First presidency of Alan García
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UnclaimedThe Peruvian presidential administration led by Alan García from 1985 to 1990.
Last updated November 4, 2026
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Overview
The first presidency of Alan García was the government of Peru from 28 July 1985 to 28 July 1990. García, the 36-year-old leader of the American Popular Revolutionary Alliance (APRA), won the 1985 general election with 53.1 percent of the popular vote and entered office with unusually high public expectations. His youth, rhetorical ability and nationalist political program made him one of the most prominent new leaders in Latin America. APRA also became the largest force in both chambers of Congress, giving the administration an initially favorable legislative position. The government began with an interventionist economic strategy intended to stimulate domestic demand, protect purchasing power and limit the burden of foreign debt. The exchange rate was managed, public spending supported manufacturing, construction and agriculture, and the administration sought to direct credit toward sectors it considered underserved by private banks. These policies produced a strong early recovery. Inflation declined sharply during the first months of the administration, and the economy grew by about 10 percent in 1986, its strongest expansion in decades. García's approval reached exceptionally high levels during this period. The initial recovery was not matched by a durable expansion of exports or public revenue. Domestic industry encountered capacity constraints, while the state continued to spend more than it collected. The government also faced pressure from foreign creditors and a growing shortage of international reserves. Attempts to maintain a fixed or tightly controlled exchange rate encouraged demand for United States dollars and weakened confidence in the inti, Peru's currency. In 1987, the administration attempted to obtain greater control over the financial system by proposing the nationalization of private banks. García presented the plan as a way to democratize credit and reduce inequality, but the proposal generated fierce opposition from business groups, political conservatives and sectors of the middle class. Congress ultimately did not approve the measure. By late 1987, the policy framework was visibly breaking down. Inflation accelerated, the balance of payments deteriorated and the government introduced successive devaluations and emergency economic packages. The administration sought assistance from the International Monetary Fund and the World Bank, but negotiations did not produce the expected financing. A more severe stabilization package, known as Plan Zero, was announced in September 1988. It removed most price controls, sharply increased the prices of imported goods and fuel, and attempted to reduce fiscal and monetary imbalances. Instead of quickly restoring stability, it contributed to an even sharper inflationary surge. Peru entered a period of hyperinflation, with prices rising by more than 1,700 percent in 1988 and more than 2,700 percent in 1989 according to figures cited in the reference material. The social consequences were severe. Real incomes and employment declined, shortages affected food and other basic goods, and the informal economy expanded as public institutions struggled to provide welfare, education, health and justice services. García's approval fell from overwhelming levels in 1985 and 1986 to very low levels by 1988 and 1989. A limited improvement in export earnings and a modest economic recovery near the end of the term did not reverse the broader perception of economic failure. The administration also governed during an escalation of Peru's internal armed conflict. The Shining Path and the Túpac Amaru Revolutionary Movement intensified attacks, particularly in 1986 and again in 1988 and 1989. Security-force abuses became a major controversy, including the killings of prisoners in Lima on 19 June 1986 and the massacre of civilians at Cayara in Ayacucho in 1988. The alleged activity of the Rodrigo Franco Command further damaged the government's human-rights record. In July 1990, shortly after García left office, MRTA leader Víctor Polay and 47 other prisoners escaped from Canto Grande prison through a long tunnel, exposing serious weaknesses in prison security. The presidency ended with the election of Alberto Fujimori in 1990. García handed over power amid hyperinflation, depleted reserves, widespread terrorism and deep public disillusionment. The first García administration remains one of the most consequential and contested periods in modern Peruvian political and economic history.
History
Alan García's first administration began after the 14 April 1985 general election. García, representing APRA, won 53.1 percent of the popular vote and became one of the youngest heads of government in Latin America. His victory was supported by a combination of APRA's organizational strength, dissatisfaction with the preceding administration and García's highly personal campaign style. APRA also emerged as the largest parliamentary force, although the government still had to manage opposition and institutional constraints. The administration's first economic phase was deliberately heterodox. It attempted to revive production by stimulating domestic demand, supporting wages and using state policy to guide credit and investment. The exchange rate between the inti and the United States dollar was controlled, and the government sought to limit the burden of external debt. These measures initially appeared successful. Inflation fell during the early months of the presidency, domestic-demand industries expanded and national output grew by approximately 10 percent in 1986. García's approval reached exceptionally high levels, and international observers treated him as an important new political figure. The recovery was structurally fragile. Export-oriented sectors such as mining and fishing did not expand at the same pace as manufacturing, construction and agriculture. Public revenue did not increase enough to finance the government's commitments, while domestic productive capacity began to reach its limits. The resulting need for additional capital increased Peru's dependence on foreign borrowing and investment. At the same time, households and businesses increasingly sought dollars rather than intis. Attempts to hold the exchange rate therefore placed growing pressure on reserves and contributed to devaluation. In 1987, the administration introduced compulsory government bonds for certain companies, requiring payments linked to their profits. The measure was intended to mobilize resources for the state, but it provoked strong corporate opposition and was eventually narrowed and abandoned. The resignation of Economy Minister Luis Alva Castro in June 1987 reinforced the impression that economic policy was improvised. García then announced his intention to nationalize private banks. He argued that banking control would democratize access to credit for farmers, informal workers and small and medium-sized enterprises. The proposal produced a broad opposition