PERU FORCED TO HALT ECONOMIC RADICALISM

PERU FORCED TO HALT ECONOMIC RADICALISM

Peruvian President Alan Garcia, who has run Latin America's most radical economic experiment for the last 2.5 years, has finally been forced to take more orthodox economic measures.

He is facing inflation this year of 300 percent and net foreign currency reserves are negative.Abandoning his consumption-led growth model, Mr. Garcia announced Tuesday night in a nationally televised address that he was implementing a war economy that aimed to restructure industry and change the pattern of consumption. The goal was to reduce Peru's dependency on imports and increase its exports, he said.

His shift of policy brings an end to the last of Latin America's consumption-led, heterodox economic strategies. In Brazil and Argentina similar types of programs have already collapsed. Peru's policy has been the most radical inasmuch as it has also been accompanied by a limit on the payment of foreign debt at 10 percent of export income.

But not even its restriction on debt payment has saved the Peruvian experiment. Other countries in the region declined to follow Mr. Garcia's lead on debt, as bankers once feared they would, and he has failed to force a change in the way developing country debt is handled.

Speaking soberly for nearly an hour, Mr. Garcia raised gasoline prices 50 percent, increased the prices of a number of basic foodstuffs and eliminated subsidies. He said interest rates would increase and there would be a devaluation, but he did not specify amounts.

Reflecting Peru's severe dollar shortage, the president said the country's scarce foreign currency resources would be spent only for essentials. Dollars would no longer be available from banks for foreign travel and there would be a cutback in imports of what he called non-urgent goods. Net foreign currency reserves were a negative $149 million at the end of February.

Mr. Garcia said that while his previous policy had brought growth of 8.5 percent in 1986 and 7 percent in 1987, the economy had grown with the same historical defects as always. We are badly organized economically, he said, and referring to the division of the relatively small middle class in Lima and the majority of poor in the slums and countryside, he added, We cannot continue to be a sea of poverty and an island of prosperity.

To soften the blow of the new price rises for the poor and poorly paid civil servants, Mr. Garcia increased the minimum wage by 60 percent and salaries for public employees by between 40 percent and 45 percent.

The president said his new program of national austerity and justice would aim to promote selective growth. Industries that produce food, clothing, housing and exports will be given priority. Assembly industries for cars and domestic electric appliances, for example, are to be denied dollars for their imported parts and kits.