Peru in Brief: Political and Economic
Conditions and Relations with the United
States
Maureen Taft-Morales
Specialist in Latin American Affairs
April 10, 2012
Congressional Research Service
7-5700
www.crs.gov
R42523
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Peru in Brief: Political and Economic Conditions and Relations with the United States
Summary
This report provides an overview of Peru’s government and economy and a discussion of issues
in relations between the United States and Peru.
Peru and the United States have a strong and cooperative relationship. Several issues in U.S.-Peru
relations are likely to be considered in decisions by Congress and the Administration on future aid
to and cooperation with Peru. The United States supports the strengthening of Peru’s democratic
institutions, its respect for human rights, environmental protection, and counternarcotics efforts. A
dominant theme in bilateral relations is the effort to stem the flow of illegal drugs, mostly
cocaine, between the two countries. In the economic realm, the United States supports bilateral
trade relations and Peru’s further integration into the world economy. The United States is Peru’s
top trading partner. The U.S.-Peru Trade Promotion Agreement (PTPA) went into effect February
1, 2009. The Obama Administration requested $74 million in foreign assistance for Peru for
FY2013 to advance these objectives.
Ollanta Humala, of the left-wing Gana Peru, was sworn in as Peru’s president in July 2011 for a
five-year term. Gana Peru won 47 seats out of the 130 seats in the unicameral Congress, requiring
Humala to rely on political alliances with lesser parties in order to pass legislation. Deep social
divides over how to pursue development continue to undercut political stability. The more radical
elements of Humala’s original support base and his party urge the pursuit of more leftist policies,
such as nationalization of strategic industries, which Humala called for during the election
campaign. Forces that resist more radical policies include a strong business sector; a conservative,
wealthy elite; a centrist middle class; and a divided Congress. Social unrest, especially over
exploitation of natural resources, is likely to remain a challenge for the Humala government.
Since 2001 Peru’s economy has been stronger than all others in the region, with its growth due
mostly to the export of natural resources. High economic growth, along with social programs, has
helped to lower Peru’s overall poverty rates. Nonetheless, in some jungle, mountain, and rural
areas of the country, over 60% of the population continue to live in poverty. The income
distribution gap remains quite large as well. This economic disparity has contributed to rising
social unrest. President Humala submitted, and the legislature approved, a bill increasing royalties
mining companies must pay. The government estimates the royalties will generate about US$1
billion a year, which it will use to finance social development programs intended to narrow both
the social divide and the economic distribution gap.
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Peru in Brief: Political and Economic Conditions and Relations with the United States
Contents
Background...................................................................................................................................... 1
Political Conditions ......................................................................................................................... 2
Socio-Economic Conditions ............................................................................................................ 3
Peru’s Relations with its Neighbors................................................................................................. 6
Relations with the United States...................................................................................................... 7
U.S. Assistance and Congressional Interests ............................................................................. 7
Counternarcotics Efforts............................................................................................................ 8
Trade and Environment ........................................................................................................... 10
Figures
Figure 1. Map of Peru...................................................................................................................... 2
Tables
Table 1. U.S. Assistance to Peru by Account and Fiscal Year ......................................................... 8
Contacts
Author Contact Information........................................................................................................... 11
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Peru in Brief: Political and Economic Conditions and Relations with the United States
Background
Peru has had a turbulent political history, alternating between periods of democratic and
authoritarian rule. Political turmoil dates back to Peru’s traumatic experience during the Spanish
conquest, which gave rise to the economic, ethnic, and geographic divisions that characterize
Peruvian society today. Since its independence in 1821, Peru has had 13 constitutions, with only 9
of 19 elected governments completing their terms. Peru’s most recent transition to democracy
occurred in 1980 after 12 years of military rule. The decade that followed was characterized by a
prolonged economic crisis and the government’s unsuccessful struggle to quell a radical Maoist
guerrilla insurgency known as the Shining Path (Sendero Luminoso).1 President Alan García’s
first term (1985-1990) was characterized by many observers as disastrous. Of the leftist American
Popular Revolutionary Alliance (APRA), García’s antagonistic relationship with the international
financial community and excessive spending on social programs led to hyperinflation (an annual
rate above 7,600%) and a debt crisis.
