unsustainable (Glewwe and Hall 1994). As a result, the country slid into a deep recession and hyper-inflation in 1988. By the end of Garcia's government in 1990, the economy was in a state of near-collapse: GDP per capita had fallen by -10.5%, -13.4%, and -6.9%, and inflation had reached an incredible 667%, 3399%, and 7482%, in 1988, 89, and 90, respectively (see Figure 1). The economic crisis came hand in hand with a deterioration in public safety: By 1990, there was a state of virtual civil war between the arned forces and the insurgencies of Shining Path and Tupac Amaru Revolutionary Movement (MRTA) in some areas of the country, and the conflict was claiming at least 2,000 lives per year (INEI 1996, p. 58).

The Fujimori government which took office in 1990 opted for more orthodox economic remedies. Economic reforms included the elimination of controls on prices, interest rates, and foreign exchange transactions, the reduction of tariffs, labor market de-regulation, and a farreaching program of privatization. The new policies had an immediate effect on inflation, which fell to 74% in 1992, and to less than 12% by 1995. Growth picked up after 1992 (Figure 1), and poverty decreased between 1991 and 1994, and again between 1994 and 1997. Like the crisis, the recovery appears to have been far-reaching, affecting all regions and most households (World Bank 1995 and 1999a).<sup>5</sup> Meanwhile, order was gradually re-established in the countryside, in particular after the capture of Abimael Guzman, Shining Path's leader, in 1992.

Education in Peru. 1985-1997: In comparison with many of its Latin American neighbors, and with other countries with similar income levels, Peru has managed to attain impressively high enrolment rates in both primary and secondary sehool: Analysis of the 1997 LSMS suggests that 97.5% of 6 to 11 year-olds, 86.3% of 12 to 17 year-olds, and 34.9% of 18 to 25 year-olds were attending some educational institution.<sup>6</sup> These figures are particularly impressive because of the low levels of public spending on education: In 1997, total public spending on education in Peru was 3% of GDP (2.4%, net of spending on pensions), compared with the Latin American average of 4.5% (World Bank 1999b).

4These figures are based on incidents reported by the Ministry of Interior, but are likely to be underestimates. Other estimates place the number of deaths from terrorism in 1990 above 3,000 (see, for example, World Bank 1995).

5 Strict comparisons in poverty measures are not possible because of differences in the coverage of the surveys (see section 3).

**6** Author's calculations, based on the 1997 LSMS tapes. Note that these numbers do not correspond to those in Table I for two reasons. First, these are numbers for all seven regions in Peru, including rural areas and the urban jungle, whereas the numbers in Tables l a and lb correspond to Lima and the urban areas of the coast and sierra only. Second, these are means weighted by the appropriate (individual) expansion factors, while the figures in Table I are unweighted means. Figures for school attendance for 6 to 14 year-olds based on the 1996 Peru Demographic and Health Survey (DHS) can also be found in Filmer (1999). These tend to be quite similar, except for 6 year-olds, which appear to have much lower enrollment

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