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November 1, 1982
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Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 DIA review completed. State Dept. review completed Secret ALA 82-/0146 November 1982 Copy 3 0 2 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Directorate of Secret Intelligence Civilian Rule Peru: Prospects for Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Directorate of Intelligence Peru: Prospects for ~iviliam Rule This assessment was prepared by the Office of African and Latin merican Analysis. Comments and queries are welcome and may be directed to the Chief, South America Division, ALA, Directorate of Operations. Secret ALA 82-10146 November 1982 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret Peru: Prospects for Civilian Rule Key Judgments We believe that the armed forces, which ruled Peru for a dozen years Irt(ormation available before consenting to elections in 1980, remain the most significant as oj15 October 1982 potential threat to democratic civilian government. President Belaunde has was used in this report. assuaged most of the military's concerns through personal cultivation, adept leadership, and fairly effective policies. He has thus given himself a better-than-even chance, in our judgment, of remaining in office over the next 12 to 18 months. The armed forces are closely monitoring his performance, however, and their willingness to allow him to finish his term and transfer power to another civilian successor in 1985 will depend on his record in all major policy areas: internal security, the economy, domestic politics, and foreign affairs. Terrorism-and the reaction to it-is Belaunde's most pressing concern. The Maoist Sendero Luminoso (SL), a group of about 1,000 concentrated primarily in southeastern Peru, lacks any realistic potential to overthrow the government, in our view, but its capabilities are growing. In addition to typical terrorist actions, it probably could capture and hold for several days a small town, kidnap a prominent official, or hold its own against small military patrols. The spreading violence, moreover, has impelled the armed forces to seek a direct role in the struggle. The President, we believe, wants to rely on the civilian police as long as possible, in part because he hopes to avoid a situation similar to that which contributed to his ouster by the mili- tary in 1968. We judge, however, that direct armed forces participation in counterterrorism poses less risk for Belaunde than he fears, and would dramatically reduce the terrorist threat within a year or so. Peru's economy is suffering from many of the same ills afflicting most less developed countries, but we and the US Embassy believe that Belaunde's economic team has made significant progress in dismantling the initiative- stifling structures installed by statist military rule and in laying the groundwork for reasonable economic recovery. Peru will, we believe, achieve real growth this year of 2.5 to 3.0 percent and the current account deficit will rise as austerity mandated by the International Monetary Fund begins to pinch. In the long run, however, recovery is more difficult to forecast, because it is heavily dependent on an international economic upswing, as well as on the correction of certain structural weaknesses in the economy. We judge that meanwhile Belaunde will be able to continue dealing successfully with labor and the military on economic issues, although some concessions to these key groups will probably be made. Secret ALA 82-10146 November 1982 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 The President's success to date in managing Peru's political system is in our view the result of the acquiescence of the military, the growing institutional strength of his party and the ruling coalition, the disarray of opposition forces, and Belaunde's impressive personal talents. We do not foresee a change for the worse in these circumstances. Belaunde's judicious handling of two potentially serious foreign policy questions-a border conflict with Ecuador in 1981 and the Falklands war this year-enhanced his domestic standing and had a favorable impact on his relations with the armed forces, The odds that civilian rule will survive after Belaunde's term are less sure. The military has grown more apolitical in recent years, but also more conservative. Its historical tendency to intervene probably would be encouraged by a strong showing by leftist political forces during and after the campaign and election in 1985, although we do not anticipate this occurring. Such intervention would have implications for US interests in several regards: ? The democratic process, supported by the United States, would be set back in Peru. ? Military intervention would intensify political polarization and strength- en the radical leftists. ? A military government would be more likely than a civilian administra- tion to undertake adventures over longstanding border disputes with Chile and Ecuador. ? Even a politically conservative military government would be highly nationalistic and less receptive to US investment than a moderate civilian regime. ? A military government would probably be less amenable to reducing Peru's dependence on the Soviet Union as an arms supplier than any foreseeable popularly elected civilian administration. Secret iv Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret 25X1 Peru: Prospects for Civilian Rule Background: Belaunde and the Military Civilian