Contemporary U.S.-Latin American Relations

Cooperation or Conflict in the 21st Century?

The Case of Peru

Peru in the First Decade of the 2000s

Cooperation has been robust. But will this cooperation be sustained?

Despite robust U.S.-Peru cooperation, U.S. power has declined relative to the power of other nations, in particular China, and Peru itself has

become more confident. A pro-U.S. candidate may not be elected in 2011.

The robust cooperation was surprising

In the second half of the 20th century, bilateral relations had often been tense.

Other Andean nations were becoming more distant from the U.S.

Peru’s 2001-2011 presidents had not always been enthusiastic about the U.S. role in Peru

Alejandro Toledo & George W. Bush

AlAlan García and Barack Obamaan García and Barack Obama

Strong Economic Cooperation: The U.S.-Peru Free Trade Agreement

Colombia and Panama were also seeking a FTA with the U.S. during this period, but only Peru succeeded.

The FTA was approved by Peru’s congress, 79 to 14, in 2006 and was also approved in Peru’s opinion polls

Both Toledo and García lobbied hard for the FTA

The U.S.-Peru FTA(in effect Feb. 1, 2009)

Approved in the U.S. Congress in late 2007. Some Democrats sought to show they were not knee-jerk opponents of FTAs. Some fought hard for strong labor and environmental provisions until certification in 2009.

Given the timing, the FTA’s effect is difficult to evaluate. But its negotiation was one factor in Peru’s positive international image and, concomitantly, strong economic growth. Between 2000 and 2009, the value of U.S.-Peru trade more than doubled and the U.S. share of Peru’s FDI stock increased about 30%. Peru’s real GDP doubled.

20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010

Latin Latin AmericaAmerica

1.1 3.2 5.2 5.3 6.1 5.9 4.3 -1.4 2.0

PeruPeru 5.0 4.0 5.0 6.8 7.7 8.9 9.8 0.9 6.3

Growth was strong for seven consecutive years and Growth was strong for seven consecutive years and has rebounded after the global financial crisishas rebounded after the global financial crisis

% change in GDP% change in GDP

(source: IMF)(source: IMF)

Considerable Cooperation on the Drug War and Security

Peru is the world’s second largest exporter of cocaine.

Peru’s Shining Path insurgency was decimated after the capture of Abimael Guzmán in 1992 but remnants remain active in drug-producing areas.

Control of Coca and Coca Leaf in Peru, 1995-2008

Number of hectares

eradicated

Labs destroyed

Number of hectares in coca

1995 0 0 115,300

2000 6,206 97 31,700

2005 8,966 1,126 34,000

2008 10,143 1,225 41,000*

Source: U.S. State Department International Narcotics Control Strategy Report.

*United Nations estimate for 2008 was 56,100 hectares.

Tensions with Chile: Resolution sought through International Institutions

37,900 square miles in the Pacific Ocean are in dispute. Chile argues that the border was determined by two bilateral treaties in the 1950s; Peru, that it was not

Peru took the case to the International Court of Justice at the Hague in 2009

Humala was stridently anti-Chilean

Military expenditure

The García government called for a pact among UNASUR countries to reduce arms purchases by 15% and military expenditure by 3% over the next three years.

García’s call did not meet a favorable response and Peru itself moved to increase expenditure (including Chinese-built tanks and Brazilian fighter planes).

Considerable Cooperation on Democracy and Human Rights

Overall, Peru’s record was good and the U.S. was not unsupportive of Peru’s efforts to hold Vladimiro Montesinos and Alberto Fujimori accountable.

The FBI helped in the capture of Vladimiro Montesinos in Caracas in 2001.

To a degree, the U.S. also helped in the trial of Alberto Fujimori; the Obama administration praised the conviction.

Robust Cooperation May Not Be Sustained: Factor 1: China’s new power

The relative power of the U.S. has The relative power of the U.S. has decreased while the relative power of decreased while the relative power of China has increased. Peru and China China has increased. Peru and China signed a FTA in record time.signed a FTA in record time.

Peru’s Exports Value (in billions of U.S. dollars) and Key Partners,

2000-2009

2000 2007 2009

Amount Percentage Amount Percentage Amount Percentage

Total $6.7 N.A. $27.6 N.A. $27.0 N.A.

