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A Conversation with the President of Peru

Presider: John G. Heimann, Warburg Pincus
Speaker: H.E. Alejandro Toledo, President, Peru
September 22, 2003
Council on Foreign Relations


New York

John Heimann [JH]: May I have your attention, please? I think we would like to get started, as the president has a very tight schedule today. Of course, I'd like to welcome all of you to this session to meet the President of Peru, Alejandro Toledo. I should like to note at the beginning that the session is on the record. The president has agreed that his remarks will be on the record. The best way to introduce the president, I think, is to take something from a profile that was written about him and broadcast at CNN. And I'm just going to quote that. It says: Andre Alejandro Toledo calls himself a statistical fluke, a Peruvian of Indian descent who rose from acute poverty in a remote Andean village to obtain masters and doctoral degrees from Stanford University and, more astonishing, to govern a country traditionally ruled by a white minority. Once a shoeshine boy, President Toledo has had broad-based opposition and led a broad-based opposition movement against the corrupt government and the authoritarian government of former president Alberto Fujimori, who, as you all know, is now living in exile in Japan. President Toledo defeated Alan Garcia in a run-off election to win the national presidency. Mr. President (applause).

Alejandro Toledo: Thank you very much. First of all, I'd like to express my gratitude because I was over here when I was not yet president, and then I was in the streets fighting to recuperate democracy and freedom in my country. And it was this institution that provided me some support. The questions, the concerns gave me strength to continue on, and finally we recuperated democracy and now we are trying to extend the democratic institutions. And for sure, [it is an] enormous privilege to conduct the destiny of my nation in a very trying times. Transition is not an easy task.

Going from fragile democratic institutions, corruption, a judicial system taken over by corruption, trying to regain faith in a nation after 10 years of believing [in] someone who at the end disappointed, to try and recuperate collected self-esteem is not an easy task. To try and reverse the economic tendency from recession to a new path of sustained rates of economic growth, to generate jobs and income is not easy. To try and construct the economic, social, and legal stability to compete for capital investment is not an easy task. And although you might have read the results of the management of the economy in the last two years that indicated that we have reversed the recessive tendency, inflation is below 1.5 percent. Fiscal deficits, under control. Country risk is not too bad. And we can go on. Exports are growing. Private investment is growing. Last year we grew 5.2 percent, and the tendency continues now.

The question, however, is: If the tendency is going in the right direction, how come this president has such a low popularity? What am I doing wrong? Well, one possible explanation is obviously the impact of economic growth on employment, income, and poverty, the [unintelligible] effect and it takes time. So, we could tell people, "Just hold it. Be patient." The people are saying, "Listen. You gave us democracy. Now, I need jobs, and I want it now." To rebuild institutions, in order to send a message of credibility, stability, to attract investment, takes time. If I would have been playing short-term politics, I could have [spent] more of what we have as income and, perhaps, people would be happier. I could give away food, machinery.

But that would mean bread for today, hunger for tomorrow. To keep on the line of discipline, to try to attract foreign investment, sticking on discipline has a price, and I'm paying the price. I was born at above 4,000 meters above sea level in the Andes. My father was in poverty working in agriculture, and he taught me that one needs to plant a seed and water and have patience and take care of it and then harvest it. I cannot harvest in two years.

Hopefully, I will begin to be better understood this coming year, in the years to come, and I will finish in the year 2006. I prefer to pay this political price, if I have to choose. But what I'm not going to do is play populist politics. Private investment is growing at a rate of 6 percent. If [I] fool around, investment will not come and, of course, we could stop the growth rates. Perhaps there will be less people in the streets protesting. But I think [the time] has come in the region to do more state policies rather than government policies over the short term, and we need to look at the region from [an] integration perspective, and this is what I wanted to share with you this afternoon.

We have in mind outward-looking integration. This is a new concept. We want to collect the economic strength and opportunities of all our countries to put together our competitive advantage in order to convert it into competitive advantage in the region, to strengthen our own markets, to be able to be more competitive in the international world and have a better relationship with our customers. Integration in Latin America needs to come step by step. First, the Andean Community. I know that we have rather disperse conditions to be integrated within the Andean Community.