President Fernando Belaunde governs in the shadow of his first administration, the coup of 1968 that ousted him, and the military regime that fol- lowed. Thus, public doubts persist that, despite his landslide electoral victory in 1980, he will not be able to avoid the mistakes, bickering, and political stagna- tion that doomed him in 1968. For the time being, however, Peruvians' relief over the end of military rule, coupled with the armed forces' disillusionment with governing, have given Belaunde a comfortable grace period. To date he has adeptly avoided or played down his previous mistakes and weaknesses while capitalizing on public distaste for the military regime. When Belaunde became President in 1963, he articu- lated avision of Peru's future that was based on the full incorporation of the Indian into national life, agrarian reform, and the development of the hinter- land. He set out to draft and implement massive programs, but these stalled in the face of inadequate resources, the political opposition's obstructionism, and foreign-supported insurgency. By 1968 his admin- istration had become mired down in partisan politics, indecisive economic policies, and a series of scandals and disputes that undermined public confidence and greatly diminished the President's personal populari- ty. The military was finally impelled to move against Belaunde when a serious dispute involving negotia- tions with US companies over oil leases set off charges that he had sold out the national patrimony. Con- vinced that the President was truckling to foreign investors, disgusted with his inability to deal with Congress, and dissatisfied with his slow reaction to an insurgent threat in 1965, the armed forces took over all power. The military regime that followed changed the tradi- tional pattern of short-term and parochially motivated military intervention in Peruvian public life. The officers who overthrew Belaunde had not only imme- diate but long-term objectives: ? To end debilitating bickering among civilian politi- cians and to terminate the government's contract with the US petroleum companies. ? To effect basic socioeconomic changes. Led by the leftist, nationalistic General Velasco, the armed forces quickly banned civilian participation in government and expropriated the petroleum compa- nies. Long-term social reform programs and develop- ment projects were launched, but these eventually overtaxed Peru's limited resources. In 1975 more moderate elements in the military replaced Velasco with Gen. Morales Bermudez. 25X1 During the following years, the military gradually retreated from its commitment to create a "new Peru," and this retreat in turn began to undercut the rationale for indefinite military rule. Increasingly frustrated by the intractability of Peru's ills, the Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Peruvian Provinces Under State of Emergency ---Departamento boundary Provincia boundary Area under state of emergency o zoo Kilometers Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret armed forces decided by the late 1970s to draft a new constitution, hold elections, and turn the government back to civilians. Despite some reservations, military officers swallowed their pride after the July 1980 elections and allowed Belaunde to take office. The Key Issues In view of these antecedents, Peru's armed forces remain the most significant potential threat to demo- cratic civilian government. This paper examines the factors that will determine the nature and extent of that threat over the next few years, and it assesses the prospects for military intervention and its implications Internal Security Belaunde's most pressing domestic problem is terror- ism. Despite the gradual upswing in violence, how- ever, and the prospect of worse to come, we and the US Embassy believe that the subversives-the Maoist group Sendero Luminoso (SL~by themselves lack the potential to overthrow the government. The SL has little support outside of a few highland provinces and has no known foreign support. Nevertheless, escalating terrorism and the so far ineffective police response have awakened memories of similar circum- stances during the previous Belaunde administrati~~ . ? ., , r- --- 25X1 This has once again raised the specter ~f m>>~.tary intervention. 25X1 We believe the armed services are closely monitoring 25X1 Belaunde's performance, and their willingness to al- Recent US Embassy reports, low him to finish his term and transfer power to a indicate that the terrorist group is developing civilian successor will depend on his record in internal into a significant guerrilla organization and is likely security, the economy, domestic politics, and foreign to undertake more sophisticated operations. If the ct relations. To satisfy them, Belaunde will have to: does expand its operations we foresee three 25X1 possibilities: 25X1 ? Reconcile tough measures to combat terrorism, presently his most serious problem, with his commit- ? Belaunde could boost further civilian police capabil- ment to democracy. His biggest challenge will be to ities while simultaneously working to convince the marshal an effective counterterrorist campaign without surrendering significant authority to the military to lend greater support to the civilian effort to control the terrorists. This is a difficult but military. ? Cope with economically induced political pressures feasible task, and one toward which the President has already taken some steps. from labor, the military, and the opposition