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Protests Stymie Peru's Drive to Raise Capital

As in other Latin nations, rising opposition to privatization is halting projects that could bring foreign funds and create jobs


CHICLAYO, Peru — A $100-million sugar project on an abandoned stretch of government-owned desert offers what this country's ailing economy needs: jobs, tax revenue and a likely end to importation of 30% of the sugar it consumes.

But the developer has been forced to put the project on hold after a rising tide of citizen opposition to government efforts to sell assets to the private sector soured the investment climate.

The same resistance to privatization, often violent, is flaring across South America, fueling street protests in Argentina and the surprisingly strong presidential bids of leftist candidates in Brazil and Bolivia.

Citizen resentment is perhaps most visible in Peru, where a recent poll by Apoyo, a Lima consulting firm, showed 70% of those questioned were opposed to privatization. Last month, riots in Arequipa that left two dead forced the government to suspend the sale of two regional power utilities to Brussels-based Tractabel for $167 million.

Days later, rice farmers opposed to a 14,000-acre resort near the northern city of Tumbes blocked traffic on the Pan American Highway for two days, paralyzing the region. Sugar farmers opposed to privatizing their cooperative near Trujillo also protested, as did woodcutters in the Amazon who demonstrated against granting timber licenses to big companies.

The nervous government has suspended several major privatization plans, causing doubts in the investment community and uncertainty about the future of government auctions of assets ranging from power transmission lines to ports totaling about $3.5 billion.

"We can't go forward until the situation stabilizes," said Rex Canon, president and chief executive of Maple Cos. and the company's top executive in Peru. In 1998, his company, which has been operating in Peru for 10 years, fired up a electric power plant near Pucallpa that supplies 5% of the country's electricity.

There have been no public demonstrations against Maple's project, which calls for developing a desolate tract of land the company won through a bid. The project would include 15,000 acres of sugar cane fields, a sugar mill with a small power plant and a five-mile canal to bring water from a nearby reservoir.

But the demonstrations have made Wall Street nervous, driving up interest rates on Peruvian debt and increasing the cost of financing that developers such as Maple Cos. of Dallas need to get projects built. As a cautionary measure, the firm has downscaled the sugar project to reduce or eliminate the need for outside financing.

The anti-privatization rage is not how Latin America's development script was supposed to read. It was an article of faith of the so-called Washington Consensus that Latin American countries would gain a path to prosperity and modernization by selling inefficiently run state assets and services to private companies.

Instead, privatization has triggered anger because benefits have failed to work their way to the people. After 15 years of asset sales, many citizens equate them with massive layoffs and, in some cases, higher rates for basic services. The continent is as far away from prosperity and First World status as it was before privatization began, according to several studies.

Peru, for example, is suffering through a four-year recession, and poverty and joblessness have been increasing since the early 1990s. During that time, the government has sold about $9 billion in state-owned assets and services, from telephone companies to power utilities. Unemployment is 15% and rising.

"The feeling is that the government has sold off grandmother's jewels, and that people are left with neither the jewels nor grandmother," said political analyst Julio Cotler of the Institute of Peruvian Studies, a Lima-based think tank.

Opposition to privatization began building under the authoritarian regime of President Alberto Fujimori, who was in power from 1990 to 2000. Outrage emerged after it was revealed that his disgraced and imprisoned advisor, Vladimiro Montesinos, siphoned off $115 million in privatization proceeds. (About $75 million has been recovered.)

"The image privatizations have here is totally negative, a synonym for cronyism and corruption," Cotler said.

The recent democratization process under President Alejandro Toledo has given Peruvians more freedom to vent their frustrations.

Displeased Citizens

Although people questioned in recent polls by Apoyo said basic services have improved, they nevertheless use privatization as a focus for their dissatisfaction with the government, Apoyo chief economist Hugo San Martin said.

"Without a giant economic boom, people will not recover their optimism about privatizations," San Martin said.

Many blame political missteps by Toledo for the recent turmoil. He decided to go ahead with the privatization in Arequipa even though he had promised the citizens of Peru's second-largest city during his campaign that the power companies were "untouchable regional patrimony."

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