A battle of belief

02/04/2006 | Lucy Conger

Peru’s presidential race has been turned into a struggle of radically opposed ideologies. The leading presidential candidates tell Emerging Markets where they stand

By Lucy Conger

One thing is certain about Peru’s presidential election: its unpredictability. Yet the most striking feature of the race is that it has become a battle of radically opposed economic ideologies, thanks to the unexpected strength of left-wing nationalist candidate Ollanta Humala.

His surging popularity in the contest has spun the traditional debate on its head and has pitted orthodox against unconventional economic policies.

Lourdes Flores, the conservative candidate of the Unidad Nacional coalition, who consistently led the polls before succumbing to a Humala lead, and former president Alan Garcia, the social democratic candidate of APRA (American Popular Revolutionary Alliance), have both been forced to underscore their allegiance to market friendly policies, in contrast to the left-wing aspirant.

The colonel

Humala, a 42-year-old retired army colonel, is leader of an ethnic nationalist group of Peruvian military men. His approach is underscored by, among other things, his rejection of the Free Trade Area of the Americas, and his opposition to the Free Trade Agreement (FTA) reached this year with the US; instead, like his Venezuelan neighbour, he advocates regional integration, particularly among South American states.

He is also proposing a review of all privatizations of the last decade – a fact that has spooked investors of all stripes and sent jitters through international markets. He would promote greater state participation in strategic sectors that include hydrocarbons, ports, water and sanitation.

But, for all the rhetoric, Humala is also a pragmatist. He tells Emerging Markets he would promote investment in infrastructure – roughly $50 billion is needed to create modern ports, roads and communications that would help the country decentralize and link remote areas to markets. “We don’t have the money. I don’t see why we can’t get private domestic or foreign capital [in road building] – it’s a profitable investment and would help develop the country. We all have to participate in the construction of infrastructure,” he says.

More fundamentally, Humala promises “The Great Transformation” – a political project which would start with a constitutional assembly to rewrite the constitution so as to combat corruption that, he says, is rife in government, to reestablish a claim on Peru’s natural resources handed over to international capital, and to review Peru’s contracts with multinational mining and hydrocarbons firms that guarantee a stable tax and juridical regime. “It is not possible that the constitution impedes review of contracts,” he says.

Humala’s leading economic adviser and vice-presidential candidate is Gonzalo Garcia, a former central bank director, who raised eyebrows when he justified the proposal of a new constitution by saying the Humala project will last 20 years. Garcia, however, promises to audit government debt. “Once you open the pot, there probably are some skeletons,” he tells Emerging Markets, hinting that there may be some items that could be repudiated. He also promises the Humala government would stimulate private investment with incentives including tax credits. “If you have cash flow and could expand your productive base, we would give credit for investment in technology [and] machinery,” Garcia says.

The lawyer

In stark contrast to Humala, the 46-year-old Flores, a lawyer and former congresswoman, is strongly identified with big business and the upper middle class. This image was compounded by her nomination of vice-presidential running mate Arturo Woodman, a powerful entrepreneur and long-time associate of one of Peru’s leading conglomerates, Grupo Romero, and its flagship property, the Banco de Credito.

Flores has yet to announce the precise make-up of her team. She tells Emerging Markets that, at least on economic policy, she has no commitments to her current advisers. “The team is being expanded permanently; we will bring in others who are outside Peru; they will all be professionals,” Flores says. Ultimately, she says, she is looking to assemble a team that “will have to send clear signals of governability”.

In terms of economic priorities, Flores, who advocates signing the draft FTA with the US, says that she will not review contracts with multinational mining and energy companies. She will stimulate private investment to create jobs in Peru, where 60% of the population are under-employed with no worker benefits, and 10% have no jobs.

Nevertheless, as support has grown for Humala and Garcia, Flores has begun to backtrack on her hitherto stalwart defence of Peru’s economic model. “The trickle-down policy has failed; trickle down is a fraud,” she says. She has subsequently promised to channel $2 billion in public funds to small and medium businesses through the government’s development bank, Cofide, and to promote formalization of the informal enterprises that create over 70% of jobs in Peru.

Yet Flores’ Achilles’ heel is perhaps what she stands for.  “Her basic problem is the option she represents is the right,” says Nelson Manrique, a sociologist at Lima’s Catholic University and a political commentator. Flores’ last bid for the presidency in 2001 was stymied in the run-off by Alan Garcia, who won 1% more of the vote.

The former president

“We are going to correct the errors and settle that debt with the country,” says Garcia, who has taken to Latin dance as a campaign tactic: he began taking salsa turns and hopping reggeaton at his rallies and soon gained some ground in the polls – and a shot at the decisive second-round ballot.

In a race that juxtaposes so sharply orthodox and heterodox economic models, Garcia is positioned firmly in the centre. In recent years, he has dedicated considerable energy to convincing private business that he has forsaken his populist past and would pursue market-friendly policies and seek the most productive niches for Peru in the global economy.

Garcia pledges to respect foreign investment and shuns the idea of unilaterally revising contracts. “We have it very clear that money from outside generates jobs,” Hernan Garrido Lecca, Garcia’s campaign strategist, tells Emerging Markets. Garcia has successfully communicated his concrete economic plans, including shifting highland farmers to export crops,

private concessions for a network of farm-to-market roads, incentives to employ youth and tourism promotion.

Whoever wins the presidency will face the twin challenges of building an economy that works for a wider segment of the Peruvian population – and forging changes with a congress that will be divided, with APRA as the strongest legislative bloc.

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