Like the apartment dwellers of Lima after one of the city's numerous blackouts, Peru's economy is operating in the darkness.

Strangled by terrorism and unable to implement real reforms, Peru remains a symbol of the political and economic chaos from which other Latin countries are moving away,

"Certainly, the continent's most dangerous place is Peru," Elliot Abrams, former assistant secretary of state for Latin America, wrote in a recent assessment.

April Coup Halts Progress

Don't blame Peru.

The country was well on its way to putting its own financial house in order until President Alberto Fujimori staged a coup, suspending constitutional government in April. He justified the move as a bid to stem the advance of Sendero Luminoso, the Maoist guerilla movement.

Peru had been doing so well that International Monetary Fund managing director Michel Camdessus had only words of praise when he visited Lima in February.

"The encouraging results of the Peruvian [economic reform] program prove once again that, no matter how serious a country's problem may be, those problems can be overcome so long as appropriate policies are pursued," Mr. Camdessus said in a speech in the Peruvian capital.

When President Fujimori assumed office in July 1990, powerful cocaine barons flourished, hard currency reserves were almost exhausted, foreign creditors were shunning Peru, and the economy was mired in a deep recession and undermined by wild inflation.

Fujimori's Radical Reforms

Determined to effect change, the Fujimori administration adopted some of the most radical economic reforms in Latin America.

Peru lifted price and foreign exchange controls, cut inflation by pursuing a tight monetary policy, deregulated interest rates, allowed foreign investment, and initiated an ambitious privatization program.

Foreign currency reserves rose to $1.2 billion in March from a low of $147 million at Dec. 31, 1990. The administration also cleared interest arrears with international lending agencies, and Peru began to regain credibility in international financial markets.

The Fujimori administration also regained credibility among foreign banks and the financial community in Peru by returning to the private sector some elements of the economy, including the country's banks, expropriated under former president Alan Garcia.

But Mr. Fujimori lost most of his support after using the army to seize absolute power and suspend the Constitution in April.

And although inflation for the first six months of this year fell to a 37.1% rate, from 139.2% in 1991 and more than 7,650% in 1990, little likelihood exists that the economy will normalize before the political situation does.

"The situation, aggravated by the strong recession and restrictions on energy, has severely affected the profitability of the manufacturing sector in the face of foreign competition," Banco de Credito del Peru noted in a recent report.

Foreign observers are just as blunt.

"Very few trade lines are being kept open," said Kevin Mulvaney, group executive for international operations at Bank of Boston Corp. "Everybody's just watching."

Observers said that, unless President Fujimori engineers a return to democracy, Peru stands little chance of obtaining either foreign funding or investments that it desperately needs to spur growth.

Although the Peruvian president has promised a return to democratic rule by November, he still faces a host of economic problems.

"Stagnant domestic demand due to widespread low purchasing power, competition from foreign imports protected by a seriously overvalued exchange rate, export difficulties caused by the same foreign exchange problem, and high fuel prices - combined in recent months with a market scarcity of electricity - have contributed to putting a brake on . . . reactivation [of the] manufacturing industry," Banco de Credito del Peru noted.

Nor is it certain democracy will soon return.

"The political situation is desperately unstable," said Geoffrey Dennis, senior vice president and head of Latin America research at James Capel in New York. "I would like to be positive about Peru, but I am worried about politics."

"Some of the major parties will boycott the election," said a foreign banker, "and Fujimori is not likely to emerge with a strong mandate. There won't be any growth in Peru because of the political uncertainty."

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