Alejandro Toledo does not represent an organized Indian movement so much as the social mobility that can come in a society that is still highly stratified—meaning that Peru can do more for its indigenous population, which suffers disproportionately from poverty and a lack of political power. He pledged to introduce legislation that would officially declare Peru a multicultural society. He has also stated that he wants a market economy, but one with "a human face."
Upon assuming office, Toledo called for reform of the economy that would move it out of recession, and for methods of spreading the benefits of an economic expansion to all members of society. He placed economic policy in the hands of Pedro Pablo Kuczynski, an investment banker. He called for a fight against poverty that would include tax cuts and investment in rural schools and health clinics. He also called for a program of small loans to start small businesses, as a means of initiating a grass-roots economic program. Toledo vowed to double teachers' wages and to create 2.5 million jobs over five years, partly through an emergency employment program costing $170 million a year. He said he would cut sales taxes and a special payroll tax and pledged to reform government spending, raising education's share of the budget to 30%. He also called for decentralization, seeing too little being spent by local government. Kuczynski was removed from office in July 2002 as part of the cabinet shakeup following antiprivatization riots in the city of Arequipa.
Toledo reorganized the armed forces, placing civilians at the head of each service to restore dignity to the institution after the corruption of the Fujimori years. He cut defense spending by 15%. He also called on South American leaders to agree to a freeze on the purchase of offensive military weapons.
As of November 2002, Toledo's approval rating had dropped from 59% in August 2001 to 23% (rebounding from a low of 14% in October). There have been charges of nepotism against him, and some charged his monthly salary was too high (it was later reduced).
Toledo, however, has had successes: former secretary general of the United Nations Javier Perez de Cuellar raised over US $1 billion in foreign aid to finance Toledo's job creation program. Terms for a new loan with the IMF were agreed upon.
One of Toledo's most challenging tasks has been to restore credibility to the government and important institutions of society, which were plagued by corruption lingering over from Fujimori's administration and the leadership of Montesinos, who was captured in Venezuela in June 2001. A legacy of those years, more than 900 people were identified as receiving bribes. New revelations of bribery and extortion, involving judges, army generals, electoral officials, politicians, media persons, and business people emerged during 2001–2002. Montesinos went on trial in February 2003, facing 57 human rights charges.
Toledo's most difficult challenge in 2002 was a popular rebellion in Arequipa in response to the planned privatization of two power companies. He drew fire from many observers, at home and particularly abroad, by backing down, abandoning the privatizations, and suspending his government's entire privatization program, as well as reshuffling his cabinet.