Fujimori's Lessons for Milei

Voters like economic stability

A quick history quiz.

Which country was this man president of?

Alberto Fujimori

If you said “Japan,” well, sorry, Japan is a constitutional monarchy and doesn’t have presidents.

Alberto Fujimori was president of Peru from 1990 to 2000. Despite his nickname “El Chino,” Fujimori’s parents were both Japanese immigrants.¹ (Political correctness was not much of a thing in Peru at this time.) Faced with hyperinflation and growing violence from the Marxist guerrilla group Shining Path, he inherited a distinctly Latin American crisis upon his election in 1990. Though he would later be imprisoned for various charges of corruption and human rights abuses, Fujimori succeeded in reviving a broken economy and thwarting Shining Path in the first years of his presidency.

Having recently listened to a very good Radio Ambulante episode (which I draw on throughout this article) on Fujimori’s reforms in 1990, I was struck by the parallel between Fujimori’s shock therapy and that which Argentina’s new president Javier Milei has initiated. As Milei attempts his own revival of a moribund economy, what can the “Fujishock” tell us about the viability of such measures?

Peruvian Hyperinflation 101

However mismanaged Argentina’s economy has been in recent years, Peru’s government in the 1980s makes Argentina’s recent presidents look like Chicago boys.

Fujimori’s predecessor Alan García had some very strange economic ideas indeed. In 1985, the young leader started his term by dramatically spurning international creditors before the United Nations. Under his leadership, García announced, Peru would cap its debt repayments at 10% of GDP.

Lenders were not so receptive to García’s approach of refusing to pay them. As investors quickly pulled out of the developing nation, Peru seemed headed for economic disaster.

In response, García quickly slashed taxes, lowered interest rates, expanded the public sector, and handed out generous subsidies. How did he pay for this without international credit? Simple, he printed lots of money.

The Central Reserve Bank of Peru, circa 1985

Over the next two years, growth soared. But as you might expect from a man compared with Argentina’s own Juan Perón, García was not so keen on countermeasures to his printing spree. Inflation began to surge.

A performer at heart, García nonetheless decided the show must go on. Rather than embrace any tough medicine to curb inflation, García opted for price controls and convoluted system of fixed exchange rates (not so different than Argentina’s handling of its ailing peso in recent years). This led to shortages for basic goods, lengthy queues, and a blackmarket for US dollars.

By 1989, García had completed his ruination of Peru’s economy. Over half of the population was now below the poverty line (up from 17% in 1985), and inflation approached 8,000%. (For comparison, Argentina’s most recent reading was around 160%.) To make matters worse, the Marxist guerrilla group Shining Path was now gaining ground in rural communities.

The 1990 Election

It was in this context that writer Mario Vargas Llosa, known for Faulkner-esque books like La ciudad y los perros, emerged as a political contender in the 1990 presidential election. Llosa articulated a platform of the tough medicine that García detested. If elected, he planned to institute shock therapy: remove price controls, slash the budget, and let the exchange rate float.

Mario Vargas Llosa

Given his notoriety, Llosa was the natural favorite in the runup to the election, especially enjoying support from educated Peruvians.

Then Alberto Fujimori appeared.

An engineer with a master’s degree in math from the University of Wisconsin—Milwaukee, Fujimori certainly lacked Llosa’s brand. But when he finally got around to developing an economic platform, he distinguished himself from Llosa by promising a softer approach to reviving Peru’s economy.²

Though the finer details were strategically vague, Fujimori’s plan entailed raising prices gradually, creating a new currency, and boosting supply (don’t ask me how).

Fujimori’s tough-medicine-eschewing approach won him the support of the incumbent García’s party and the rest of the political left. Backed by the poorest Peruvians, Fujimori staged an upset in the second round of the 1990 presidential election, defeating Llosa with over 60% of the vote.

The Fujishock

Now, if Fujimori’s approach sounded inadequate, that’s because it almost certainly was. Fujimori seemed to believe his ace in the hole would be using his ancestry to secure a generous loan from Japan. Despite making Japan his first destination as president, it doesn’t seem the Japanese government was eager to invest in an active train wreck, nor is it clear how this would have fixed the full range of Peru’s problems.

