Any attempt to define the changes in the Peruvian political economy that have taken place since 1968 1 must be made in terms of the relationship between the state and domestic capital on the one hand and foreign capital on the other, and must offer an explanation of the way in which this military- controlled state has tended to replace the former and establish a new relationship with the latter. In particular, the confrontation between the government and foreign capital, and the significance of internal ownership reforms cannot be understood without reference to the development of Peruvian capitalism before 1968.

One of the clearest trends in Latin American government during the past decade has been the establishment of military dictatorships in many South American countries, some of them long-term. Argentina, Brazil, Bolivia, Chile, Ecuador, Peru and Uruguay have all had this experience. In efforts to explain this phenomenon, many scholars have delved into the political history of civil-military relations in Latin American society since 1930. A recent penchant for contemporary history, promoted in part by the availability of funds for policy-oriented research, has stimulated this concern. In the process, however, the deeper historical roots of the institutional development of the Latin American military have been neglected.1

In the rhetoric of United States foreign relations, the countries of Latin America occupy a very special place. They are ‘our sister republics’, ‘the Good Neighbours’, fellow members of a unique international system, and so on. The reality, not surprisingly, is different. Because of the vast disparity of power between the United States and Latin America, relations between them are inherently delicate and subject to strains. The issue of ‘intervention’ by the United States in the internal and external affairs of the Latin American countries is ever present, whether it is a matter of marines being sent into a small Caribbean republic or of the Central Intelligence Agency (CIA) ‘destabilizing’ a major South American government.

Most recent literature on military government is extremely skeptical of the possibility of effective military reformism. This scepticism, encouraged by various behavioural hypotheses, has been further strengthened by a number of cross-sectional analyses, which seem to show that most military governments are unstable, conservative, and indifferent at economic management.1 The military government in Peru, therefore, appears to be something of an exception. Its first President, General Velasco, stayed in office for nearly seven years, and his successor, General Morales Bermúdez, has promised that the nature of the regime will not be drastically changed. Even more important, the Government claims to have carried out a comprehensive set of agrarian, industrial and social reforms that were aimed at bringing Peru out of its former underdevelopment. Moreover, the Government has claimed to have achieved all this during a seven-year period in which the conventional criteria of economic success – a substantial growth in real income per capita, a moderate rate of inflation and a reasonably stable exchange rate – also appear to have been met.