By 1990, the Peruvian population was looking for a change and found it in the independent
candidate Alberto Fujimori. Initially applauded for his aggressive economic reform program and
stepped up counterinsurgency efforts, Fujimori became increasingly autocratic, dissolving the
legislature in 1992, overseeing the writing of a new constitution in 1993—which allowed him to
run again, and win, in 1995—and engaging in strong-handed military tactics to wipe out the
Shining Path that resulted in serious human rights violations. Reelected in 2000, Fujimori’s
government collapsed with revelations of electoral fraud and high-level corruption, and he fled
the country later that same year. In a landmark legal case, on April 7, 2009, former President
Fujimori was convicted and sentenced to 25 years in prison for “crimes against humanity,” on
charges of corruption and human rights abuses. Analysts regard the court’s decision as a
considerable accomplishment for Peru’s judicial system, which has been considered weak and
subject to political influence.
Peru then entered a period of relative political stability, economic growth, and poverty reduction,
initiated by a capable interim government, headed by President Valentin Paniagua (November
2000-July 2001), and continued by Peru’s first president of indigenous descent, Alejandro Toledo
(2001-2006). Toledo pushed through several significant reforms that increased tax collection,
reduced expenditures and the budget deficit, and negotiated a free trade agreement with the
United States.
Softening his populist rhetoric, Alan García launched a political comeback and won the
presidential race in 2006. Many observers cast him as “the lesser of two evils” compared to his
opponent, Ollanta Humala, who espoused nationalist, anti-globalization policies. García (2006-
2011) maintained orthodox macro-economic policies. Economic growth continued under García,
and so, too, did popular protests over the failure of that growth to improve social conditions for
Peru’s poorest people, and over the exploitation of natural resources.
1 Between 1980 and 2000, armed conflicts between Peruvian government troops, the Shining Path, and others resulted
in some 69,260 deaths and disappearances. See Commission on Truth and Reconciliation in Peru, Final Report, Annex
2, August 28, 2003. For more information, see David Scott Palmer, ed., The Shining Path of Peru, New York: St.
Martin’s Press, 1994.
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Political Conditions
Following his unsuccessful bid for the presidency five years ago, Ollanta Humala moderated his
stance from an extreme leftist, populist, nationalist approach allied with Venezuela’s President
Hugo Chavez, running again under a more center-leftist approach modeled after Brazil’s former
President Luiz Inacio Lula da Silva. Humala was sworn in as Peru’s president in July 2011 for a
five-year term. He defeated Keiko Fujimori, a conservative member of Congress and daughter of
disgraced former President Alberto Fujimori. In his first address as president, Humala promised
to maintain free-market policies while also working to narrow the wide economic distribution gap
and eliminate the social exclusion of Peru’s poor, mostly indigenous population. Initially,
Humala’s cabinet encompassed a broad range of the political spectrum, from orthodox
economists to former military officers and left wing radicals pursuing a consensus-based
pragmatic approach. Humala dismissed all of his top leftist advisers in a major cabinet re-shuffle
in late 2011, and has since been consolidating a more centrist approach.
Figure 1. Map of Peru
Source: Perry-Castaneda Library Map Col ection
After he was elected, Humala began negotiations with the mining sector, so that, once
inaugurated, he was quickly able to propose an increase in mining royalties paid to the
government. Mining companies accepted the increase as inevitable, since both presidential
candidates had advocated it, and were willing to accept moderate increases in exchange for a
stable set of royalty payment rules. The Peruvian Congress passed the bill, which became
effective in January 2012. The increased royalties are expected to provide an additional US$1
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billion annually to the national budget to fund Humala’s proposed social inclusion programs and
infrastructure projects.2
President Humala has also committed himself to reducing the social conflicts that have impeded
government functions over the last couple of administrations. Peru’s Ombudsman for Human
Rights reported that there were over 200 civil conflicts across Peru as Humala came into office.3
The first law Humala signed was a prior consultation law, requiring mining, energy, and logging
companies to consult with indigenous and rural communities about projects planned in their
communities, which had been the source of much social conflict. Former President Alan García
had vetoed a similar law, and violent conflicts over land use continued throughout his term. The
law brings Peru into compliance with the International Labor Organization’s Convention on
Indigenous Peoples, which Peru ratified in 1993. The convention requires that companies consult
indigenous groups before entering their ancestral territories to exploit natural resources.
Implementing regulations were promulgated April 3, 2012, and went into effect on April 4. As a
complement to the new law, the Humala administration also created an office of conflict
prevention.
