Peru's debt and its political crisis

THE call of Alan Garc'ia P'erez, Peru's new President, for an alternative approach to his country's economic ills -- tying interest payments to export earnings and limiting those payments to 10 percent -- has received a chilly response in international banking circles. It has raised fears that a precedent in Peru would be followed by similar moves by the larger debtors -- Brazil, Mexico, and Argentina. These concerns should not blind us to the reality that Mr. Garc'ia's proposal addresses: the dual economic and political crisis engulfing Peru. US policymakers will face critical decisions with respect to this fledgling democratic regime in coming months. Without timely financial backing, Peru's social and political fabric is at risk. Both Peru and the United States will be well served to help Garc'ia avoid the recurrence of a Central American scenario in the Andes.

Like many other South American nations, Peru is in the midst of its worst economic crisis since the depression of the 1930s. For the urban poor, who constitute two-thirds of the population of Lima, conditions have declined since 1980. Collective kitchens have sprung up throughout the squatter settlements to help families stretch their limited income. Those fortunate enough to have work see their earning power being eroded by inflation that will run more than 200 percent this year. Crop failures, inadeq uate credit, and the threat of violence continue to fuel migration of the rural poor to the cities.

What distinguishes Peru's case and makes Garc'ia's new government so important is that the economic crisis is accompanied by a political crisis that threatens to unravel Peruvian society. The challenge is posed by the violence of guerrilla and terrorist groups committed to armed struggle and the response of the state's police and military forces. The conflict has left a growing number of Peruvians convinced that the forces of order are no longer capable of protecting them or their property.

The guerrilla presence is serious. Organizations operating in the Andes and in Lima appear to be capable of coordinated action. Urban blackouts, the sacking of police stations, car bombings, and assassinations occur with relative frequency, leaving the average citizen with the impression that terrorists are free to act at will.

Much of the rural population finds itself caught between the violence of the guerrillas and the violence of the state -- the national police force or the military. In the emergency zones of the central and southern Andes, the level of conflict and fear has forced large numbers of peasants to migrate to the shantytowns on the coast. The guerrillas pressure young people into their ranks, while the Army drafts 17- and 18-year-old sons of peasants and sends them off to fight the sons of other peasants. Sold iers and police are often the targets of guerrilla attacks, and the young and inexperienced draftees -- afraid for their own lives -- abuse the local population. Rural peasants fear that the young soldiers will kill without discrimination.

It is not an auspicious climate for investment, and the new government talks explicitly about learning to live with what Peru can produce. In urban areas the high price of imported wheat has forced migrants to return to potatoes and toasted corn as the staple diet. Garc'ia has promised new credits for agriculture and greater emphasis on the rural sector.

It is important for US policymakers evaluating this new government to note that Garc'ia does not blame the policies of the industrialized world or international banks beyond its borders for all of Peru's problems. Rather, he has placed corruption and fraud by public officials high on the list of essential reforms. He has said he will restrict military spending and cut back on new equipment orders. As a symbolic gesture, he proposed to cut his salary and suggested that all other elected representatives and senators do likewise. Most important, he has promised to reorganize the police forces in the first 60 days of his government. That move offers some hope to a population fearful of growing crime and organized terror.

Peru appears to have found a leader with skill and a desire to lead. What would constitute a positive US response in the current situation?

First, Washington should remember that Garc'ia has said that Peru intends to pay its debt, but that it must be allowed to produce enough and earn enough to pay it. Second, the US can recognize the priority he has given to badly needed internal reforms and assist his efforts to advance those reforms. Third, US policymakers can restrain themselves from seeking an alternative government to the right, or a military solution, and support Garc'ia's conviction that the solution to the guerrilla challenge

is improvement of the economic conditions that gave rise to that movement.

Susan C. Bourque, professor of government and director of the women and social change project at Smith College, is author of ``Women and the Andes: Patriarchy and Social Change in Two Peruvian Towns.''