Peru Election 2006

The archived version

Markets See Danger in Possible Humala Victory

without comments

According to the Wall Street Journal, the markets have recognized the danger of a victory by Ollanta Humala. The wake-up call came with the publication of the recent APOYO poll on Monday, March 20. This poll was followed by another APOYO poll yesterday confirming the trend. The so-called “Humala effect” resulted in a 4 percent drop in the Lima Stock Exchange index and “sparked a sell-off in the Peruvian sol as well,” according to Mary O’Grady.
A recent meeting between the economic team of the UPP and the Sociedad Nacional de Mineria, Petroleo y Energia (SNMPE) left local business leaders “very worried.”
Some of our readers are financial analysts. Here is what one of them recently wrote to us, on condition of anonymity:
“It seems that Humala’s campaign is gathering a lot of steam. The Peruvian stock market and currency, especially of late, have been selling off on the news. Humala (at least in my eyes and in the eyes of a lot of my friends that manage money and invest in companies that have mining operations in Latin America) brings great uncertainty to the downside. In Peru, I now not only have to worry about the individual merits of the investment, but also the risk that I wake up one morning and Latin America is in disarray because these left leaning countries (including Peru) decide that state run enterprises make more sense. I think the history of nationalization and its chilling effects on long term economic growth and income levels are clear and hopefully even radicals, if they truly have the best interest of the country at heart, understand that it is a mistake. Expropriation is a low probability event, but that probability ticks higher now, which I think will hurt Peru from global capital attraction perspective, at least until Humala can be watched for awhile. Peruvian credit spreads are now trading much wider than countries whose economic and political climate I considered far inferior just a few months ago.
“One could live with higher taxes and a less business friendly environment, especially if somehow these frictional costs on capitalism actually raised the quality of life for the poor and lower classes. From my view, it seems that the Peruvian economy should already be swimming in revenues from what is extracted from mining companies and other natural resource players in the country – a good deal of the problem is not revenues but ineffective governments not redeploying receipts into programs that help uplift the poor (easier said than done I know)…Now, in general commodity prices have been quite strong and nearly all mines should be profitable should these prices hold, so there will be some tolerance on existing investments, but I think the pace of new investment will slow short-term as people like me are unwilling to commit more capital.”

Will Peru Choose Another Path?
By Mary Anastasia O’Grady
The Wall Street Journal
24 March 2006