parties. ? Belaunde, facing an expanding insurgency, might Successful management of economic problems will yield to military pressure and direct the Army to require skill and creativity on the part of the take over the counterterrorist effort. Despite what administration, and an upturn in international eco- we believe are the President's fears, we are not nomic conditions. ? Advance the process of rebuilding the civilian politi- cal system after 12 years of military rule while convinced that such a move would necessarily repo- liticize the military and open the door to a gradual assumption of power by the armed forces. avoiding the political paralysis that afflicted his first ? Finally, and least likely, if Belaunde fails to stem term. terrorist rowth, he could be ousted by a military coup. 25X1 for the United States. ? Manage a number of contentious foreign policy questions while avoiding blunders that might cata- lyze political or military opposition to his adminis- tration. The Terrorist Danger. The Sendero Luminoso has approximately 1,000 committed members and several times that number of supporters, according to US Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Abimae! Guzman Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Equis X 25X1 The Government's Response. Even though the terror- ists pose no immediate threat to political stability, they have caused considerable apprehension in civilian and, more important, in military, circles, Belaunde has attempted to Embassy) In the past two years the SL has advanced from bombings direct- ed primarily at property to attacks on police stations and jails and assassinations of provincial officials. The SL probably believes that its tactics will provoke violent repression by the Army, which in turn would lead to a rise in popular sympathy for the SL out by small, well-trained units. In its operations to date, the SL has not posed a significant threat to military forces. Destruction of electrical powerlines and assaults on isolated police posts are typical operations, which would be difficult to prevent even if Peru's civilian security forces were effective in counterterrorism. Most of the SL's recent urban operations could have been planned and carried assuage these fears through a measured response to the problem. He has declared periodic states of emergency in the affected zones, ordered the military to provide logistic support for the beleaguered rural police detachments, and improved the inefficient and 25X1 corrupt civilian security services and the cumbersome judicial system. We agree with the US Embassy assessment that Belaunde will delay involving the military as long as possible, The President is not only concerned that this would unduly enhance the military's influence over government, but as the Embassy reports, he is also worried that a 25X1 25X1 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret tough antiterrorist campaign might endanger I favorable human rights image and perhaps hell 25X1 the SL's hopes of increasing its public support. eru's fulfill Plans to upgrade the police forces' training and equipment are under way. The administration has provided more funds and has received some assistance from other countries Army Gen. Oscar Brush, the President's former military aide, is to become Minister of War in January 1983. The Presi- dent may hope that Brush, who is a longtime friend and the commander of the military region containing 25X1 Ayacucho, will be more amenable than his predeces- sor to increasing military logistic backing and intelli- gence sharing with the police. If the police can improve their capabilities at a pace equal with the RI 'c arnwth they nrnhahly can contain the terrnrictc We believe that the Army probably could shatter the SL if it were given the unfettered authority it wants. We believe, and US Embassy reporting confirms, that the high command is aware that a poor performa25X1 against the SL would demoralize the troops and discredit the Army in the public eye. For this reason, it probably would commit its best personnel and give careful preparation to any counterinsurgency cam?25X1 paign. rmy genera s ave se ecte an egun to tram and equip the crack Airborne Division for use against the terror- 25X1 Contingencies. We believe that a direct military role would become almost inevitable in the event of one or more of the following potential developments: If Belaunde decides to authorize the Army to take over the antiterrorist fight, we believe that armed forces involvement would not necessarily undermine his authority or inevitably lead to a military coup. 25X1 Belaunde probably could allow the Army to operate in the isolated Ayacucho region, ? Widespread popular support for the SL. ? Evidence of substantial foreign assistance to the SL. ? The spread of terrorist activity to the northern and eastern jungle regions. ? Larger, more sophisticated SL operations against important government targets, especially military 25X1 units. Recent reports indicate that two of these conditions- popular support and more sophisticated operations- may be developing. US Embassy reports cite com- ments by high-ranking police officials that the SL has either intimidated or earned the support of much of the population of Ayacucho Department. and still retain full authority in the capital and other major cities, where large-scale military activity 25X1 against the terrorists would be under closer national and international scrutiny. Although the armed forces have asserted that they must be given complete political-military control in the affected areas to combat the terrorists, we believe, based on US Em- bassy reporting, that the service chiefs would agree to some restrictions because they probably wish to avoid a break with the President. In addition, if General Brush becomes Minister of Defense, Belaunde may be able to use him to convince the high command to accept closer civilian oversight. 