Although the government hopes to reduce the number of conflicts by increasing dialogue among
communities, investors, and the state, some conflicts have not been resolved, and are likely to
continue. The prior consultation law does not grant local communities veto power over
investments in their area, for example, and does not require consultation for government coca
eradication efforts, another source of tension. Some businesses worry that the new consultation
process could add bureaucratic impediments to their projects. And some conflicts have political or
other roots besides land use issues.
Deep social divides over how to pursue development continue to undercut political stability. The
more radical elements of Humala’s original support base and his party, Gana Peru, urge the
pursuit of more leftist policies, such as nationalization of strategic industries, which Humala
called for during the election campaign. Forces that resist more radical policies include a strong
business sector; a conservative, wealthy elite; a centrist middle class; and a divided Congress. As
Humala alienates the leftist forces that helped him win the election, his position in the Congress
becomes weaker. Humala’s party does not have an outright majority; it has 47 seats to Fujimori’s
party’s 37 seats in the 130-seat chamber. He may lose the support of some members of his own
party, and his weak alliance with former President Alejandro Toledo’s centrist Peru Posible party,
which gave him a two-seat majority, has dissolved.4
Socio-Economic Conditions
Peru’s economy has been stronger than virtually all other Latin American economies since 2001.
Its gross domestic product (GDP) growth rate averaged 8.8% from 2001 to 2008.5 During the
2008-2009 global financial crisis, Peru’s economy slowed to 0.9%, but was one of the few in
Latin America to maintain positive growth. Meeting with then-President García in Washington in
2 "Peru's Humala signs bills to raise mining taxes," Reuter News, September 28, 2011.
3 "Peru: Humala's Biggest Challenge," LatinNews.com Weekly Report, vol. WR-11-25 (June 23, 2011).
4 "Peru: Country Outlook," Economist Intelligence Unit, October 1, 2011; and "Country Report: Peru," Economist
Intelligence Unit, March 2012, p. 4.
5 The World Bank, Peru: Brief, September 16, 2011, at http://web.worldbank.org.
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early June 2010, President Barack Obama called Peru an “extraordinary economic success
story.”6 In 2011, Peru’s economy grew by 6.9%.7 The Economist Intelligence Unit predicts Peru’s
GDP growth will slow to 5.1% in 2012 because of weak global economic conditions.8 Most of
Peru’s growth is due to the export of natural resources such as copper, gold, silver, zinc, lead, iron
ore, fish, petroleum, natural gas, and lumber.
Peru has been integrating into the world economy, signing free trade agreements with the United
States and other key trade partners such as Canada, Chile, China, Japan, Singapore, South Korea,
and Thailand. Peru is completing agreements with the European Union and the European Free
Trade Association9 as well.
García, who completed his second (non-consecutive) five-year term, largely continued the
orthodox economic policies of his predecessor, Alejandro Toledo, concentrating on reducing the
fiscal deficit. The U.S. State Department described Peru’s economy as “well managed” under
García, and maintained that better tax collection and growth were increasing revenues.10 President
Humala has followed suit, appointing a conservative economic team that is continuing existing
free-market economic and trade policies. He also insists, however, that he will enact policies to
eradicate poverty by spreading Peru’s wealth to the country’s poorest population. In his inaugural
speech, the new president said that “Economic growth and social inclusion will march together.”11
Peru’s rapid and sustained economic growth has substantially reduced poverty and increased
employment. Peru’s poverty rates have been dropping since 2000. The percentage of Peruvians
living in poverty fell from 54.3% in 2001 to 31.3% in 2010.12 Peruvians living in extreme
poverty, unable to purchase the most basic basket of necessities, fell from 24.1% to 9.8% during
the same period. Social unrest has continued to rise in recent years, however, as Peru’s poor have
felt that the country’s economic prosperity has not reached them. Indeed, the percentage of the
population living in poverty in some mountain, jungle, and rural areas is over 60%. The disparity
between rural and urban populations remains marked: as of 2010 over half (54.2%) of the rural
population lives in poverty, while 19.1% of the urban population does so. The income distribution
gap remains significant: the top 20% of the population garners 52.6% of the nation’s income,
while the lowest 20% garners only 3.9% of the income. According to the World Bank, “poverty
rates are still high for a country with income levels like Peru’s.”
