Growth and contentment are not necessarily good bedfellows. The Peruvian economy, fuelled by the global boom in minerals prices, continues to expand. However, many Peruvians are becoming restive and the key issue today is how the benefits of the growth are to be shared.

July 28th marks the end of the first year of Alan García’s second term of office. Speaking a few days before the Independence Day celebration, García boasted that GDP this year will expand by 10%. Official figures suggest that it increased 8.3% in the first five months of 2007.

But in the weeks building up to July 28th, the ‘feel good factor’ was conspicuous by its absence on the streets of Peru. A two-week strike by 350,000 teachers brought the education system to a standstill. There were strikes also in major mining centres, with mineworkers demanding a share in the fruit of the commodity boom. Lima saw one of the largest anti-government demonstrations in recent memory.
There were also violent clashes between protestors and police in Trujillo and Arequipa. In Andahuaylas, protesting peasants took over the town for several days, with roadblocks and other demonstrations in other areas of the highlands. Fights continue between peasant communities and mining projects. The list goes on…

While it is true that the calendar of protest is cyclical – July is a month of political definitions – the scale of the malaise goes far beyond an orchestrated rejection of government policy. The distribution of growth in Peru tends to be inherently unequal and the mechanisms of ‘trickle down’ conspicuously inoperative.

The regional breakdown of economic growth in recent years demonstrates the geographical inequalities. Comparing constant regional GDP in 2005 with that of 1999, we see that there were parts of Peru where growth was nearly 50%, mainly regions along the coast and where there have been major mining investments. In other parts, however, GDP growth was single-digit or worse. Three of Peru’s poorest regions – Ayacucho, Huancavelica and Apurimac – saw GDP expand in constant terms by 9.2%, 1.4% and -1.3% respectively. These were, it should be remembered, the regions where Sendero Luminoso (Shining Path) first emerged.

The same problem of distribution is also clear between urban and rural Peru. While five years of buoyant growth has increased urban incomes and employment levels (modestly), this is not the case in rural Peru where absolute poverty is concentrated. Furthermore, if approved by the US Congress, the Free Trade Agreement (FTA) with the United States threatens to widen rural-urban disparities still further by depressing agricultural prices and substituting imports for domestic food production.

Anxious to rectify his reputation as the president who, during his first administration (1985-90), did most to increase poverty in Peru, García wants to use the fiscal resources at his disposal (unprecedented in the last 40 years) to tackle Peru’s social ills. He realises that political stability depends on it. However, he lacks the means to make it happen. There is a real danger that ill-conceived, poorly-prepared spending may have exactly the opposite effect to what he wants to achieve. There is nothing which feeds social strife faster than dumping money on people and leaving them to fight it out as to whose pockets it ends up in.