25X1 Finally, a controlled Army intervention might not pose as great a threat to Belaunde as a continuing inability to control terrorism. The US Embassy re- ports that most Peruvians outside of Ayacucho and, Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 more important, numerous members of Belaunde's party, favor a direct role for the military. An ineffec- tive administration response in the face of an expand- ing subversive movement could seriously undermine public faith in the President, heretofore one of his greatest assets. While we do not see it as likely in the near term, the possibility remains that the military- watching aterrorist group grow into a guerrilla movement and seeing public confidence in the admin- istration steadily erode-would consider coming out of the barracks. The Economy Respectable economic performance is another key to the administration's survival. Peru's economic prob- lems are serious, but we and the US Embassy believe that Belaunde will be able to cope with them over the next 12 to 18 months, in part because the administra- tion's talented economic team already has made significant progress in rebuilding a market economy in the face of a worldwide recession. Moreover, Belaunde so far has been able to contain the political and labor opposition to his economic reform and austerity measures, and we believe he can continue to do so in the short term. In the long run, however, recovery is more difficult to forecast, because it is heavily dependent on an international economic up- swing, as well as correcting certain structural weak- nesses in the economy. Stimulating Performance. Upon taking office, Belaunde's economic advisers moved to dismantle the initiative-stifling structures created during 12 years of statist military rule. Since then, the government has: ? Cut inflationary food, fuel, and export subsidies. ? Reduced the tariffs that had long protected ineffi- cient and monopolistic local industries. ? Signed important contracts with foreign corpora- tions to expand oil and mineral exploration and production. The US Embassy reports that Belaunde's administra- tion is registering a creditable economic performance. We project the GDP growth rate for 1982 at between 2.5 and 3.0 percent. Agriculture in 1981 attained the highest increase in 12 years, primarily because of more favorable government pricing policies, and the end of a long period of drought. Certain traditionally productive sectors-especially minerals-have suf- fered from the dip in world demand. Manufacturing, however, registered real growth in 1981-although only a third of the rate of a year before. The world recession has decreased export receipts, portending a second consecutive large current account deficit this year and an expected decrease in foreign reserves. The government budget will register a large deficit, and inflation-although decreasing-will exceed 60 per- cent for the fourth straight year. Retrenchment. Faced with the prospect of a major balance-of-payments problem reminiscent of the mid- 1970s, the government asked for and received almost $1 billion in financial support from the International Monetary Fund (IMF)-$740 million under the Ex- tended Fund Facility and $225 million in compensa- tory financing-in an agreement signed in June. The major immediate problem the administration faces is meeting the IMF's stringent guidelines for this sup- port. Under the loan conditions, the government must impose a reform program of strict fiscal austerity- with limits on government deficit and borrowing- and aspeedup in Peru's devaluation schedule to help reduce the trade deficit. The program set the follow- ing targets: ? The public deficit is to be brought down to 4.2 percent of GDP in 1982 and 2 percent in 1984. ? Public-sector borrowing from the central bank is to be limited to no more than 100 billion soles ($140 million, at current exchange rates). ? Foreign borrowing is to be limited to no more than $1.1 billion in credits of between one and 10 years' maturity. ? The decline in foreign exchange reserves is limited to no more than $100 million. As the US Embassy reports, the administration ap- pears committed to reducing the public-sector deficit as the IMF requires. Recently, the government made last minute cuts of development projects from the budget and has reiterated its commitment to elimi- nate wheat, rice, and gasoline subsidies, also called for by the IMF program. Even with these moves, howev- er, we believe the government will not meet the IMF guidelines this year. Nevertheless, in our view, Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Belaunde's economic team can probably prevent a withdrawal of Fund support by demonstrating that it is making an effort in good faith to comply and that its inability to meet the targets is due to international circumstances beyond its control. Risks for Belaunde. The imposition of the austerity measures entails increased political risk for Belaunde. In particular, the removal of subsidies on two national staples-wheat and rice-and on gasoline is political- ly very sensitive. At a time of rising unemployment- officially, and