The military intervention and its reformist orientation represented changes both in the armed forces and Peruvian society. Within the armed forces, the social origins of the officer corps no longer mirrored the background and outlook of the creole upper classes, which had historically inclined the officers to follow the mandate of the oligarchy. Reflective of the social changes and mobility that were occurring in society at large, officers now exhibited middle- and lower middle class, provincial, mestizo or cholo (see Glossary) backgrounds. General Velasco, a cholo himself, had grown up in humble circumstances in the northern department of Piura and purportedly went to school barefoot.

Moreover, this generation of officers had fought and defeated the guerrilla movements in the backward Sierra. In the process, they had come to the realization that internal peace in Peru depended not so much on force of arms, but on implementing structural reforms that would relieve the burden of chronic poverty and underdevelopment in the region. In short, development, they concluded, was the best guarantee for national security. The Belaúnde government had originally held out the promise of reform and development, but had failed. The military attributed that failure, at least in part, to flaws in the democratic political system that had enabled the opposition to block and stalemate reform initiatives in Congress. As nationalists, they also abhorred the proposed pact with the IPC and looked askance at stories of widespread corruption in the Belaúnde government.

Velasco moved immediately to implement a radical reform program, which seemed, ironically, to embody much of the original 1931 program of the army's old nemesis, APRA. His first act was to expropriate the large agroindustrial plantations along the coast. The agrarian reform that followed, the most extensive in Latin America outside of Cuba, proceeded to destroy the economic base of power of the old ruling classes, the export oligarchy, and its gamonal allies in the Sierra. By 1975 half of all arable land had been transferred, in the form of various types of cooperatives, to over 350,000 families comprising about onefourth of the rural population, mainly estate workers and renters (colonos). Agricultural output tended to maintain its rather low pre-reform levels, however, and the reform still left out an estimated 1 million seasonal workers and only marginally benefited campesinos in the native communities (about 40 percent of the rural population).

The Velasco regime also moved to dismantle the liberal, export model of development that had reached its limits after the long postwar expansion. The state now assumed, for the first time in history, a major role in the development process. Its immediate target was the foreign-dominated sector, which during the 1960s had attained a commanding position in the economy. At the end of the Belaúnde government in 1968, three-quarters of mining, one-half of manufacturing, two-thirds of the commercial banking system, and one-third of the fishing industry were under direct foreign control.

Velasco reversed this situation. By 1975 state enterprises accounted for more than half of mining output, two-thirds of the banking system, a fifth of industrial production, and half of total productive investment. Velasco's overall development strategy was to shift from a laissez-faire to a "mixed" economy, to replace export-led development with import-substitution industrialization. At the same time, the state implemented a series of social measures designed to protect workers and redistribute income in order to expand the domestic market.

In the realm of foreign policy, the Velasco regime undertook a number of important initiatives. Peru became a driving force not only behind the creation of an Andean Pact (see Glossary) in 1969 to establish a common market with coordinated trade and investment policies, but also in the movement of nonaligned countries of the Third World. Reflecting a desire to end its perceived dependency economically and politically on the United States, the Velasco government also moved to diversify its foreign relations by making trade and aid pacts with the Soviet Union and East European countries, as well as with Japan and West European nations. Finally, Peru succeeded during the 1970s in establishing its international claims to a 303-kilometer territorial limit in the Pacific Ocean.

By the time Velasco was replaced on August 29, 1975, by the more conservative General Francisco Morales Bermúdez Cerrutti (1975-80), his reform program was already weakening. Natural calamities, the world oil embargo of 1973, increasing international indebtedness (Velasco had borrowed heavily abroad to replace lost investment capital to finance his reforms), overbureaucratization , and general mismanagement had undermined early economic growth and triggered a serious inflationary spiral. At the same time, Velasco, suffering from terminal cancer, had become increasingly personalistic and autocratic, undermining the institutional character of military rule. Unwilling to expand his initial popularity through party politics, he had created a series of mass organizations, tied to the state in typically corporatist (see Glossary) and patrimonialist fashion, in order to mobilize support and control the pace of reform. However, despite his rhetoric to create truly popular, democratic organizations, he manipulated them from above in an increasingly arbitrary manner. What had begun as an unusual populist type of military experiment evolved into a form of what political scientist Guillermo O'Donnell calls "bureaucratic authoritarianism," with increasingly authoritarian and personalistic characteristics that were manifested in "Velasquismo."

Velasco's replacement, General Morales Bermúdez, spent most of his term implementing an economic austerity program to stem the surge of inflation. Public opinion increasingly turned against the rule of the armed forces, which it blamed for the country's economic troubles, widespread corruption, and mismanagement of the government, as well as the general excesses of the "revolution." Consequently, Morales Bermúdez prepared to return the country to the democratic process.

Elections were held in 1978 for a Constituent Assembly empowered to rewrite the constitution. Although Belaúnde's AP boycotted the election, an array of newly constituted leftist parties won an unprecedented 36 percent of the vote, with much of the remainder going to APRA. The Assembly, under the leadership of the aging and terminally ill Velasco (who would die in 1980), completed the new document in 1979. Meanwhile, the popularity of former president Belaúnde underwent a revival. Belaúnde was decisively reelected president in 1980, with 45 percent of the vote, for a term of five years.

Data as of September 1992