ANDEAN COMMUNITY: Peru Wants to Have its Cake and Eat it Too

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Apr 14 1997 (IPS) - Peru said it would do all it could to stay in the Andean Development Corporation (CAF) after leaving the bloc last week, but the remaining four countries want Lima out, and fast.

In 1996, the CAF distributed 2.3 billion dollars amongst the five Andean nations, and up until now, the Caracas-based body has not commented on Peru’s exit.

The financial arm of the bloc, now made up of Bolivia, Colombia, Ecuador and Venezuela, seems to have become the biggest bone of contention in the traumatic divorce from Peru.

Ministers in Venezuela and other Andean member nations have stressed Peru should withdraw from all the organs and entities of the group, because if it only goes from the trade agreements, it need not have gone at all, for it had already been outside of these since 1992.

The decision on this issue could be taken during an ordinary CAF directors meeting, like that scheduled for late June, or earlier, if an extraordinary meeting is called to discuss the case.

This measure, like many others on the practical consequences of Peru’s exit from the block – which it helped found 28 years ago – will be decided by the remaining presidents at a summit in Sucre, Bolivia on April 22 and 23.

Another specific point to be considered is where the headquarters of the bloc will now be set, for the present site, Lima, is no longer possible, and Venezuela’s Minister of Industry and Trade, Freddy Rojas, has already suggested it be transferred to one of the active members.

The headquarters of the Andean block will become more important in May and June, when the current Cartagena Accords Council will be replaced by a General Secretariat led by an as yet unappointed important political leader.

As Venezuela already has the CAF and Ecuador the Andean High Court, Bolivia and Colombia seem to be the strongest contenders, although as yet neither has offered the buildings or other perks necessary.

Between 1992-96, Peru received 2.631 billion dollars from the CAF, on very soft terms. The entity was its biggest source of resources for development projects when the international credit closed between 1985 and the early nineties due to the moratorium on the foreign debt.

The only case of a country leaving the block – which has had a fully established free trade zone since 1993 and a customs union of sorts since two years ago – was Chile, which went in October 1976, under the dictatorship of General Augusto Pinochet.

Chile was fully out of the CAF within the year, but this was only an embrionic entity at the time, and not the multiple investment bank it became this decade.

The CAF currently has 10 members, five main ones and the biggest beneficiaries, plus Mexico, Chile, Trinidad and Tobago, Brazil and Paraguay, in order of entry.

With a portfolio worth 2.724 billion dollars, the CAF started to have its main source of resources in the international markets, while at the same time – given the high risk factor of the member nations – it worked as a guarantor for loans to its members in these markets, something Peru will also lose.

Andean diplomats in Caracas said Monday the four active partners in the block will probably approve the rapid exit of Peru from the CAF as their aim is precisely to show Lima it is making a mistake, in order to push it into a full return, including acceptance of the trade agreements.

The final straw that pushed Peru out was its refusal to particpate in the intraAndean tariff-free zone, aiming to remove all charges by the year 2000.

But Peru said it could only do this by 2004, claiming this would cause a series of distortions which work against real free trade.

The biggest problem was the existence of a four-band tariff system (ranging from five to 20 percent) for non-regional goods in the bloc, while Peru had a single level (now 13 percent), with exceptions at 16 percent.

But the other countries were not even pressing Lima to accept their system, preferring a gradual convergence, once Peru was working mostly within the free trade zone.

The Andean countries have not hidden the fact they want Peru to stay, claiming this is only the “next to last episode” and that Peru’s Alberto Fujimori administration will see more damage than benefits come of its isolation.

This strategy, after five years of tolerating Peru being “on the fence,” has been taken as Lima will stop having all the benefits of an integration scheme which despite its problems is institutionally very well developed.

The CAF could be just the weapon needed in this hard-line strategy, hoping to soften Peru and encourage a return of “the prodigal son.”

However, many of those who never believed Chile would survive the separation were forced to eat their words, and who is to say Peru’s fate will not be similar? (FIN-IPS-eg-ag-if-97)