we believe accurately, estimated at about 7 percent with underemployment as high as 48 percent-and continued inflation, these measures could spark serious protests and crippling strikes. ~ We and the US Embassy believe, however, that Belaunde has a good chance of minimizing the politi- cal fallout of his economic policies. The US Embassy reports that the administration already has proved surprisingly adept at implementing and gaining grudging popular acceptance of its reforms, even under the adverse economic circumstances of the past two years. As the US Embassy reports, the adminis- tration's practice of accompanying its reforms-par- ticularly the easing of price controls on basics-with deftly handled wage increases which still lag inflation has kept opposition politicians off balance and has helped Belaunde contain labor and other public un- rest. Although strikes have been frequent and have included two general work stoppages, they have been brief and have had only minimal impact. The administration's skillful Labor Minister deserves much of the credit for the government's success in this regard. We believe that, with some concessions, he probably can continue to manipulate the fragmented labor confederations and may also be successful in developing the new National Labor Council, an um- brella organization, into a permanent structure for collective bargaining. Despite its earlier refusal to participate, the major labor confederation (General Confederation of Peruvian Workers) may join the others in the Labor Council, according to the US Embassy. At any rate, the unions' inability to mount extended strikes, as they did even under the military regime, indicates the effectiveness of Belaunde's labor policies and suggests that he can ride out any labor unrest. 25X1 While we cannot discount the possibility, we and the US Embassy do not envision that the economic difficulties confronting Belaunde in the near term will set the stage for a military takeover. The armed forces' own unenviable record in the economic sphere has made the generals reluctant to undertake the formulation and implementation of economic policy. Lacking an alternative program or the desire to formulate one, the military has been content to accede to Belaunde's free market approach. We believe that the services by and large have returned to looking at the economy in a more traditional light: they are concerned primarily with the impact of economic policy and problems on internal order and the military budget. The President, at the same time, is reluctant to tamper with military procurement which, while undoubtedly causing the administration difficulties in achieving fiscal targets, is politically expedient. 25X1 Civilian Politics We believe that Belaunde will continue his successful record of avoiding the political paralysis that contrib- uted to his ouster in 1968. Most top officials in t25X1 governing Popular Action Party (AP) realize that their future is contingent on Belaunde finishing his term, and therefore we believe they are committed to maintaining unity. The recent recommitment of the AP's partner in the governing coalition-the Popular Christian Party (PPC~to the AP-PPC alliance rein- forces Belaunde's chances and will contribute to political stability. Moreover, the opposition political parties show few signs of achieving the unity neces- , sary to challenge seriously Belaunde's policies. Ski11Jal Politician. Belaunde's sound performance as a president and a politician during the past two years is the main reason for the favorable outlook. He has improved his ability to direct the course of govern- ment without becoming bogged down in detail. Ac- cording to the US Embassy, he is a visible, popular Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 executive who rules while his Cabinet administers. With only a few exceptions, Belaunde's Cabinet is highly capable at formulating and implementing policy Belaunde's performance in intraparty and interparty politics also stands in notable contrast to that of his first administration. Mindful of the bitter dissension that plagued his government in 1967-68, Belaunde has worked to build a durable party structure, al- though factionalism still tests his political acumen. He is the preeminent figure in his Popular Action party, but he has not used his power to impose specific personalities or structure on the party. According to the US Embassy, he has adopted the role of mediator, interjecting his views only when necessary to mini- mize damage to his programs We believe that Belaunde is attempting to instill into the AP sufficient institutional durability for it to function effectively after he leaves the scene. Progress in this direction, however, has been halting. The US Embassy notes that despite Belaunde's capable direc- tion, the AP continues to show public evidence of internal strife, which could erode Peruvians' confi- dence in the administration and in the democratic system. Nonetheless, in allowing such public debates by competing factions, Belaunde may be contributing to the evolution of a truly democratic, nonpersonalis- tic party, accustomed to the give-and-take inherent in such organizations. The President's effective control of the AP to date has made possible the alliance with the second-largest opposition party-the PPC-which in turn has bene- fited both groups. In exchange for a few minor Cabinet posts, Belaunde has gained a coalition that allows him to dominate the Congress. The US Embas- sy reports that the PPC leaders recognize