Similarly, the factors weighed in the World Bank Human Opportunity Index, which measures
“how personal circumstances (birthplace, wealth, race or gender) impact a child’s probability of
accessing the services that are necessary to succeed in life” (timely education, running water,
6 Federal News Service, "Remarks by President Barack Obama and President Alan Garcia of Peru after their Meeting
(as released by the White House)," June 8, 2010.
7 "Country Report: Peru," Economist Intelligence Unit, March 2012, p. 3.
8 "Country Report: Peru," Economist Intelligence Unit, March 2012.
9 The EFTA is composed of Iceland, Lichtenstein, Norway, and Sweden.
10 Bureau of Western Hemisphere Affairs, U.S. Department of State, Background Note: Peru, May 2009,
http://www.state.gov/r/pa/ei/bgn/35762.htm.
11 "Ollanta Humala is Sworn In As New Peru President," BBC News, July 28, 2011.
12 Poverty figures in this section from: Organization of American States, Peru's Foreign Minister Trusts in a Fair
Electoral Process in his Country, Press Release E-290/05 (citing UN Economic Commission for Latin America and
Caribbean figures), December 14, 2005; World Bank, Peru Country Brief, May 18, 2009, pp. 1-3,
http://go.worldbank.org/AHUP42HWR0; and The World Bank, Peru: Brief, September 19, 2011, accessed April 4,
2012; and World dataBank at http://databank.worldbank.org; accessed April 4, 2012.
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sanitation, electricity), have improved greatly in Peru since 1995, but remain significantly lower
for Peru’s poorer population as compared to the wealthier population.13 Overall, for example,
chronic malnutrition among children under the age of five declined from 28.5% in 2007 to 23.2%
in 2010. But among the poorest 20% of the country’s population, 47% of children displayed
stunting from malnutrition, as opposed to only 5% of children among the wealthiest quintile. The
infant mortality rate was 64 deaths per 1,000 live births among the poorest quintile, and 14 per
1,000 among the wealthiest quintile. On the 2010 World Bank Human Opportunity Index, Peru
scores about 70 on a scale of 100 for universal access to services. It compares poorly to the rest of
Latin America, however, ranking 14th out of 18 countries.
As mentioned above, President Humala and the Peruvian Congress have already approved an
increase in mining royalties expected to generate US$1.1 billion a year to fund social
development programs aimed at closing that social and economic distribution gap. The President
also announced an increase in the minimum wage and a minimum pension to poor people over
age 65. His administration proposed, and in mid-March the legislature passed, a law to expand
natural gas use, especially for low-income sectors.
According to the Economist Intelligence Unit, “several years’ worth of large surpluses” provided
ample finance for the García administration’s social policies, but implementation of those policies
was hampered by the limited capacity of Peru’s institutions.14 The same holds true for the Humala
administration, which faces the challenge of making the government more effective in order to
continue and expand the positive trends of the past decade.
A case in point where increased effectiveness is needed is that of the Camisea natural gas project.
Peru began to decentralize government functions in earnest in 2002. Some analysts reported that
provincial and local governments were therefore not prepared, only two years later, to absorb the
$1.13 billion in revenue generated by the Camisea project that the national government
transferred to them between 2004 and 2009.15 The nascent sub-national governments appear to
have lacked the skills to manage the social and environmental risks, resulting in reported damage
to many indigenous communities, their livelihoods, and their ecosystems. The governments also
reportedly lacked the fiscal management skills to marshal the funds effectively, and poverty in
those areas remained as high as 60%. U.S. assistance programs help provide training and
technical assistance to sub-national (and national) institutions to plan and manage social services,
improve citizen access to information, and prevent and mitigate conflict.
Social unrest and debate over exploitation of natural resources is likely to remain a challenge for
the Humala government. Work at the Conga gold and copper mine in Cajamarca, in northern
Peru, has been suspended since late November 2011 due to violent protests there. Opponents
worry that the $5 billion project—the country’s largest foreign investment project ever—will
contaminate water resources that provide the region’s water for drinking and agriculture by
draining lagoons and filling them with mining waste. The government hired a team of
international experts to reassess the project’s environmental impact assessment, which the García
13 Socioeconomic information in this section drawn from The World Bank, Peru: Brief, September 16, 2011; and
World Data Bank at http://databank.worldbank.org; quintile data is from 2000, accessed Oct. 19, 2011 and April 4,
2012.
14 Economist Intelligence Unit (EIU), Country Report: Peru, London, May 2009, pp. 3, 4, 15.
15 World Resources Institute, Bank Information Center, Oxfam, “People, Power, and Pipelines: Lessons from Peru in
the governance of gas production revenues,” June 16, 2010.
