"What we are suffering today was originated by a government that treated us like guinea pigs," Prime Minister Hurtado said in a televised speech Wednesday night. Hurtado, who also holds the post of finance minister, criticized past government actions as relying on "a flimsy theory that the state can increase its deficit indiscriminately... invest inefficiently and tolerate corruption and ineptitude of a privileged group that abused its power."
During five years under the former government of president Alan Garcia, prices rose more than 2,000-fold. Hurtado said the new government-ordered price increases would return the country to the economic stability of five years ago.
The inflation rate reached 90 percent in July, according to independent estimates, and private producers have been raising prices sharply in expectation of the government's austerity move. Hurtado, who also declared that the new government would no longer allow public spending to exceed tax revenue, said he would resign in four months if the economic program does not bring inflation down to reasonable levels.
In addition to the price increases, the government eliminated a complex currency exchange system and said it would let the inti, Peru's basic monetary unit, float to its free-market value. The street rate today was 320,000 intis to the U.S. dollar -- twice the rate as when Fujimori took office. Officials say they hope the more realistic exchange rate will promote exports and hold down imports.
The government also imposed an immediate 10 percent tax on exports, which it hopes -- along with the expected surge in gasoline sales revenues -- will provide the treasury with a quick infusion of cash.
Raul Salazar, an economist with a consulting firm here, described the program as "a good start" but said other measures were still needed. Salazar said the government must also show it has a coherent international economic policy and that it can execute that policy efficiently.
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