Construction Ahead.

Peru travels down a bumpy economic road in the post-Fujimori era.

MARIA GONZALEZ, A LIMA STREET VENDOR WHO'S BEEN PEDdling vegetables in the same spot for 12 years, has lived through hyperinflation, economic austerity and terrorist bombings. But, she says, nothing compares to the crisis that caused her sales to plummet during the final year of President Alberto Fujimori's reign.

"For 10 years everyone chanted "Chino, Chino, Chino,'" says the 67-year-old Gonzalez, referring to Fujimori's nickname. "What did it bring us? Nothing."

While a majority of Peruvians would like to forget 2000, the year will go down in history as one of the most turbulent in Peru's recent memory. It began with iron-fisted Fujimori announcing his run for a controversial third term and ended, 11 months later, with his resignation by fax from Japan, his parents' homeland. In the interim, the government stumbled from one scandal to another, each one chipping at the administration's credibility among the country's 25 million inhabitants.

The presidential election in April should help dissipate some of the ill feelings, but it will take years for the country to recover from the collapse of Fujimori's 10-year rule.

"The worst legacy of Fujimori is the mistrust in the country. The most important job we have right now is convincing Peruvians to have confidence in themselves and their government," says Lima political analyst Francisco Sagasti.

An important first step was the choice of Valentin Paniagua as caretaker president. A 64-year-old centrist politician, Paniagua quickly forged a coalition cabinet led by Javier Perez de Cuellar, the former U.N. secretary-general and Fujimori opponent in the 1995 presidential elections. The cabinet immediately dismantled the power network that had ensured Fujimori's control over the courts and election boards.

Even with Fujimori gone, most Peruvians remain cynical.

Joblessness tops the list of problems that the majority of Peruvians want resolved by a new government. An opinion survey by Apoyo, Peru's most prominent pollster, shows that more than 60% of Peruvians believe their families' economic situation deteriorated in 2000, and 36% expect the downward trend to continue in 2001.

While official unemployment is 8%, some 53%. are underemployed, meaning most Peruvians work in the informal sector without benefits, according to government statistics. A study by former Central Bank President Richard Webb shows the number of people living in poverty has increased from less than 51% of the population three years ago to 54%, roughly the same jobless rate as when Fujimori assumed the presidency in 1990. A report by IMA Market Studies, a Lima think tank, says nearly 90% of Peruvians spend 80% of their monthly income on food.

Austerity to come. Getting Peru back on track will not be easy. Javier Silva Ruete, an economist and finance minister in Paniagua's caretaker cabinet, says the Fujimori administration lied about the nation's macroeconomic health. "Austerity will be the keyword to define the budget in coming years," Silva Ruete predicts.

Experts say the political crisis cost the nation at least US$1 billion in private investment in 2000, causing the government to miss its $2.5 billion investment goal by a wide margin. Peru also missed predicted targets for economic growth--instead of 5%, it grew by just 3%--and the fiscal deficit is now 2.9% of gross domestic product instead of 1.5%, a percentage agreed on with the International Monetary Fund.

Of even greater concern has been a steady erosion of tax revenues, which dropped from $632 million to about $500 million by the end of 2000. To make up for the gap, the Fujimori government extended, for at least another year, the Extraordinary Solidarity Tax, which adds 5% to payroll taxes. The business community wants the tax eliminated, but ending a sure source of income will be difficult for the next government.

"The Solidarity Tax is a barrier to creating jobs," says Patricia Teullet, general manager of the Lima-based Foreign Trade Association. "Continuing it sends a bad signal to businesses."

Meanwhile, Peru's public debt costs, which in 2000 were $1.97 billion, are expected to rise above $2 billion for 2001 and soar to $4.3 billion by 2005. Peru's external debt is equivalent to 60% of the country's $52 billion GDP.

Facing a depleted national treasury, the new administration must curb spending. Under Fujimori, Peru received nearly $10 billion from privatizations of state companies, but his government left only $540 million in the treasury. Most privatization monies were spent on social programs, which the interim government says were more of a vehicle to ensure votes than a sincere effort to alleviate the nation's grinding poverty. Congresswoman Anel Townsend has called for an official investigation into whether some of those funds wound up in overseas bank accounts belonging to Fuijmori's chronies.

To be sure, the new president will administer a country very different from the one Fujimori inherited in 1990. When the littleknown Fujimori captured the presidency, the economy was in tatters. Annual inflation was 7,500%, foreign reserves were down to $500 million, the state ran nearly every industry and terrorist acts kept foreign investors away.

Today, inflation is 3%, foreign reserves are around $8.5 billion, most state industries have been privatized and the country's two guerrilla groups have been squelched. A 50-year border conflict with neighboring Ecuador, which demanded yearly increases in military spending, ended in 1998. The Fujimori regime also built a nationwide network of roads and added thousands of new schools and health clinics. But his dismanding of democratic institutions-culminating in corruption and even drug trafficking charges against members of his administration--have tainted that legacy.

"When Fujimori took office, Peru's economy was like an old building on the verge of collapse. Fujimori was the foreman who tore it down, but he was never capable of building anything," says Sagasti. "There is no economic model in Peru, just piecemeal policies that dealt with problems as they arose."

Still in the game. Investor confidence in the country has been shaken, but Peru has not fallen off the radar screen. Just before Fujimori fled, the government privatized Lima's Jorge Chavez International Airport. A consortium led by Frankfurt, Germany's airport agreed to invest $1.2 billion over the next 30 years and pay nearly 47% of gross income generated by the airport to the Peruvian government, more than double the percentage sought in the bidding process. Peru is also moving ahead with privatizations of several mining concessions. And Swedish electricity consortium Vattenfall announced it would invest $48 million in several generating plants.

As the privatizations continue, none of the serious presidential contenders are lobbying for radical economic changes. "No one is talking about a 180-degree [change] in the economy. This is an important sign for investors to continue looking at Peru," says Javier Murcio, a banker for the U.S.-based Credit SuisseFirst Boston

Still, vendor Maria Gonzalez is cautious. "We got rid of the tree [Fujimori], roots and all. We've planted a new tree but we have to be careful," she says. "We can't trust the politicians like we trusted Fujimori. We want results, not more promises."