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administration had approved in 2010. After receiving the report on April 17, 2012, President
Humala imposed additional conditions on the project, and Cajamarca’s regional president,
Gregorio Santos Guerrero, continues to oppose it. A group of civil society groups announced that
they would proceed with a mass strike unless the president declared the project “un-viable.”16 The
company involved, Yanacocha, whose U.S. parent company is Newmont Mining, is considering
the new requirements. Investors see the outcome of the case as an important indicator of Peru’s
business environment.17 Four other regions are experiencing protests against mining and energy
projects as well.
Peru’s Relations with its Neighbors
Peru generally has friendly relations with its South American neighbors, although tensions with
Chile arise occasionally. Peru’s Congress triggered renewed tensions in 2005 when it declared
new maritime borders; Chile claims that the maritime borders had been agreed to in fishing pacts
signed in the early 1950s. In 2008 the García administration asked the International Court in the
Hague to arbitrate the dispute; the oral stage of the process is scheduled to begin in December
2012. Peru’s chancellor, Rafael Roncagliolo, says Peru wants “to maintain the most peaceful
relations possible with Chile” during the process.18
Actions on both sides of the border led to tensions again in 2009. Chile conducted multinational
military exercises that rankled Peru, and Peru arrested a member of its Air Force for allegedly
spying and providing classified defense information to Chile.19 During the presidential campaign,
Humala made inflammatory remarks regarding Chile, demanding Chile apologize to Peru for
assaults during the War of the Pacific in 1879 and warning Chile not to discriminate against
Peruvians residing in Chile, or Peru would do the same against Chileans within its borders.20
Shortly after he was elected, however, Humala traveled to Chile, saying he wanted to get relations
between the two countries off on a good foot.
Peru and Ecuador resolved their sometimes violent border disputes by signing a peace accord in
1998, of which the United States was one of four guarantor states. Peru and Ecuador coordinate a
border integration project with U.S. and other international support.
Peru is a member of the Union of South American Nations (UNASUR), which seeks the
“equitable, harmonious, integrated development of South America.”21
16 "Cool Response to Peru Government's Conga Review," Latin News Daily Report, Daily Briefing, April 24, 2012,
Main Briefing.
17 “Resource Nationalism: Conga’s Outcome to Set Precedent for Future Mining Projects in Peru,” American Metal
Market, March 25, 2012.
18 EFE, "Perú Afirma Que Quiere "Relaciones Serenas Y Libres De Tensiones" Con Chile,"
http://www.emol.com/noticias/internacional/2012/04/23/537105/peru-afirma-que-quiere-relaciones-serenas-y-libres-
de-tensiones-con-chile.html, April 23, 2012.
19 U.S. Dept. of State, Background Note: Peru, January 3, 2012, http://www.state.gov/r/pa/ei/bgn/35762.htm.
20 AP, "Canciller peruano: Victoria de Ollanta Humala no perjudicaría relaciones con Chile,"
http://www.emol.com/noticias/internacional/2011/04/06/474590/canciller-peruano-victoria-de-ollanta-humala-no-
perjudicaria-relaciones-con-chile.html, April 6, 2011.
21 UNASUR, http://www.comunidadandina.org/sudamerica.htm.
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Peru joined the Asia-Pacific Economic Cooperation (APEC) in 1998, which promotes economic
relations between Peru and Asian countries. Peru is an active member, hosting the APEC summit
in 2008.
A member of the United Nations since 1949, Peru was a member of the Security Council in 2006
and 2007. Peruvian diplomat Javier Pérez de Cuellar served two terms as U.N. Secretary General
from 1982 to 1991. About 200 Peruvian troops participate in peacekeeping operations as part of
the U.N. Stabilization Mission in Haiti.22
Relations with the United States
Peru and the United States have a strong and cooperative relationship. The United States supports
the strengthening of Peru’s democratic institutions and its respect for human rights. The two
countries also cooperate on environmental protection and counternarcotics efforts. In the
economic realm, the United States supports bilateral trade relations and Peru’s further integration
into the world economy. President-elect Humala met with Secretary of State Hillary Clinton and
President Barack Obama in Washington in early July 2011. Humala said he wished to further
strengthen ties between the two countries, and Clinton reportedly said that “the United States
stands ready to be his partner."23 Presidents Obama and Humala met briefly at the Summit of the
Americas on April 14, 2012, in Cartagena, Colombia.
