History of Peru: The New Militarism, 1886-95

After a period of intense civil strife similar to the political chaos during the immediate postindependence period half a century earlier, the armed forces, led by General Andrés Avelina Cáceres (1886-90, 1894-95), succeeded in establishing a measure of order in the country. Cáceres, a Creole and hero of the guerrilla resistance to the Chilean occupation during the War of the Pacific, managed to win the presidency in 1886. He succeeded in imposing a general peace, first by crushing a native rebellion in the Sierra led by a former ally, the respected native American varayoc (leader) Pedro Pablo Atusparía. Cáceres then set about the task of reconstructing the country after its devastating defeat.

The centerpiece of his recovery program was the Grace Contract, a controversial proposal by a group of British bondholders to cancel Peru's foreign debt in return for the right to operate the country's railroad system for sixty-six years. The contract provoked great controversy between nationalists, who saw it as a sellout to foreign interests, and liberals, who argued that it would lay the basis for economic recovery by restoring Peru's investment and creditworthiness in the West. Finally approved by Congress in 1888, the Grace Contract, together with a robust recovery in silver production (US$35 million by 1895), laid the foundations for a revival of export-led growth.

Indeed, economic recovery would soon turn into a sustained, long-term period of growth. Nils Jacobsen has calculated that "Exports rose fourfold between the nadir of 1883 and 1910, from 1.4 to 6.2 million pounds sterling and may have doubled again until 1919; British and United States capital investments grew nearly tenfold between 1880 and 1919, from US$17 to US$161 million." However, he also notes that it was not until 1920 that the nation fully recovered from the losses sustained between the depression of 1873 and the postwar beginnings of recovery at the end of the 1880s. Once underway economic recovery inaugurated a long period of stable, civilian rule beginning in 1895.

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