movement associated with writer Mario Vargas Llosa and was not approved by Congress. By the end of 1987, inflation had accelerated, industrial growth had stalled and the balance of payments had deteriorated. The government began to approach the IMF and World Bank, while also introducing devaluations and repeated emergency packages. These measures did not establish a consistent stabilization program. In September 1988, under Economy Minister Abel Salinas, the government launched Plan Zero. It attempted to address the fiscal and monetary crisis through major price adjustments, removal of most controls and sharp increases in the cost of imported products, pharmaceuticals and gasoline. Instead, the package helped trigger an exceptional inflationary shock. Salinas later resigned after disagreements with García, and César Vásquez Bazán assumed responsibility for economic policy. Inflation reached hyperinflationary levels, while reserves approached exhaustion. The reference material reports inflation of 1,722.3 percent in 1988 and 2,775 percent in 1989; it also describes a monthly increase of approximately 114 percent in September 1988. The government had difficulty meeting basic public obligations. Real wages fell, unemployment increased, shortages spread and the informal economy expanded. A mining strike weakened exports, although higher international prices for some mining products and a contraction in imports allowed a limited improvement in external accounts near the end of the term. By March 1990, however, international reserves were reported at only about US$190 million in the reference material. The administration simultaneously faced the intensification of Peru's internal conflict. The Shining Path and MRTA carried out attacks in Lima and other cities, with violence particularly severe in 1986 and again in 1988 and 1989. The state response generated allegations of extrajudicial killings, torture and other abuses. The 19 June 1986 prison massacre and the 1988 Cayara killings became central controversies. The alleged existence of the Rodrigo Franco Command, described as a pro-government death squad, further damaged confidence in the administration's counterinsurgency policy. García left office on 28 July 1990 after Alberto Fujimori won the presidential election. His administration had begun with a broad mandate and international acclaim but ended amid hyperinflation, falling living standards, depleted reserves, insurgent violence and institutional distrust. The political consequences included the decline of APRA's immediate credibility, the rise of the right-wing opposition associated with Vargas Llosa's FREDEMO movement, and the electoral opening that enabled Fujimori's victory. García later returned to the presidency in 2006, but that later administration is a separate historical subject.
- 1990
Presidency transferred to Alberto Fujimori
[3]García left office after Fujimori won the 1990 election.
- 1988
Plan Zero and hyperinflation
[1]The government introduced a severe stabilization package as inflation accelerated into hyperinflation.
- 1987
Bank nationalization proposal
[1]García announced a plan to place private banks under state control, but Congress rejected the measure.
- 1986
Early economic expansion
[1]Domestic-demand sectors expanded and the economy grew by about 10 percent, producing a temporary surge in confidence.
- 1986
Lima prison massacre
[1]Security-force killings during prison disturbances became a major human-rights controversy.
- 1985
Alan García elected president
[2]García won the 1985 election with 53.1 percent of the popular vote, and APRA became the largest faction in both houses of Congress.
Products and positioning
A nationalist, interventionist and socially redistributive APRA administration that initially emphasized domestic-demand growth, state direction of credit and resistance to external financial pressure.
Controversies
1990
Canto Grande prison escape
MRTA leader Víctor Polay and 47 other prisoners escaped through a 330-meter tunnel, exposing major weaknesses in prison construction, surveillance and administration.
1988
Cayara massacre
Dozens of residents of Cayara in Ayacucho were reportedly killed during counterinsurgency operations. The case became associated with allegations of military impunity and state violence.
1988
Alleged Rodrigo Franco death squad
The alleged operation of the Rodrigo Franco Command contributed to accusations that state-linked actors used extrajudicial violence and intimidated critics during the counterinsurgency.
1986
Lima prison massacre
Prisoners involved with insurgent organizations were killed during the suppression of coordinated disturbances in Lima prisons. The incident generated sustained criticism of the government's human-rights record.
Brand decisions
1988
Introduced Plan ZeroStrategyBackground
By late 1987 and 1988, inflation, fiscal deficits, reserve losses and balance-of-payments pressures had made the original policy framework unsustainable.
Action taken
The government removed most price controls, sharply adjusted prices for imported goods and fuel, and attempted to impose a more restrictive stabilization policy.
Aftermath
The package failed to restore stability and was followed by an exceptional acceleration of inflation, recession, falling real incomes and shortages.
Annual inflation. 114.5% in December 1987 → 1722.3% in 1988 (1987-1988)
1988
Sought assistance from the IMF and World BankStrategyBackground
Peru's reserves and external accounts had deteriorated, and the government's heterodox approach could no longer sustain growth.
Action taken
The administration opened discussions with the IMF and World Bank and pursued external financing while introducing emergency economic packages.
Aftermath
The expected loans did not materialize, in part because Peru remained in arrears to the institutions. The government continued to face severe financial constraints.
1987
Proposed nationalization of private banksOtherBackground
García argued that private banks did not provide adequate credit to informal workers, farmers and small and medium-sized enterprises.
Action taken
The administration proposed transferring private banks into state control in order to democratize credit and reduce inequality.
Aftermath
The plan triggered strong opposition led by business groups and political forces associated with Mario Vargas Llosa. Congress did not approve it.
- FREDEMO — The opposition movement used resistance to bank nationalization as a central platform for criticizing the administration's economic interventionism.
1985
Adopted an interventionist domestic-demand strategyStrategyBackground
The new government sought rapid recovery from economic stagnation while protecting domestic purchasing power and limiting the immediate burden of foreign debt.
Action taken
It used exchange-rate controls, public spending, wage and price measures, and state-directed credit to encourage manufacturing, construction, agriculture and other domestic-demand sectors.
Aftermath
The policy produced strong short-term growth but left the state with weak revenue, rising external pressure and insufficient export expansion.
Sources6 sources
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