U.S. Assistance and Congressional Interests
According to the Department of State, the goals of U.S. assistance to Peru are to help it
consolidate democratic rule, invest in its people, combat narcotrafficking and terrorism, and
reform state institutions to improve public infrastructure and service delivery.24 Congress has
supported these goals through appropriated funding. Nonetheless, funding for Peru has been
declining since at least FY2010, when the United States provided almost $120 million in
assistance to Peru. Funding decreased to $97 million in FY2011. Total funding for FY2012 is
estimated to be $84 million, including $45 million for Development Assistance; about $2 million
for Foreign Military Financing; $5 million for USAID Global Health Programs; $620,000 for
International Military Education and Training; $29 million for International Narcotics Control
and Law Enforcement; and $2 million for Nonproliferation, Antiterrorism, Demining and Related
Programs.
Congress designated funding to Peru as part of several other regional programs. In the
Consolidated Appropriations Act of 2012 (P.L. 112-74), Congress stipulated that “not less than”
$10 million of Development Assistance, and “not less than” $10 million of Economic Support
Funds shall be made available for Peru, Central American countries, and the Dominican Republic
for labor and environmental capacity building activities relating to free trade agreements with the
22 U.S. Dept. of State, Background Note: Peru, op. cit.
23 Diego Urdaneta, "Peru President-Elect Meets Obama, Clinton," AFP, July 6, 2011.
24 U.S. Dept. of State, Peru: Foreign Assistance Program Overview, Congressional Budget Justification, Foreign
Operations, Annex: Regional Perspectives, Fiscal Year 2012.
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United States. In its Joint Explanatory Statement, Congress said that $10 million should be made
available for biodiversity conservation programs in the Andean Amazon region.25
The Obama Administration requested $74 million for Peru for FY2013, a decrease of almost $10
million from FY2012. The FY2013 request includes $47 million for Development Assistance;
about $2 million for Foreign Military Financing; $585,000 for International Military Education
and Training; $23 million for International Narcotics Control and Law Enforcement; and
$500,000 for Nonproliferation, Antiterrorism, Demining and Related Programs.
Peru and the United States signed a $35.6 million Millennium Challenge Threshold program for 2008
to 2010 that supported Peru’s efforts to reduce corruption in public administration and improve child
immunization coverage. The program, implemented by the U.S. Agency for International
Development (USAID), was extended to July 2011. The nationwide immunization program is
completed. To allow the completion of one remaining anti-corruption program, the Millennium
Challenge Corporation (MCC) has extended the end date until September 2012. No FY2013 funding
for MCC programs is expected. These activities will be incorporated into USAID programs for the
remainder of FY2012 and probably into FY2013.
Table 1. U.S. Assistance to Peru by Account and Fiscal Year
Fiscal Year
FY2012-13
Increase /
($ in thousands)
2011 Actual
2012 Estimate 2013 Request
Decrease
TOTAL
96,581
83,550
73,665
-9,885
Development Assistance
49,789
45,000
47,300
2,300
Foreign Military Financing
3,500
1,980
1,980
-
Global Health Programs - State
50
-
-
-
Global Health Programs - USAID
9,123
5,000
-
-5,000
International Military Education and
619 620 585 -35
Training
International Narcotics Control and
31,500 28,950 23,300 -5,650
Law Enforcement
Nonproliferation, Antiterrorism,
2,000 2,000 500 -1,500
Demining and Related Programs
Source: Congressional Budget Justification, Foreign Operations, Fiscal Year 2013
Counternarcotics Efforts
A dominant theme in the relations between the two countries is the effort to stem the flow of
illegal drugs, mostly cocaine, from Peru to the United States. Peru is one of the three Andean
countries that produce virtually all of the world’s coca. According to the State Department, Peru
“has the world’s highest potential production of pure cocaine.”26 Estimates of Peru’s total area of
25 Joint Explanatory Statement for Consolidated Appropriations Act of 2012, P.L. 112-74,
http://rules.house.gov/Media/file/PDF_112_1/legislativetext/HR2055crSOM/psConference%20Div%20I%20-
%20SOM%20OCR.pdf
26 This and other figures in this section are from U.S. Dept. of State, Bureau for International Narcotics and Law
(continued...)
