Current Political and Economic Issues
Political Situation. On June 4, 2006, former President Alan García defeated
populist Ollanta Humala 53% to 47% in a close election. García won in the second round after garnering support from Peru’s business community, which had been reluctant to support him in the first round.

President Alan García has taken steps to assure the international financial community
that he is running Peru as a moderate rather than as the leftist he had been in his early
career.   President García seems to have embraced sound
economic policies, and the Peruvian economy has continued to perform well. However,
his government has faced periods of social unrest and popular protests over lingering
concerns about poverty and inequality.
Key political challenges facing the García administration include:
! Reducing poverty and inequality. According to the World Bank, the
wealthiest 10% of the Peruvian population control 41% of the country’s
income whereas the poorest 10% control just 1% of the income. In
recent years, Peru has seen rising popular demands for a solution to
economic inequality. Poverty is more prevalent among indigenous
households at 63% compared to 43% among non-indigenous
households. President García has pledged to increase public investment
and social spending in order to reduce poverty and inequality, but has
struggled to meet popular expectations.

Counternarcotics policies. The government has increasingly relied on
forced eradication to reach its coca eradication targets, which has in turn
produced violent clashes between coca farmers and police. In 2006, the
government eradicated 12,688 hectares of coca, making it the second year
in a row that it surpassed its goal of eradicating 10,000 hectares.8 Former
Shining Path guerillas have reportedly been involved in coca growing
and in providing security for drug-traffickers in Peru.9

Economic Issues. President García has continued the...