ANDEAN COMMUNITY: Peru hits the Exit, like Chile Before it

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Apr 11 1997 (IPS) - Peru’s decision to leave the Andean Community Friday followed the precedent set by the traumatic exclusion of Chile in 1976.

The ministers in charge of Andean integration issued a communique Friday afternoon, stating “the definitive exit” of Peru, as its government had shown it was not able to fulfil its obligations in the free trade zone, as requested the day before in Bogota.

The only previous case of a country leaving the bloc happened with Chile, and according to local analysis in the subregion, the process it lived through in 1976 had certain parallels, but also differences with what is happening now.

The great difference has been repeated by the Andean ministers themselves many times, since the crisis began in August 1992: that the globalised world of 1997 is very different from the world of 1976, and Peru and Chile are in very different economic situations.

There is another additional element, the headquarters of the Andean Community is in Lima, as are the council and the general secretariat which will substitute it from May on, and within the block everyone is insisting the splitting off of Lima is only “the next to last episode,” as the nation is expected to return shortly.

“We all need each other mutually in order to enter the year 2000, and we cannot advance isolated in the world of today, separated from the integrated regional scene,” explained Andean diplomats in Caracas.

The consummation of Peru’s exclusion from the Cartagena Agreement – the founding document of the Andean Pact in May 1969 – is the biggest crisis the block has suffered in its near 28 years of life, but the consolidation of the remaining countries is expected, if events follow the pattern of Chile’s exit.

The crisis with Chile started on Sept. 11, 1973, when a bloody coup ousted the Salvador Allende government, bringing the dictator Augusto Pinochet to power.

The outcome of this change was seen on Oct. 30, 1976, when, during a presidential summit in Lima, decisions were made to cut off negotiations and bring in the immediate exclusion of Chile.

In the event, the group born of the desire for full integration lost one of its favourite sons in the birth process, for the negotiations on exceptions blocked the theoretical advances, and lasted until 1989.

On May 26, 1969, Venezuela refused to join, for then, and now, President Rafael Caldera had his nose put out of joint when negotiations ended the month before he came to power against his request.

This nation finally joined on Feb. 13, 1973, in Caldera’s last year in office, just a few months before Chile went out the other door.

The formal reason for Chile’s departure was the so-called decision 24, regulating foreign investments, according to sources closely involved in the process who asked IPS to keep their identities unknown.

In Apr. 1976, the Chilean regime issue decree 600 – which is still in place – eliminating all limits on the repatriation of capital for foreign investments, when the Andean area as a whole only allows 20 percent of the annual profits.

Beside this lay a radical change in the economic and trade relations with Latin America on the part of Pinochet and his team, who decided to encourage – contrary to the current regional economic tendency – a policy of opening the Chilean market to all comers, and to go it alone.

The group also took a political stance against Pinochet, led mainly, and paradoxically, bu another General brought to power by a coup, Peru’s Juan Velasco Alvarado – a left-winger.

Thus the group was less inclined to allow Chile special facilities to overcome its very serious economic situations, said the sources.

The atmosphere in which Peru cut itself off from trade commitments in August 1992 was also of a politically tint, as the nation’s President Alberto Fujimori had dealt a blow in April causing then President of Venezuela, Carlos Andres Perez to break off relations with Lima.

A third element was that Chilean liberalisation was one of the conditions which helped the United States promote the coup against Allende, a faithful follower of the dominant protectionist model of import substitution accompanied by internal industrial development.

In August, the problem of “disloyal competition” created by Chile with its opening to foreign capital, alleged by its Andean partners, was followed by Pinochet’s decisions to reduce all import royalties to 10 percent.

And this was the straw that broke the camel’s back, according to lead figures in the then Andean process, as the countries of the zone had common tariffs for many industrial sectors, when the imported from the rest of the world.

The entire tariff structure was aimed at protecting local production, in the hopes it would become more consolidated in order to compete with the more advanced products of the industrial North.

Pinochet’s refusal to lift this measure and revise the decree 600, as the other countries demanded, paved the way to what happened on October 30.

An official Andean document of the era said this happened while the pact took important steps towards the liberalisation of trade and investment, in a move towards flexibilisation imposed by the process of argument with Chile.

In the same summit where Chile decided to leave, the Lima protocol was signed, making important revisions of some decisions on this issue in the Cartagena Agreement itself.

Chile had to leave all the pact institutions, apart from the cultural, sociala and health entities. And while a total exit from the economic area can take up to five years, the exclusion clause was imposed instantly.

The definitive exclusion of Peru will not only create problems with the headquarters, but this country will also stop benefitting from instruments like the Andean Development Corporation, which granted it 2.631 billion dollars of very soft loans between 1992 and 1996.

Article 11 of the Cartagena Agreement, dedicated to renunciations of the treaty, says “the member country who wishes to renounce this Agreement must communicate with the ministerial Commission” and leading decision-making body.

“From this moment the rights and obligations associated with its condition as member will cease, apart from the advantages received and granted in accordance with the problems of the liberation from the subregion, which will remain in place for a five year period,” it adds.

This period, it concludes, “could be reduced in duly founded cases, by a Commission decision and on the petition of the interested member state.”

Venezuela’s Trade Minister, Freddy Rojas, told IPS that if Peru was excluded, this would presuppose the opening of a process which he implied would give time for Peru to reflect on its decision, although Lima would stop participating in bloc organs and meetings.

On a trade front, with Peru outside the commitments on this issue made since 1992, the trade currents with the rest of the members could still remain stable, because they are based on bilateral mutual preference agreements.

The crisis with Peru was finally sparked by the impossibility of shortening the time schedule for Lima’s full integration into the subregional free trade zone, completed in 1993, because the Fujimori administration wanted to do this in eight years and the others wanted an immediate removal of tariffs.

One of the Chilean protagonists, who did not want the country to leave the group, told IPS Friday, that he and many others were convinced Santiago would “inevitably” return to the bloc, “but history showed otherwise,” he said.