Each country has its own problems, Colombia, Venezuela, Ecuador, Bolivia, and Peru. But if there is any evidence in the world, it is that the economists are coming together in blocs and we need to watch several paths simultaneously. We cannot wait to reach a solid Andean integration and then later begin to be integrated to [the regional trade group] MERCOSUR or to South America. We have last month taken a very important step in this integration process.

We have signed a strategic alliance with Brazil and made concrete the possibility of looking at the region from that development perspective, not only in terms of short-term trade and investment that we have, but rather develop a perspective that I'm sure will not have its fruits in a very short, short term. But we have a lot of complimentarity with Brazil and with MERCOSUR. Roads that integrate Peru, Bolivia, Brazil, Ecuador. An integrated South America will be very protected from external financial storms also. An integrated South America will put us on the road of having a better negotiation capacity with the European Union, with Asia, and with the United States. An integrated South America strengthens us but also increases the gains of the world. Integration with an open mind.

I know that a lot of people might have some reservation about this sort of worn-out concept of integration, but the United State have NAFTA. We have MERCOSUR. We have the Andean Community. And Peru not only has signed this strategic alliance with Brazil but we have incorporated ourselves through MERCOSUR last month. The trade balance is very unfavorable to Peru. So, the question will be: Why are we signing this agreement with MERCOSUR if we are not gaining much from it? We're looking with a medium- and long-term perspective. With Brazil, we have many kilometers on the frontier.

I dream of the day that people within South America will travel without the need of passports. I dream of the day that the credentials from the universities in South America will be automatically recognized in each country. I dream of the day where gradually the frontiers will be wearing off. I dream of the day of a South America and Latin America strong as a result of its integration. And this is not only in terms of trade and investment. It has also to do with exchanging experience and investing in the social area.

My friends, if Latin America does not get into an integration process with an open mind, not to cry on each other's soldiers about how bad we are being treated from outside but, rather, how can we put together our efforts to conquer markets to do that? Then perhaps we will have a better trade relationship, more symmetric relationships and trade with Europe or Japan. Tomorrow we will be talking to [Spanish] President [Jose Maria] Aznar and we will explore the possibility of a trade relationship agreement with the European Union. But if we do it alone, we won't have much strength. But if we do it integrated, modern, open, we'll do it. The [World Trade Organization meeting] in Cancun that did not produce the expected successful results lead us now to think that we will work more on bilateral trade agreements.

We are working with [Brazilian] President [Luis Ignacio] Lula [Da Silva] on this task of integrating South America and then Latin America. Allow me to share with you within this context of integration a challenge that the region as a whole is being confronted with now. And that is an increasing discrepancy between Wall Street and Main Street. For the last 20 years, Latin American economies went through a process of putting the house in order. We went through an adjustment process. Now the economies are much more stabilized. We don't have hyperinflations.

The people are saying in the streets, "Listen, you told us that we should put our house in order economically. We did it. Where's my job? How come poverty is not being reduced? You tell us that democracy is the best system. You know, poverty's still at high rates." And, so, you still have an enormous challenge of: How do you manage your economy responsibly? Fiscal deficits, low inflation, low country risk, international reserves? To be competitive in exports? To do that? And tell the people, "Wait another 15 years more because as we grow, it will trickle down, and then you will have a job." People say, "No. I can't wait 15 years more."

And so, there is some silent question to the democratic system itself. There is an issue of governability. And what I want to share with you is my concern that the time, it has come the time for us in this global world to look together to this challenge of making compatible a responsible management of the economy that grows on the [basis] of private initiative, that creates the adequate climate to attract that investment but at the same time to try and to satisfy high social expectations that has been contained for a long time. So, while we try to comply with Wall Street, Main Street, at Main Street people are screaming. And so, governments are being [unintelligible].

What do we tell them? We had our meeting an hour ago with eight leaders of the world, and we posed the question. Has it not come the time for the industrialized countries to look at the possibility of financing democratic governability through increases of private investment in roads, schools, hospitals, public investment that accompanies private investment? The reason why I stress this is because we have some agreements with the IMF [International Monetary Fund], and we have to comply. But that route is very restrictive degrees of financial maneuver.