Peruvian labor lawyer Isaac Humala’s call, last Friday, for the release of the jailed leader of the Shining Path might be interpreted, in another time and place, as a cheesy publicity stunt by an aged communist.
After all, the 75-year-old Humala would seem to have long ago lost his revolutionary struggle in Peru, where the Shining Path’s Maoist terrorism in the 1980s claimed the lives of so many indigenous peasants.
But Mr. Humala is no ordinary communist has-been. He is the father of Ollanta Humala, the candidate now leading in the presidential race that will be decided by voters in two weeks. The son immediately distanced himself from his father’s rhetoric, but in the light of the candidate’s own extremism, the country’s history of left-wing military rule and the current Shining Path resurgence, Papa Humala’s plea on behalf of a terrorist leader was disquieting.
Markets recognized the danger Monday after Peruvian opinion pollster Apoyo announced that Ollanta is now likely to place first on April 9 and is in a statistical dead heat with center-right candidate Lourdes Flores in a hypothetical second-round runoff between the two. The “Humala effect” sent the Lima Stock Exchange index down almost 4% and sparked a sell-off in the Peruvian sol as well. This is not the first time in recent months that markets have signaled panic about Ollanta. An earlier Humala surge provoked more than a 6% pullback in Lima’s equity market in December.
The reason investors are spooked is simple: The former army officer’s economic platform, though void of specifics, is openly hostile toward the private sector. In an interview last month published in Spain’s ABC newspaper Ollanta described the aim of his nationalism as an effort to reclaim the country from its “neo-colonial” status. “Our natural resources” he said, “are committed to foreign capital and they do not yield any profit for us.”
His avowed intent to stick it to the private-sector — with an emphasis on mineral and natural gas rights — frightens investors. More troubling is the threat of a return to what effectively would be a left-wing military government in one of South America’s fastest growing economies. Peru suffered that fate over a quarter-century ago, with disastrous results.
Ollanta didn’t burst onto the Peruvian political scene only recently. The former lieutenant colonel has been agitating for power for years and even attempted a coup d’etat against Alberto Fujimori in 2000. We reported on him as a looming menace in June 2003, in a piece titled “Some Peruvians Fear a Return of Comandante Rule.”
At that time, we cited observations by Enrique Ghersi, a Lima attorney and co-author of the global best-selling political treatise titled “The Other Path,” about Ollanta’s political career: “Notwithstanding that he took up arms in the last days of Fujimori, [he] has just been `rewarded’ with the post of military attache in France. Huge blunder. Three of the last military dictators had the same job. After which they returned to Peru to lead a coup: Oscar R. Benavides, Luis M. Sanchez Cerro and Juan Velasco Alvarado. If history is not mistaken, Ollanta Humala perhaps could be next.”
Mr. Ghersi noted that since the coup d’etat is no longer in vogue, the aspiring caudillo would be more likely to follow the example of Venezuelan President Hugo Chavez, who also engaged in a failed coup attempt, did time briefly in jail and emerged a popular hero. As if to fulfill the Ghersi prophecy, the Chavez-wannabe has already announced that, should he win, he will call for a rewriting of the constitution, a tactic Chavez used to tighten his grip on power.
In his interview with ABC, Ollanta confirmed his admiration for the Venezuelan. “We are both military men, we have risen up against a corrupt regime and we have both suffered imprisonment. I acknowledge that his government is nationalist and patriotic. In that sense, I see that he is on the right track.”
This view of the world didn’t come about accidentally. Though he is a well-to-do middle-class Limeno, Papa Isaac founded an ethno-nationalist movement whose goal it is to conduct a popular indigenous revolution. It was to this end, presumably, that he enrolled two of his young sons in the Peruvian military school. Ollanta’s brother Antauro, a former army major, is now serving time for a 2005 attack on a police station in which four police officers were killed.
Ollanta’s popularity, Mr. Ghersi noted in 2003, suggests that Peru may be following a Latin American trend toward “neomilitarism” with a “pronounced populist accent and a generous dose of communist infiltration.” He wrote, “Fundamentally it represents the popular discontent that exists against democratic politics in Latin America.”
The discontent is understandable. While it is true that the economy grew by 4% to 5% annually from 2002 to 2004 and an estimated 5.5% in 2005, a decade of such returns might be needed to convince voters that their lives are
It is also true that booming mineral and farm prices tend to show up in the pockets of northern Peruvians. Mr. Ghersi noted to me in a phone interview on Monday that the more populated south has not participated as much in the
country’s economic growth. Moreover, Peruvian public education is controlled by a far-left teachers union that holds private ownership and profits to be almost criminal. With more than half the voters under the age of 25, the
poll numbers are not surprising.
With the Shining Path now reportedly beginning to dominate the lucrative coca growing business among the indigenous population — an important constituency for Ollanta, as it is for Bolivia’s Evo Morales — there is cause for grave concerns about regional stability.
There is still a chance that Ollanta will lose. And even if he wins, he will not have a bonanza as large as the one Chavez derives from high oil prices. But what is nearly certain, if he makes it to the presidency, is that his tenure will increase property-rights insecurity and damage Peru’s recent growth spurt. There can be no doubt that Peruvians face a crucial choice next month and that another Latin country is in danger of succumbing to yet
another bout of corporatist authoritarianism.
Mineros quedan en “shock” tras reunión con humalistas
24 de Marzo del 2006, p. 11.

Una gran preocupación quedó en la Sociedad Nacional de Minería, Petróleo y Energía (SNMPE) tras reunirse con el equipo económico del partido Unión por el Perú (UPP), que encabeza Ollanta Humala.
Su temor es justificado, toda vez que este grupo político amenazó con nacionalizar todas las actividades que ellos consideren estratégicas, a pesar del costo que pueda tener.
También les advirtieron que si ganan las elecciones, no se va a poder vender en el país el petróleo y el gas a precio de paridad internacional, sino al costo de producción.
Encabezados por Félix Ovidio Jiménez, anotaron además que revisarán todos los contratos y que el Estado asumiría participación en el proyecto Camisea a través de Petroperú. Sobre este mismo tema, dejaron en claro que el gas que se produzca en Camisea será sólo para consumo nacional y que el Estado va a tener participación en la empresa privada.
Se deslizó que buscan el control de precios en el sector hidrocarburos y eléctrico.
‰ Inconstitucional
Minutos más tarde, el titular de la SNMPE, Carlos del Solar, dijo que tras esta reunión habían quedado “consternados” y “muy preocupados”, pues una versión les había sido dada por el propio Ollanta Humala y otra por su equipo económico. Incluso, a través de un comunicado, mostraron su preocupación por las expresiones de algunos candidatos y voceros que, sin medir las consecuencias de sus actos, arremeten contra la inversión privada, anunciando que tomarán medidas drásticas e inconstitucionales.
Adex pidió a los candidatos presidenciales que expresaron su opinión contraria al Tratado de Libre Comercio con EEUU reflexionar sobre su posición. En tanto, UPP se reunirá la próxima semana con el sector eléctrico de la SNMPE.

Written by Michael Ha

March 28th, 2006 at 7:52 am

Spam prevention powered by Akismet