that the agreement presently affords the best opportunity for their well-organized but small party to exert influ- ence, albeit limited, on the national level. The Opposition. The AP's relative strength also has allowed Belaunde to take advantage of the disunity that has plagued the other opposition parties, in particular the American Popular Revolutionary Alli- ance (APRA), the principal opposition force. The unity that characterized APRA prior to the death in 1979 of its founder, Raul Haya de la Torre, has given way to bitter conflict between leftist and centrist factions. The US Embassy reports that this schism has contributed substantially to Belaunde's initial success in interparty politics. The split has already curtailed APRA's ability to oppose the AP in Con- gress. In fact, the centrist faction has occasionally indicated a willingness to cooperate with the AP, contrasting sharply with the situation during Belaunde's previous administration, when APRA obstructed the government's legislation and forced Belaunde to reshuffle his cabinet four times in one nine-month period. In our view, it probably will be beneficial for Belaunde-and the multiparty system will not suf- fer-if doctrinal and personality disputes continue to impair APRA's ability to oppose him in the short term. The recent party congress, however, may have succeeded in reducing the intense factionalism that has afflicted APRA since 1979. As the US Embassy has noted, Belaunde does not relish the prospect of competing with a unified APRA, but he and other AP officials recognize that competition from a healthy opposition could strengthen the multiparty democracy in the long run. We and the US Embassy do not envision the United Left-a loose association of some 40 parties-causing unmanageable political problems for Belaunde in the near term. The size and diversity of the IU-it includes orthodox pro-Moscow Communists, moder- ate socialists, Maoists, Trotskyists, and even Albani- an-line Communists-has prevented it from gaining the ground ceded by APRA and achieving the unity tion is likely to persist in doctrinal hairsplitting and personalistic infighting. We believe that the military will continue to monitor the politicians. The services will view the municipal elections in November 1983-the only significant 25X1 25X1 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret political contest before the 1985 presidential con- test-as abarometer of political trends. Although a leftist victory-which seems unlikely-or even a strong showing by the left probably would not provoke a coup, it would arouse apprehension in military circles, particularly if it coincided with an economic downturn or an increase in terrorism. We believe that the armed forces probably were satisfied at the results of the 1981 municipal elections, in which Belaunde's party performed well and the IU fared poorly. The military probably will expect the AP at least to maintain its base in the provinces in the November 1983 balloting. The services also hope, we assume, that APRA will continue its relatively moderate performance and that its leftist elements will remain reluctant to seek an alliance with the United Left. Foreign Relations We believe Belaunde recognizes that his judicious, low-key management of foreign affairs to date has enhanced his domestic standing in general and, more important, has had a favorable impact on his relations with the armed forces. We expect that he will, therefore, continue in the same vein. Interested chief- ly in Peru's pressing socioeconomic problems, Be- launde has maneuvered deftly through two potentially serious international incidents-a border conflict with Ecuador in 1981 and the Falklands war this year-to maintain a noncontroversial foreign policy. Indeed, Belaunde's performance in the international arena has served to dispel somewhat the military's doubts about his decisiveness. We judge that Belaunde is unlikely to undertake any controversial foreign policy initia- tives-such as abruptly eliminating the Soviet arms relationship or surrendering disputed border territo- ry-that could provoke the military. According to the US Embassy, Belaunde gained stature by his behavior during the border clash with Ecuador. Faced with the belated discovery of Ecua- dorean outposts on territory long claimed by Peru, the President ordered swift action. Overall, Belaunde emerged looking better than did the armed forces in_ the incident. The military was embarrassed not only by the fact that they had allowed the Ecuadoreans to go undetected for months but by their subsequent inability to drive out the Ecuadorean troops rapidly. Belaunde's management of the Falklands crisis pre- vented Peru from becoming dangerously enmeshed in that debacle. The US Embassy reports that the administration catered to the public's pro-Argentine sentiments with massive rhetorical support for Buenos Aires, while simultaneously providing only modest, unpublicized military assistance. At the same time, the President tempered the rhetoric with a widely publicized personal peacemaking role. By attempting to avert bloodshed and arrange an agreement more favorable to Buenos Aires, Belaunde remained in the limelight, forcing the domestic opposition to operate in his shadow. More important, however, Belaunde's role in the Falklands affair satisfied the military's pro-Argentine leanings and probably saved the armed forces from getting directly embroiled. According to the US Embassy, senior Peruvian officers were dis- mayed at the unprofessional