And I wonder if it has not come the time that we think about some creative matters of financing public expenditure in roads, schools, hospitals that facilitates and accompanies private investment. In order to make viable democratic governability and in turn to create the adequate climate to attract private investment, because social turmoil scares capital. How do you do it? I'm sure that in Washington there's a lot of people who can do financial re-engineering, and maybe the accountant occurring expenditure and investment expenditure could be redefined.

The issue is, if we don't pay attention to this increasing conflict between responsible management of the economy, hearing the advice of Wall Street and at some time paying attention to the screaming of Main Street, if we don't do that, we might be putting at risk democracies. People are beginning to lose faith, particularly in the context of fragile democratic institutions. President Lula came to government with a very high rate of approval and it's still very high. But there [are] high social expectations in Brazil. People cannot wait too much longer. One cannot produce miracles overnight. Two days after I took office, I had people at the door of the palaces screaming.

So, I said, "Listen, I just got in. Give me a break." And people were asking for jobs. People said, "We don't have income. I need a job. Don't give me a white fish. Just give me the opportunity to have a job." Most governments have a honeymoon. I didn't, in government. The point is, we need to sit down and look at some innovative ways of financing an increase of public expenditure and infrastructure there where private investment can now go in. Concessions. Privatization needs to go forward. There are some areas where they are not profitable for them. They are not attractive to an investor. And we have to, we need to create the conditions to increase private investment and part of that condition is the social stability. The economic stability. And I admit we need mainly legal stability, legal stability.

We know that we are competing in the world for capital investment, and capital will go there where there is legal stability, clear rules of the game, transparency. Capital will go there, where there's clear rules of the game. But at the same time, as I said at the beginning. It is not only the issue of Peru, of Latin America. If the economic health of the region is good, it will benefit the world economy and vice versa. So, it's not only to do an analysis of a specialization in Latin America. It's an issue that concerns all of us. Part of the globalization of the world is that we cannot look at something that has happened somewhere there.

The issue in Iraq. It concerns Peru. It has to do with peace. The sometime social unrest in the region could put in risk the possibilities of attracting investment that will lead us to sustained rates of economic growth, that generates jobs, that generates incomes and that brings us the possibility of reducing poverty. A final reflection is: I know that investing in the private sector is our main concern. But I have to admit that the main goal of our administration is reducing poverty. And at the end poverty could be reduced if the economy grows. And the economy will grow if it is private investment. And private investment will come if there is legal stability.

Private investment will come if there is social stability. But if people are in the streets, and you see it on CNN, huge groups in streets, potential investors will say, "Now, hold on. Let me wait and see." At the end, we need private investment to generate fiscal income so that the government can invest in what I think is the most profitable investment that an individual or a nation can make, and that is investment in the business of knowledge, and that means for us investing in nutrition, health, and education.

There is no nation in the world that has succeeded that developed only based on natural resources. I don't know any more effective instrument for developing a family, a nation, than investing in the minds of our people. I'm the empirical evidence of what education can do. I am free now. And I have now the privilege of conducting the destiny of my country. I say I'm free now, and I'm president, thanks to education. I know you hear quoted on CNN,"President Toledo's the result of a statistical error." Yes. I am. But now I have the responsibility to the poor that needs also to be free, and will not be free as a result of a statistical error but they have the right to have a good quality of health and education.

That is why we need private investment, and that's why we need to, in South America, integrate it, to create the stability, to attract private investment, to get fiscal income, in order to invest more in nutrition, health, and education. The evidence shows that this is the most profitable investment that one can do. High rates of returns, education, low risk, long durability, income over from one place to another. If I would have inherited a gold mine, maybe it could have been confiscated.

You know, Fujimori cannot confiscate what I have in my mind. Now I have the responsibility to invest more in nutrition, health, and education, and that is why I'm trying to stimulate private investment. It might sound rather incongruent, the argument, and it is not. I wanted my people to be free. That's why I work to create the adequate climate to attract private investment. And to do it with a regional perspective, we need to be integrated. In this task we are involved, the presidents of South America. We now preside as the president of the Grupo Rio [a regional security organization], and we are working in that direction. My friends, Peru is a good place for investment. We'll do our job, stability. If I have to pay the political price, I will continue doing it. But I'm not going to fall into temptation of playing populist politics.

