Peru’s Big Debate: Novelist Takes On Charismatic Leader : Garcia’s Plan to Nationalize Banks Has Polarized His Nation

Listen to Peru’s Great Debate. It echoes the heartbeat of a troubled Latin American democracy.

The illustrious orators are President Alan Garcia, one of Latin America’s most charismatic young leaders, and novelist Mario Vargas Llosa, one of its most famous literary lions.

The burning issue is a government plan to nationalize private banks. It has aroused the conflicting passions of those Peruvians who want a “financial revolution” and others who fear the erosion of basic freedoms.

The nation has polarized sharply as its two most formidable public figures have led the opposing sides in an unusual series of tumultuous public rallies. Extensive media coverage has turned the dispute into an unprecedented national debate.

The debate is not merely about banks, of course. At the heart of the nationalization question are such deep concerns as whether government control or private enterprise is the key to economic development in an impoverished nation and how to balance property rights against majority needs in a fledgling democracy.

Peru has plenty of other problems to worry about these days, including Maoist guerrillas, cocaine wars, galloping inflation and overdue foreign debts. But those have been back-burner issues since June 28, when Garcia announced his bank nationalization plan.

Spread Credit Around

Under the plan, Garcia’s social democratic government would expropriate all 10 of Peru’s private banks, as well as six finance companies and 17 insurance companies. The expropriation measure has passed the Chamber of Deputies and is expected to win Senate approval soon.

Garcia contends that a “financial revolution” is necessary to “democratize credit,” spreading it around to Peruvians who need it most. At dozens of rallies, he has accused four major business groups of monopolizing access to private credit and strangling broader development.

“There is a clear dividing line here,” he told one rally. “Either we are with the four economic groups or we are with the people.”

Soon after Garcia announced his plan, Vargas Llosa became the star of a movement opposing the nationalization. Called Freedom, the movement has been surprisingly strong. One rally, led by Vargas Llosa in Lima’s downtown Plaza de Armas, drew more than 100,000 people.

The novelist has argued that the nationalization of the financial system will concentrate too much power in the hands of the government. He warns that the power could be used to manipulate the press and to exercise other “totalitarian” controls.

“In an underdeveloped country like Peru, the government is the real owner of the state, and the government uses the state exactly as if it were its property,” Vargas Llosa told a small group of foreign correspondents at his suburban seaside home. “So when the whole financial system is in the hands of the government, the temptation to use this power will be very strong.”

He accused Garcia of endangering Peru’s democratic system.

“He is giving his government, his party, such power that there will be no democracy,” Vargas Llosa said.

Many Peruvians have speculated that Vargas Llosa, 51, will use the debate as a springboard for a political career. Tall and slender, with a loose shock of graying hair, he cuts a distinguished figure that complements his popular appeal as a renowned writer and intellectual.

Makes Feelings Clear

But Vargas Llosa denies any interest in running for office. “I am a writer and I love my vocation, my job,” he said. “ I don’t like politics. It’s not my vocation at all.”

Garcia, 38, does not hide his irritation at Vargas Llosa’s energetic opposition.

“That comes when someone is creating conditions to start a political career, because he has reached the end of his other career,” the president told foreign reporters in his ornate Pizarro Palace.

He emphasized that the bank nationalization plan is being debated democratically, without restrictions on basic freedoms, and that class conflict is not the government’s goal.

“This is a discussion about the future of Peru, and it therefore provokes a confrontation of ideas,” he said. “But that does not mean agitation for class struggle or social conflict.”

He explained that the plan calls not only for the expropriation of the “oligarchical banks” based in Lima but also for a new system of regional banks to promote financial growth throughout the country.

Ownership of each regional bank would be 70% private and 30% government, he said. Holdings of private stock by any individual would be limited to 2% of the bank’s shares.

Garcia denied the allegation that the government would use increased control over credit to control the news media, and he dismissed the notion that other nationalizations might follow.

“This doesn’t mean that today we take over the banks and tomorrow we are going to take over the shoe factories,” he said.

After Garcia announced the nationalization, the government sent officials to take charge of administering the banks. The banks appealed against the intervention and a judge ruled in their favor. Then Garcia withdrew the administrators, pending approval of the nationalization bill.

Asked what he will do if the law is ruled unconstitutional, Garcia said: “Then I will obey. I am a democrat.”

Peruvian democracy was interrupted by military dictatorship from 1968 to 1980. Garcia won the presidency by an electoral landslide in 1985.

Power Challenged

One of his most popular early moves was to declare that Peru would reduce payments on its foreign debt to no more than 10% of export income. He gained further support with an “economic reactivation” program that increased salaries and stimulated growth of 8.5% in the economy last year.

Part of the program was an agreement with leading industrialists, dubbed the “12 Apostles,” for investment and cooperation.

But earlier this year, the reactivation program had begun losing steam as rising inflation eroded the purchasing power of workers. At the same time, Garcia’s power in the governing party, known as Apra, was being challenged.

Against Garcia’s wishes, Congressman Luis Alva Castro resigned as prime minister in June and won election as president of the Chamber of Deputies. Alva Castro, Garcia’s chief rival in the party, is known to be preparing his candidacy for the national presidential elections scheduled for 1990.

Many political analysts say that Garcia’s move against private banks was calculated to rally popular support for him and reinforce his leadership within Apra.

Others contend that the nationalization is aimed at appealing to the kind of radical youths being recruited by the Maoist guerrilla army of Sendero Luminoso, or Shining Path. “The only way he can defeat Sendero is to take issues away from them and create an environment where they can’t recruit,” a political scientist said.

But some analysts say the nationalization plan backfired on Garcia, driving away needed middle-class support and strengthening the previously fragmented opposition on the right.

“What he has managed to do is revive the center-right and right of the country, giving them a cause they can all sort of focus on,” a foreign diplomat said.

The latest development in the furor over the bank nationalization plan came Friday, when Manuel Romero Caro, minister of industry, trade, integration and tourism, resigned from the Cabinet in protest. Romero Caro said his differences with the government over the nationalization were technical and should not be used for political purposes.

But economic analysts say that the plan complicates Garcia’s economic reactivation program by alienating once-cooperative business leaders. “He shot himself in the foot,” said a foreign economist. “It was a totally political move, economically irrational.”

A foreign banker agreed: “Taking over the private banks, you’re not going to suddenly have this mass of new funds to lend to street peddlers. That’s a joke.”

Could Weaken Democracy

Government-owned banks and lending agencies already account for about 80% of available credit in Peru.

With few exceptions, members of the Apra majority in Congress have lined up dutifully behind the bank nationalization plan, but some party dissidents have been openly critical.

“He has destined the economic project to failure,” said Alfredo Barnechea, an Apra member of the Chamber of Deputies.

Most analysts agree that an economic crisis could weaken the 7-year-old democracy, although no one yet is predicting a military coup. Francisco Sagasti, a Peruvian social scientist with an independent think-tank, said some military officers were upset by the bank nationalization plan.

“Predictably, some of the more right-wing elements were enraged,” he said. “They used the word ‘chaos.’ ”

Other officers, however, were “more reasonable” in their reaction, Sagasti said. He observed that the Peruvian armed forces have never overthrown a popular president, and that Garcia still has an approval rate of more than 50% in reliable opinion polls.