and unsavory behavior of their Argentine colleagues, and now realize that without Belaunde's restraining influence, the Peruvi- an military would have aided Argentina more openly and then shared in Buenos Aires's humiliation. In our judgment, Belaunde will continue to steer 25X1 noncontroversial course in foreign affairs. He will be careful to defend Peru's territorial integrity in border questions-especially with Ecuador-but without set- ting the stage for conflict. Although pro-Western, Belaunde realizes that he must maintain his national- istic and Latin American credentials. For that reason, we believe he will keep Peru in the regional consensus in the UN. He also will support mechanisms for consultation among the Latin nations in the Organi- zation of American States, but he is not likely to push for a restructuring of that organization. At the same time, we believe he will seek to use his ties with Western nations to obtain increased military assist- ance, which would accelerate the process of diversify- ing sources of arms, reduce the dependence on the Soviet Union in that regard, and strengthen his position with the military. 25X1 Prospects We and the US Embassy believe that President Belaunde has abetter-than-even chance of remaining in office in the near term (12 to 18 months). His Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 skillful cultivation of the armed forces over the last two years and his prudence in dealing with military budget issues have laid the basis for continued cordial military-presidential relations. Based on this and his creditable record so far in the key policy areas, the President can probably continue to placate the mili- tary 25X1 Belaunde's personal popularity-though diminished according to a recent poll-remains an important additional positive factor. He has shown himself to be a skilled politician whose popular standing deflects much criticism; many opponents, civilian and mili- tary, prefer to cast their barbs at Belaunde's ministers rather than at the President. Finally, the administra- tion's possibly greatest asset is the absence of any obvious alternative; the military is still discredited by its attempt at governing, and the principal opposition groups remain fragmented. A look at Peru's political history, however, suggests that in the long term the potential for military intervention will rise. In the 20th century alone, the armed forces have removed eight incumbent presi- dents. After Belaunde, the prospects for democracy in Peru will depend, in addition to the socioeconomic and political factors discussed, on the institutional evolu- tion of the military and on the kinds of candidates and programs that gain currency as the presidential elec- tion of 1985 nears integrity and professionalism of the services. devoting its energies to rebuilding the institutional We believe that while the armed forces have grown more conservative in the past decade they are also characterized by a more apolitical attitude than in 1968. The last years of the military's tenure in government clearly diminished its willingness to re- enter the political arena. Many officers believe that their 12-year rule harmed the armed forces' reputa- tion domestically and abroad and created serious divisions within their ranks. According to US Embas- sy reporting, this attitude may be more marked among junior officers, who believe that the military's takeover led to politicization of the services, reduced professionalism, and increased corruption. At least for now, the officer corps appears primarily interested in This attitude makes a 1968-style military revolution unlikely. The turning away from political and social activism of the early 1970s indicates that the armed forces would probably not seize power in an attempt to reshape Peruvian society. Instead, in our view, the generals would be more likely to stage a coup for traditional reasons: to reestablish order, to exclude the radical left from office, or to head off a perceived threat to the military's institutional interest We believe the likelihood of a future military inter- vention will depend more on the operation of the civilian political system during and after the 1985 elections than on other domestic or foreign affairs issues. Despite the military's prolonged attempt to reconstruct Peruvian politics, the system is still rough- ly divided into equal thirds-left, right, and center. The campaign and election could resuscitate the sharp tensions within the Congress, among the parties, and between the legislative and executive branches that crippled Belaunde's previous administration. The mil- itary will expect Belaunde to prevent partisan political activity from hindering his ability to deal with press- ing national problems. But more important, we believe the armed forces will look to the electoral process to produce amoderate-to-conservative civilian govern- ment that has a political base broad enough to function effectively and that will not interfere with the military's corporate interests. 