Help me to free my people from poverty by investing in Peru so we can have fiscal income to invest more in nutrition, health, and education. And for our part, we respect the rules of the game. We're trying to strengthen the institutions to provide legal stability. Moreover, I want you to know that the first year of my government, I went from a concept to the action. We reduced 20 percent military expenditure in order to increase the budget for health and education. Thank you very much (Applause).

JH: Thank you, Mr. President. I must say, it's refreshing to hear someone talk of the long and medium term rather than the short term gain. And I must say, it's also very brave. And we thank you. We wish you luck in that endeavor. We'll now have time for questions and answers. Just remember, when you ask a question, please state your name and identify the organization with whom you're associated. And I'm going to abuse my right as presider to ask the first question, if I may. And that is that you mentioned outward integration and also that you have recently become, Peru has recently become a member, an associate member of MERCOSUR. Will this restrict Peru from joining other members of the Andean region in attempting to create a free-trade tax with the United States?

AT: No. We don't see that there is an incongruency between integrating individual countries of the Andean Community or the Andean Community as a whole into MERCOSUR. That it's not incompatible with our path to ALCA [the Free Trade Area of the Americas] or to bilateral trade agreement with the United States. Right now, we are working. We're trying to get an agreement with the United States on trade. I don't see that they are incongruent. They are different velocities. Each country has its own situation, as I said at the beginning. Colombia's starting to a problem that has to do with the region, but in Colombia that's much more intensive. Terrorism. We have got our incorporation to MERCOSUR as one sign of integrating simultaneously the Andean Community with MERCOSUR and also we are talking a bilateral trade agreement with Mexico, with the United States, and tomorrow we'll begin conversations with President Aznar to explore the possibility of trade agreement between Peru and the European Union. I don't see that as incongruent.

JH: Questions? Sir?

Audience: I'm Gary MacDougal with United Parcel Service. We operate in your country. I was impressed a number of years ago reading "The Other Path" by Mr. [Hernando] de Soto, and he proposed that the key to poverty eradication was, in fact, property ownership, property rights, land reform. You didn't mention that. I wonder if you think he makes any sense at all; and if so, what you have been doing or might do about it.

AT: Let me be unhumble (laughter). Peruvians have an enormous capacity to create wealth if they only have the opportunity. Property. Thirty-three percent of the Peruvian population lives in Lima. They are the result of rural migrations of the '60s, '70s. I'm one of them. We lived in a shantytown for 17 years. They have created their own property. And yes, of course, they don't have the title. So, they cannot put that as a guarantee for credit. And the process of establishing a firm is such a bureaucracy that Hernando de Soto has described it very well. Has to do with the informal sector. Fifty-seven percent of the Peruvian economy is informal. That's above the average of the region. And I think that Hernando de Soto describes it very well. I don't think, however that the issue of informality circumscribes us only to the legal dimension of it. It's economic and social phenomena. And people in order to survive sell products without paying taxes. It's not good. Selling newspapers, shoe shining, or selling lottery or chewing gum. They don't pay taxes. They are trying to survive because they don't have a job. What do we do with them? Now, there is all the informality. They don't pay. And we need to increase the base of the tax system to incorporate them. And in doing so, the use of property becomes incorporated in the formal economy. This Thursday, my government is asking Congress for some [unintelligible] for whole-hearted tax reform, a progressive tax reform. But in doing so, we're trying to formalize the economy. We need to increase the base of the tax system. There's few people who pay. And in incorporating, they can use what they have as a property, put it into value, and eventually be subject to credits. The houses that they have cannot be up to mortgage, cannot be put as a guarantee, and, so, they are owners of nothing. In summary, I think that what Hernando de Soto describes as [unintelligible] has a lot to do with that capacity of people to create wealth. They only need their property.

Audience: [unintelligible]—New York University. Mr. President, justice delayed is often justice denied. Why is it taking so long to get a verdict on the [former intelligence chief] Vladimiro Montesinos case? A man whom your government alleges has been responsible for such massive wrongdoing in Peru in the past decade.

