The government says consumer prices rose 1,722 percent last year, the highest single-year mark in memory, and one economic forecasting firm predicts they will rise at more than three times that rate this year.

Economists say the rampant inflation is tied to a steep recession that weakened the economy following a growth rate of 8.5 percent in 1986 and of 6.7 percent in 1987. Economy Minister Carlos Rivas said last week that early estimates indicate the economy shrank 8.4 percent in 1988."We are now paying the price for two years of growth," President Alan Garcia said recently.

The crisis has been marked by shortages of basic foods, such as milk, sugar and bread, and by increasing discontent among the 21 million Peruvians.

Political analysts say the flagging economy and a relentless insurgency by leftist guerrillas are undermining Peru's frail democracy.