25X1 Implications for the United States We believe that the future of democracy in Peru has several important implications for the United States. The advent of a repressive military regime almost certainly would alienate many Peruvians, and the resulting polarization would increase the potential for internal conflict and present opportunities for the radical left. In addition, we believe that Belaunde and any likely civilian successor probably would follow policies gen- erally more acceptable to the United States than would any military regime. For example, civilian politicians appear less likely to undertake adventurist actions that would endanger regional stability. As noted, Belaunde restrained the military, which was Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret We also believe that civilian administrations are likely to be more amenable to reducing Peru's dependence on the Soviet Union for military hardware. Since 1973 Peru has purchased over $1 billion in equipment and services from the USSR. Belaunde, on the other hand, has encouraged those in the military who want to diversify Peru's sources of supply to include West - - - -- - -- ,~ _ ,.~ r ~ ~ 25X1 Even though a complete break with the 25X1 pushing for a more direct involvement in the Falk- lands conflict. In addition, Belaunde has worked to play down border problems with Ecuador and Chile. We believe that future civilian presidents would prob- ably continue to dampen revanchist tendencies in the armed forces. We believe that a civilian administration also would continue to provide a more stable atmosphere for foreign investment. In 1981 US investment in Peru amounted to about half a billion dollars. As noted above, the early military regime expropriated US oil companies and enacted other measures to restrict foreign investment. While the armed forces are now politically more conservative and have accepted Belaunde's reopening of extractive industries to for- eign oil and mining companies, they remain highly nationalistic and have made clear their continuing belief that he should carefully supervise foreign capi- tal. They will continue to monitor foreign investment policies and practices, especially in the sensitive area 25X1 of hydrocarbons production. Soviets is not politically or economically feasible, any likely successor civilian government probably would continue to seek diversification. The Soviets have had little success in attempting to use their close ties with the Peruvian military to affect the conduct of Lima's foreign policy. Nevertheless, we believe almost any civilian government would be even less subject to Soviet leverage than would be the case under military rule. 25X1 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret Appendix 25X1 25X1 Sendero Luminoso (Shining Path or SL) is a radical, Ayacucho, recent activities and reports indicate an leftist terrorist and insurgent group that follows the increased presence in Lima and other metropolitan organizational and ideological model of Mao's peas- areas. 25X1 ant-based revolution. The SL's goals are to bring down the government and to remove foreign-partic- 25X1 ularly US-influence from Peru. The SL was formed in the rural southern department of Ayacucho in the late 1960s by Ruben Abimael Guzman Reynoso, then a philosophy teacher at the San Cristobal de Huamanga National University in Ayacucho. Guzman was also a member of the Ban- dera Roja, apro-Chinese Communist party made up primarily of attorneys, professors, and merchants. Guzman and his followers-mostly craftsmen, peas- ants, and students-charged that the Bandera Roja was increasingly focusing on urban areas and neglect- ing the countryside and armed struggle. Since formal- ly breaking with the group to pursue a more violent path, Guzman has maintained that the SL is the only 25X1 legitimate Communist party in Peru bassy reporting indicates that the SL has no foreign support. The Soviets, and by extension the Cubans, would probably be reluctant to support the SL in any event. Not only is the SL's Maoist ideology incompa25X1 ible with Soviet philosophy, but, more important, Moscow values its arms-supplier relationship with Peru, its only client in South America The US Embassy reports that SL members purchase small arms and machineguns in Peru or steal them from police and military posts. Explosives are stolen from mines and construction sites. Funds are obtained primarily from robberie Following President Belaunde's inauguration in 1980, the SL embarked on a campaign of low-risk, high- profile terrorist attacks consisting primarily of dyna- miting electrical towers, public buildings, and such symbols of authority as the Justice Ministry and police posts. Within the last year, however, the SL has extended its operations to include the assassination of 25X1 local officials and suspected police informants~~ Members of the SL are organized into cells that operate independently-terrorists arrested by Peruvi- an police apparently have little knowledge of members or operations outside their cell. Recent US Embassy and official Peruvian estimates place the SL's strength at about 1,000 committed activists, although it can probably call on three to four times that number for logistic support and occasional acts of violence. While the heaviest concentration remains in Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Recent terrorist operations suggest that the SL's plan to increase its activity is being implemented. In March, the SL mounted a highly successful attack on the Ayacucho prison and freed 247 inmates, including accused and convicted terrorists. More recently, nu- merous civil guard posts and small municipalities have been attacked. In August, the SL dynamited electrical towers near Lima, blacking out the city for several hours. At present, states of emergency exist in five provinces of Ayacucho Department, and one in Apurimac Department. Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8 Secret Approved For Release 2008/08/21 :CIA-RDP83S00855R000200050001-8