AT: We say that democracy is the best system that we have. And I share that. But in democracy, we cannot take control of the judicial system. We have to respect the independence of the institutions. And [in a] democracy, we cannot do an arbitrary process. And I think you were touching a very sensitive issue with your question. For 10 years, the terrorists had as the other side of the coin corruption, and that means a lot of money. Narco-traffic, arms trafficking, private accounts outside the country, that were derived from the privatization of public firms and the guys have a lot of money. They owned newspapers, radio, and they have an intelligence service parallel. When the system came down, they destroyed everything. Why don't we finish what [unintelligible]? You know, sometimes I wish I wouldn't be so democratic [laughter] that my conditions are too strong. It's very unfair. It's very unjust. We built institutions, including the intelligence services. It's a process that takes long time. To respect the independencies of the institutions, freedom of the press, human rights, spread of democracy, it's a very unfair ballgame because he was playing with the rules. He had a lot of money. People have low faith, and, so, I'm like a fish in a bowl. There is nothing that I can do that has not been judged or pre-judged. But they in the dark have a lot of money and a lot of connections. Fujimori has a page, an Internet from Tokyo. And he does political opinion about what he should do. This is a good place to recognize over 20 governments of the world who with great generosity and justice have provided us with support by saying that if Fujimori ever steps on the land of their country, they will arrest him and order him to extradite. My friend, in spite of my opinion agenda.

Audience: Robert Helander. Mr. President, one of the problems that has been commented upon that you face is the question of building a strong political party to support your agenda. Something over a year ago, then-Prime Minister Roberto Danino presided over the Acuerdo Nacional. I wonder if you could talk a little bit about the current status of the Acuerdo, which was an attempt, as I understand it, to get the agreement of all political factions on a national agenda that would survive presidential terms and, secondly, the recent proposal of some 50 initiatives by current Prime Minister Beatriz Merino to Congress. Where does that stand? And what are you doing to build a political party that can give you the sort of muscle that you need in Congress?

AT: [unintelligible]—the fragility of the democratic institutions are the witness of the political parties. Dictatorships don't like political parties. And, yes, my party was founded in 1994. It's a young party. The country as a whole has a crisis of political parties. But there's one relatively strong political party, APRA [American Popular Revolutionary Alliance]. The rest of them just are independents that were [unintelligible] for some reason. I have a relative majority. But maybe not all of my followers have already embedded position that we have. So, we have some problems in Congress. That is what led us to propose to the nation the need to work for [unintelligible] with the state policies within the medium- and long-term regime. Now we have 30 state policies with a time horizon of the year 2021 that enable us to write continuity to the policies independently of who is governing. Education. Agriculture. Decentralization. State reforms. Health. Environment. There are state policies that need to have the needed continuity independent of who is president. And that's why in Acuerdo Nacional, all the political parties and civil society participated in it. We have spent 685 hours just listening to people's different opinions of what could constitute an Acuerdo Nacional. It's a reference. It's a place of convergence. But an Acuerdo Nacional does not substitute political parties.

And when elections come soon, a lot of people will say, "Yes, I recognize la Acuerdo Nacional but I'm in campaign." So, they're going to go. We have proposed some policies to Congress. But they are much more of an immediate one, and that's related to tax reform. Beatriz Merino who is now my prime minister, is an extraordinary lady, the first woman, by the way who has become prime minister in the country, does not belong to my political party. Part of this search for consensus and a state policy has been to deliver a decision of our government to include people from different perspectives with a professional deepness. [unintelligible] does not belong to my political party. He was my prime minister. I have 17 cabinet members, and only 2 [unintelligible] of them are from my political party. My minister of foreign relations is not ... he doesn't belong to my political party. I haven't been persuasive enough yet [lauggter]. The minister, the ambassador of Peru to OAS [the Organization of American States], does not belong to my political party but has a strong professional and moral sovereignty. And that's what we, that creates for us a problem, because my political party complains. Say, "Come on. We want elections, too. Come on."

I also need to be in an important place. That added to what you ask, you need a strong political base. We need to continue building this party and all the political parties. The country needs a spirit of rebuilding and democratic institutions. I'm not going to be a president, I'm not going to be a candidate in the year 2006. So, I'm telling people, "Just let me do my job, please. I'm not your adversary. I'm not going to continue in the year 2006," I say.

So, if I do my job, and in the process, we can integrate it, look at more of the state's houses based on Acuerdo Nacional, we can provide a needed continuity, and, therefore, send the message to potential investors that in the year 2006, the policies will continue, policies of legal stability, economic discipline, social stability. It is also my responsibility to assure that the bases are rooted enough so that will not be change when a new government comes in.