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coca production vary widely. According to the United Nations Office on Drugs and Crime, the
area remained fairly stable in 2010, increasing by only 2% over the previous year, from almost
60,000 hectares in 2009 to just over 61,000 hectares in 2010. The U.S. government, using a
different methodology, estimated that 40,000 hectares were under cultivation in Peru in 2009, and
53,000 hectares in 2010, constituting a 33% increase. Within the country, there have been
significant changes in production. The upper Huallaga valley, formerly the country’s largest
producer of coca, experienced a strong drop in cultivation, due mostly to intensive eradication
there. Producing almost a third of the country’s coca, the valley of the Apurimac and Ene rivers,
known as the VRAE region, is now Peru’s largest coca cultivating region. Other areas, such as the
Maranon, Putumayo, and parts of the Amazon basin increased their coca production by as much
as 90%. According to the State Department, 93% of the coca grown in Peru is illegal and intended
for cocaine production. The rest is for traditional domestic consumption. The State Department
also reports that Peru is a major importer of precursor chemicals that are used to produce cocaine.
The cultivation of coca and production of cocaine has contributed to social problems in Peru.
Coca eradication is highly controversial in Peru, with coca farmers violently resisting it. Some
coca farmers have become allied with remnants of the Shining Path terrorist organization. Now
closely linked with narcotics trafficking, the Shining Path conducted 136 terrorist acts in 2010,
killing civilians and members of the police and military.27 Drug addiction has become a serious
problem, with an estimated 150,000 addicts across the country, but an insufficient number of
treatment and rehabilitation centers to treat them. Illicit coca cultivation and production has
damaged the environment, contributing to the deforestation of 2.5 million hectares over 30 years,
and the pollution of forests and streams from 118 million liters of precursor chemicals dumped in
them over a period of 5 years.
U.S. counternarcotics programs in Peru focus on three areas: eradication, interdiction, and
alternative development. The Obama Administration’s request for FY2013 includes a total of $47
million in counternarcotics funding, consisting of $25 million in development assistance and $22
million in International Narcotics Control and Law Enforcement (INCLE) funds.28 According to
the 2011 INCSR, from 2009 to 2010 alternative development programs led to a 24% increase in
the legal incomes of participating families, and to a 25% decrease in their level of poverty.
The Peruvian government released a new national drug plan in November 2011. It focuses on
combating organized crime, trafficking in narcotics and precursor chemicals, money laundering,
and financial crimes; and on increasing or improving drug-use prevention, rehabilitation,
eradication, and alternative development. When he took office, President Humala said he was
reevaluating Peru’s counternarcotics policy, and also that he saw the United States as a “strategic
partner” in combating illegal drug production and trafficking.29 The United States has required
total eradication of coca before a farmer can enter into alternative development programs in Peru;
critics say farmers should be allowed to make a gradual transition to alternative crops so that they
(...continued)
Enforcement, International Narcotics Control Strategy Report [INCSR], Peru, vol. I, Drug and Chemical Control,
March 2012, and March 2011, unless indicated otherwise.
27 U.S. Dept. of State, Office of the Coordinator for Counterterrorism, Country Reports on Terrorism 2010, Peru,
Washington, DC, August 18, 2011, http://www.state.gov/s/ct/rls/crt/2010/170259.htm.
28 U.S. Dept. of State, Congressional Budget Justification, Foreign Operations, Fiscal Year 2012, Annex: Regional
Perspectives, Peru, Washington, DC, pp. 814-815, http://www.state.gov/documents/organization/137937.pdf.
29 "Ollanta Humala is Sworn in as New Peru President," BBC News: Latin America and Caribbean, July 28, 2011.
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maintain a source of income. When the Humala administration stopped eradication shortly after
assuming office, many observers thought it indicated a major shift in policy, especially
considering that Humala had support from coca growers in his campaign. But the Humala
administration quickly resumed eradication in August 2011, and soon removed the officials he
had initially placed in charge of counter-narcotics policy, some said out of concern their policies
might antagonize the United States.30
In September, President Humala declared a 60-day state of emergency in several coca-producing
areas with a Shining Path presence. These areas were also the site of protests by coca farmers
opposed to the government’s forced eradication of their crops. Days after the state of emergency
was declared, the defense minister announced that the military was going to “take total control of
the VRAE.”31 According to the government, the military intervention to re-take control of the
region was to be coupled with the development of infrastructure such as roads, communications,
schools, and hospitals by army engineers. Nonetheless, the imposition of full military control of
the area for the first time since the administration of former President Alberto Fujimori, now
imprisoned for human rights violations and other crimes, raises concerns for many over human
rights and development issues. Protests over coca eradication are expected to continue.