U.S. $1.8 27% $5.2 19% $4.6 17%

China $0.4 7% $3.0 11% $4.1 15%

Source: Richard Webb and Graciela Fernández Baca, Perú en Números 2008 and 2002 and Martín Pérez Monteverde (2010).

Peru’s Imports Value (in billions of U.S. dollars) and Key Partners,

2000-2009

2000 2007 2009

Amount Percentage Amount Percentage Amount Percentage

Total $6.8 N.A. $20.4 N.A. $21.4 N.A.

U.S. $1.6 24% $3.6 18% $4.3 20%

China $ 0.3 4% $2.5 12% $3.3 15%

Source: Webb and Fernández Baca, Perú en Números 2008 and 2002 and Martín Pérez Monteverde (2010).

Foreign Investment

China’s FDI in Peru was negligible, but it is increasing rapidly. China has said it plans to invest some $4.5 billion, which could make it the #1 holder of FDI stock.

Although the U.S. share of Peru’s FDI stock is increasing, it holds only about 15%. With about 23%, Spain is currently number 1.

China has “soft power” in Peru

In a poll conducted by CIDE in 2008, China tied with Japan as the nation viewed most favorably by Peruvians. The U.S. was tied for 4th.

Both Toledo and García had lengthy state visits in China and Hu Jintao was frequently featured in Peru’s media.

Robust Cooperation May Not Be Sustained: Factor 2: Peru’s new confidence and diverse partnerships

Peru has a new vision of its own global role as the region’s Pacific-coast hub.

In accord with this vision, Peru has reached out to a large and diverse set of nations. Peru has signed FTAs not only with the U.S. and China but also Chile, Canada, Singapore, and most recently the European Union.

Peru’s ties have strengthened with Peru’s ties have strengthened with Brazil. Major new road links are under Brazil. Major new road links are under

construction. In the 2008 CIDE poll, construction. In the 2008 CIDE poll, Brazil was the 3Brazil was the 3rdrd most favorably most favorably

perceived nation.perceived nation.

Peru’s own “soft power”

In the 2008 CIDE poll, 69% of Peruvians believed that Peru had more importance in the international arena now than ten years ago.

In 2007, Machu Picchu was selected as one of the “new seven wonders of the world.”

Peru’s top chef, Gastón Acurio, has been featured in articles around the world. Wrote Gustavo Gorriti: “Our cuisine is great because it is mestizo.”

Robust Cooperation May Not Be Sustained: Factor 3: Uncertain outcome of the 2011 Elections

A market-friendly, pro-democratic candidate seems most likely to win, but this outcome is far from certain. Alan García won the 2006 runoff by a mere five points against Chávez ally Humala; both Toledo’s and García’s approval ratings were usually been below 30%.

Many Peruvians doubt that Peru’s new wealth has been distributed fairly

Poverty has fallen from 55% in 2001 to 35% in 2008—according to official statistics, which have been questioned.

Wages have risen modestly at best. Between 2001 and 2008 the nationwide real minimum wage increased about 12%. (Between 1994 and 2000, it had doubled.)

The Distribution of Wealth Is Fair, 2007The Distribution of Wealth Is Fair, 2007

Fuente: Latinobarómetro 2007

P. ¿Cuán justa cree Ud. que es la distribución del ingreso en (país)? *Aquí solo ‘Muy justa’ y ‘Justa’

21

8

0 10 20 30 40 50

Latinoamérica

Perú

*Aquí sólo ‘No les alcanza tienen dificultades’ más ‘No les alcanza tienen grandes dificultades’

““With my salary, I can’t make ends meet,” 2007With my salary, I can’t make ends meet,” 2007

Fuente: Latinobarómetro 2007

49

53

0 10 20 30 40 50 60 70 80 90 100

América Latina

Perú

Bagua, 2009: Indigenous Bagua, 2009: Indigenous protest, at least 33 deathsprotest, at least 33 deaths

Likely candidates in the Likely candidates in the 2011 Elections2011 Elections

Luis Castañeda LossioLuis Castañeda Lossio Keiko FujimoriKeiko Fujimori Alejandro ToledoAlejandro Toledo Ollanta HumalaOllanta Humala ??? (2011’s Outsider)??? (2011’s Outsider)

Luis Castañeda LossioLuis Castañeda Lossio

Keiko FujimoriKeiko Fujimori

Alejandro ToledoAlejandro Toledo