Audience: Ken Maxwell here at the Council. I think it's fair to say that there's a slight sense here in the United States, maybe in the rest of the world, that the U.S. government has not been paying much attention to Latin America in the last couple of years. And when that happens, things sometimes happen that bring attention suddenly, and I think, maybe, last week, in Cancun, there was some shock that particularly in Brazil [unintelligible] coalition on matters of international trade. You talked a lot about regional integration, regional trade agreements providing South America with negotiating strength with the United States.

On the other hand, in The Financial Times today, there's a very strong article by the U.S. trade representative saying that, well, if we don't get a general deal, we'll go for a bilateral deal. Seems to me that you might [unintelligible] between Brazil a policy of sort of integrating the region to confront the U.S. on these issues and the U.S. having a very tough line on bilateral relations. And I was wondering if you could perhaps talk about that and, perhaps a more broader issue of how you see U.S. relations.

AT: Very good point. Let me [unintelligible] I don't think there is incongruency between being a dreamer, a visionary, and to have high doses of pragmatism. I think that we need to work integration. It's a process, as the experience of the European Union has shown. That purpose is not incompatible with us working bilateral trade agreement with the United States. Our incorporation in MERCOSUR is not incongruent with bilateral trade agreement with Mexico.

Mr. [Robert] Zoellick [the U.S. trade representative] is working with us. We are working with him to try and work this trade agreement. We continue, as I said. Tomorrow we're going to begin more specific conversations with Aznar about bilateral trade agreement between Peru and the European Union. But that doesn't preclude that we should not try to be more cohesive within the region, to be much more integrated in more than one way not only in terms of roads, in terms of social policy, in terms of investment in trying to up compatible advantage to convert it into competitive advantage in order to penetrate markets in the United States, Europe, and Asia. Next month, we're going to be in Thailand at the APEC [Asia Pacific Economic Cooperation] meeting. We are signing a bilateral trade agreement with Thailand. That's not incompatible with being us in MERCOSUR. I like to dream with my eyes open. I think integration is a long process. And I don't think that we will fall into the trap of being caught in the middle.

Audience: Jose Fernandez. A couple of years ago, as a result of public outcry in the streets, as you called it, the privatizations of a couple of electricity plants in Arequipa were suspended and then abandoned. Since then, we've seen no infrastructure privatization in Peru, I don't think. Could you tell us a little bit about the future of the privatization process in Peru?

AT: Experience in Arequipa of electricity companies has traumatized somehow the process of privatization in Peru. We believe in privatization. There's not much to be privatized. Fujimori did all of it [laughter]. Over $9 billion of privatization went out to purchase planes that do not work. So, a few firms that are left to be privatized. Concessions. We are pushing out roads. There where it is profitable for the private sector, let them do that. There are some areas in which private sectors don't want to go because the returns [unintelligible] let me tell you we are having three or four concessions in electricity, in roads, and we might get into ports. But we need not to be traumatized with the privatization experience of Arequipa. I know that CNN did a good job. But private investment, privatization, concession, discipline in the management of the economy are part of what we believe. But that just means, at the end, it only makes sense if that economic growth, derived from private investment and part of that privatization, is to invest in what I said, investing in the minds of our people. In short, there are few firms to be privatized. We believe in it. We are more now into concessions. And private investment is the better way of going.

JH: We have a real problem. There are too many questions and no time. So, what we'll do is if you could ... number of people who ask questions, keep it very brief, and then the president will answer them all at the same time, as he sees fit. So, please be brief with your questions.

Audience: Thank you, sir. Sergio Galvis, Sullivan and Cromwell. You spoke about the importance of foreign investment to finance the future of the country. A very direct question. How does one respond to a foreign investor who worries about putting in money in the long term when they look at the 2006 elections and see the possibility of the election of somebody who is quite opposed to private investment and foreign investment in a prior life?

JH: Thank you for a direct question. Yes, ma'am? Please?

Audience: Lucy Komisar, journalist. On the question of taxes, you've brought up numerous times the reason why you want foreign investment, and one of the reasons, it's increasingly understood now, known now that the multinational companies that go into developing countries very often use transfer pricing to cook the books so that they can avoid paying taxes to the country where they're actually having their operations. I wonder if you see this as a problem in Peru? Do you have any plans to deal with it? Or do you think it's not possible to deal with it without out some kind of an international agreement or action?