Trade and Environment
The United States is one of Peru’s top trading partners. Of Peru’s $46 billion in exports in 2011,
almost 12.76% went to the United States; Peru exported more to China (15%) and Switzerland
(12.9%). Almost 20% of Peru’s imports came from the United States.32 Both the executive branch
and Congress have promoted trade with Peru, and protection of its environment, often linking the
two. The U.S.-Peru Trade Promotion Agreement (PTPA) went into effect February 1, 2009.
Congress passed environmental amendments to the PTPA that commit Peru (and the United
States) to enforce its domestic environmental laws, and adopt new laws to fulfill obligations
under multilateral environmental agreements. Other amendments to the PTPA call for the two
countries to take steps to enhance forest sector governance and promote legal trade in timber
products.
On April 17, 2012, a conservation non-profit organization invoked those amendments in
petitioning the U.S. Trade Representative to investigate and verify the legal origin of wood
shipments from Peru.33 An Environmental Investigation Agency (EIA) report indicated that
millions of dollars worth of illegal wood from the Peruvian Amazon were exported to the United
States between 2008 and 2010.34 If the U.S. government finds evidence of illegality, it can take
actions, including prohibiting the companies involved from exporting to the United States until
Peru produces evidence that each company is complying with the law and regulations. EIA noted
30 "Humala Stops Rocking the Boat," Latin American Weekly Report, vol. WR-12-02 (January 12, 2012).
31 "Peru: Security; Militarisation of the Vrae - Then and Now," Latin American Weekly Report, vol. WR-11-38
(September 22, 2011), p. 4.
32 U.S. Dept. of Commerce, Bureau of Census, via Global Trade Atlas, accessed April 25, 2012.
33 Andrea Johnson and Fiona Mulligan, US Government Requested to Use Free Trade Agreement to Take Action on
Illegal Timber Exports from Peru; Environmental Organization Submits Formal Petition To US Trade Representative
With Evidence On Dozens Of Shipments In Violation Of International Laws and US-Peru FTA, Environmental
Investigation Agency, press release, Washington, DC, April 19, 2012.
34 "NGO Alleges Illegal Logging Shipments from Peru; Will urge USTR to Act," Inside U.S. Trade, vol. 30, no. 15
(April 13, 2012).
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that Peruvian agencies are exercising greater oversight over the industry; to conduct its analysis,
the group used data from a government agency it said was reformed and strengthened under
provisions of the PTPA.
As mentioned above, Congress stipulated in the FY2012 appropriations law that both
Development Assistance and Economic Support Funds shall be made available for Peru for labor
and environmental capacity building activities relating to free trade agreements with the United
States. In its Joint Explanatory Statement, Congress said that $10 million should be made
available for biodiversity conservation programs in the Andean Amazon region.
In 2009 the United States announced it would be entering into an Asia-Pacific trade agreement
known as the Trans-Pacific Partnership (TPP). Peru is one of the negotiating partners. According
to the USTR, the TPP will be “a means to advance U.S. economic interests with the fastest-
growing economies in the world, and a tool to expand U.S. exports.”35 Critics assert that any
economic benefits deriving from the agreement “will be relatively small and the regulatory costs
could be significantly high—especially for the emerging market and developing countries
engaged in the negotiations.”36
Peru and the United States signed a debt-for-nature swap in 2008 that reduces Peru’s debt to the
United States by more than $25 million over seven years, until 2015. In exchange, Peru agreed to use
those funds to support grants to protect its tropical forests.
Author Contact Information
Maureen Taft-Morales
Specialist in Latin American Affairs
mtmorales@crs.loc.gov, 7-7659
35 U.S. Trade Representative, 2012 National Trade Estimate Report on Foreign Trade , Peru, 2012, p. 307.
36 Kevin Gallagher, Bamboozled by the TPP: The Small Benefits and Real Costs of the Trans-Pacific Partnership
Agreement, Global Development and Environment Institute, Tufts University, Globalization Commentaries, Medford,
MA, January 23, 2012. For further information on the TPP, see CRS Report R40502, The Trans-Pacific Partnership
Agreement, by Ian F. Fergusson and Bruce Vaughn.
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