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#49 Inflation Stabilization, and the Return to Democracy in Peru, 1975-1979

By Rosemary Thorp

This draft paper was prepared for a June 1979 Workshop on "Economic Stabilization Programs in Latin America: Political Dimensions" organized by the Latin American Program of the Woodrow Wilson International Center for Scholars.

Summary

This paper discusses the acute stabilisation crisis of 1975-1978, and attempts to explain why, for so long, it proved so difficult to handle. The role of external creditors, in particular the International Monetary Fund, is discussed. In the final section, we analyse the implications of the total turn- around in 1979, when suddenly IMF targets were easily fulfilled, in the surprising context of a proposed return to democracy rather than Southern Cone-style repression. It is shown that the developments of 1979 in no way qualify the earlier analysis demonstrating the unsuitability of abrupt stabilisation on orthodox lines to an economy such as Peru's.

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