Knowing he needed to reestablish relations with international creditors, Fujimori next met with the IMF, World Bank and Inter-American Development Bank in New York. Their message was simple: if you want aid, institute shock therapy. No half measures.

Stuck between Charybdis and Scylla, Fujimori pivoted to a plan for shock therapy even more aggressive than Llosa’s. After his economic advisors resigned over this abrupt shift, he appointed the sympathetic Hurtado Miller to both Minister of Finance and President of the Council of Ministers. Miller was tasked with overseeing the forthcoming shock.

Just ten days after Fujimori’s inauguration in July 1990, Miller appeared on television to announce the new economic programs. Blindsided Peruvians watched as Miller, uttering the immortal words “may God help us,” dealt the very fate they thought they had rejected. Unfettered for the first time in years, prices immediately surged—the cost of gasoline in particular increased 3,000%. Millions of Peruvians were thrust into a state of economic uncertainty. Many left the country.

Predictably, Fujimori faced protests, but the president held his ground, instituting aid programs to help the most vulnerable Peruvians. In 1992, facing congressional opposition to new austerity measures and his war against Shining Path, Fujimori doubled down on his agenda, staging a “self-coup.” The military (which had been plotting a Pinochet-style junta since García’s final years in office) backed Fujimori as he assumed legislative and judicial powers, allowing the president to proceed with his agenda.

Despite the initial panic and authoritarian measures, Fujimori’s gambit paid off: by 1993, prices were stabilizing, foreign investment was returning, and the guerrilla group Shining Path’s founder had been captured. Voters rewarded Fujimori in turn: in 1995, he won re-election in a landslide, beating the second-place candidate by more than 40 points.

Lessons for Milei

Peru in 1990 faced a far more dire economic situation than Argentina today, and its voters showed limited appetite for the measures needed to correct course.

Yet Fujimori triumphed all the same, setting Peru on a path of steady growth for nearly three decades and winning over voters in the process. Perhaps the success went to his head: he spent much of his later years embezzling funds before stepping down in 2000 and being imprisoned just years later.

Fujimori is nonetheless a reminder that voters are often materialists first and ideologues second. Economic stabilization (and physical security) are rewarded, even when preceded by pain, and even when requiring forceful measures.

While Milei has a true mandate to correct course, he faces similar congressional gridlock as Fujimori. There may be no self-coup in the works yet, but he is using a less-than-constitutional emergency decree to ram through his agenda (including measures outside the scope of economic reform).

Whatever one thinks about this approach, Fujimori’s coup shows that brute maneuvering does not spell political doom—quite the opposite. Perhaps that is why Milei has been so cocksure about his battering-ram approach.

Indeed, if there is one lesson from Fujimori’s Peru, it is that, protestors aside, many voters prefer economic and physical security over constitutional malaise.

Even with the dangers that entails, are they wrong? Fujimori went on to abuse his mandate, yet he may also be the reason Peru’s GDP per capita today looks more like Brazil’s than Nicaragua’s.

Perhaps countries like Argentina and Peru reach tipping points where the only solution is to abandon gradualism. It is surely preferable that this change comes from a Milei or Fujimori than war. Such methods may not apply in the US, a country where voters fret over 6% inflation, but how valuable—democratic even—is a constitution that produces triple-digit inflation year in and year out? The human costs to such a regime are real and only compound over time.

At the same time, it is worth noting that Alan García—the very man who drove Peru’s economy off the Andes and was booed out of office—staged an all-time great political comeback when he was elected to a second term as president in 2006.³

In its most general formulation, perhaps the lesson from Peru is that voters forget.

1. Rest assured, Fujimori insists this is a term of affection.

2. People celebrate Jerome Powell’s taming of 8% inflation, but a soft landing in the context of 8,000% inflation would be one of the greater economic feats of all time, no?

3. To give credit where due, García pursued a more measured course during his second term. This personal growth notwithstanding, he took his own life in 2019 as he faced a number of corruption probes.