Audience: Mr. President, your strategic initiative—Claude Erbsen. The strategic initiative with Brazil. Do you see that as a key element of developing the Amazon region of Peru?

Audience: Daniel Martin. How comfortable are you with the ability control or subdue the Shining Path?

JH: One more, back of the room, right over there.

Audience: Charles Roth of Dow Jones. In your speech, you mentioned terrorists in Colombia. To my knowledge, Peru doesn't formally classify the FARC [the Revolutionary Armed Forces of Colombia] as a terrorist organization, as the U.S., Bogota, the E.U. and Central American nations do. Do you plan on classifying them as terrorist at some point in the future? Thank you.

ATM: Let me go sort of a bullet answer to the questions. I cannot prevent from who the Peruvians democratically decide to elect in the year 2006. No. As I said, we need to en-root the state policies in order to prevent that each time that a new government comes in, reinvents new policies, that breaks the needed stability and that is counterproductive for private investment. You're absolutely right. What guarantee do I have that in the year 2006 my investment of today will be respected? I think that the tendency in Latin America is that we have realized that without private investment, it's going to be very difficult for us to reach the needed state of sustained rates of economic growth that generates jobs and reduces poverty.

I think that we have learned a lesson. I say, "I think." Taxes. Yes. During the '90s there has been some move to national corporations that for some reason say an agreement with the government have done in some interpretations of the law. I would like to put it in that direction, interpretations of the law. And that now is going to create us a problem, really, because in a negotiated or a bilateral trade agreement with the United States, the United States tells us there are some pending issues there to be resolved. And I'm sure what we cannot do, there are some issues of the judicial system that we cannot resolve. They have to do it. There are not too many in [unintelligible] Peru [unintelligible] which, the IRS [Internal Revenue Service] of the United States, are in the process of investigating. Let us wait and see the results.

The strategic initiative with Brazil. Yes. There is no integration in Latin America without Peru and Brazil for geographic reasons. Integration with Brazil is not only in terms of roads, in terms of trade, in terms of investment. The Amazon. We will have access to a satellite that enables us to monitor in what shape is our Amazon that we share with Brazil. That satellite will enable us to have a better control of narco-trafficking.

This is part of the agreement. This is a key, a strategic alliance. I took the initiative to suggest that in the re-engineering of the United Nations, maybe Brazil should be a permanent member of the Security Council as part of our strategic initiative. We have a very close relationship with the United States that in this global world it will be senseless not to diversify your relationships because that enabled us to reduce risks. Shining Path. Now, let me be firm on that. Fujimori did not finish with terrorists. And I don't see any imminent risk of reviving Shining Path in Peru.

But let me take your question as an opportunity to make a statement. There is no space in the world to be ambiguous about your position against terror. Terror conspires against democracy. Terror conspires against the health of the world economy. Terror makes the poor people more poor. And it has come the time to go beyond the analysis and to design a global strategy to confront terror. We had a meeting this morning with 17 leaders of the world about terror, and we suggested that it has come the time that maybe next year we meet over here not to analyze it but to try and design a new strategy, because there is no religious culture or economic system differences that justifies terror.

We need to be firm on this. We need to analyze the underlying reasons, and, yes, there might be an association, not a causal effect but an association between poverty and unrest. But there is no reason whatsoever, to be ambiguous in our position against terrorism. With respect to FARC, yes. There will come the time. We are analyzing it. As Colombia gets tougher, as you know, we share a frontier with Colombia. We now are spending more money in trying to take precautionary measures, that joint venture of narco-trafficking and terrorism. That's dangerous. And we will put in a lot of effort. We are not buying ships and tanks or planes for war. We are reducing the expenditures because we are equipping ourselves to fight against terror and narco-trafficking.

JH: Thank you very much, Mr. President.

AT: Once again, I want to finish saying how encouraged I left last time when I came over and when I thanked the Council on Foreign Relations for help providing us the needed encouragement and in critical moments. And I'm pleased to come to share these reflections with you this time not as someone who was in the streets fighting for democracy but now as the president of Peru. Thank you very much.