Financial Times Analysis of the Campaign

Rivals renew battle as Humala leads Peru field
By Hal Weitzman in Lima
Financial Times, April 7, 2006
As Peruvians go to the polls on Sunday, the race for the presidency has become a re-run of the battle for second place the country experienced in 2001.
Ollanta Humala, a radical nationalist and political neophyte, seems on course to win the most votes. But if, as seems likely, he fails to secure the more than 50 per cent necessary to claim outright victory, there will be a second round run-off in May or June. Two seasoned politicians are vying to confront him in that contest: former president Alan García and Lourdes Flores, a former congresswoman.
According to a survey due to be released on Saturday by Apoyo, the country’s leading pollster, Mr García and Ms Flores are neck-and-neck. Last month Ms Flores, a pro-free-market candidate, led the polls with as much as a 10 per cent margin but in recent weeks she has looked more vulnerable in second place as Mr García slowly gained support.
The Flores-García contest is the second time the candidates have tussled for the number two spot. In the run-up to the first round in 2001 Alejandro Toledo, the current president, held a comfortable lead in the polls, Ms Flores had a good showing in second place and Mr García was trailing in third.
But in the final week, boosted both by advertisements showcasing his melodious singing voice and a racist gaffe by Ms Flores’s father, Mr García drew level and, on election day, beat Ms Flores to the run-off by about 2 per cent.
Mr García’s staying power is remarkable because of the spectacular chaos that marked his 1985-1990 term in office: gross domestic product dropped 20 per cent, 5m Peruvians fell below the poverty line and the Maoist Shining Path made great strides in their guerrilla war.
As she did in 2001, Ms Flores has reminded voters of this dismal record. “Alan is finished,” she told a crowd in Arequipa this week. “The Peruvian people do not want to go back to chaos, to unemployment, to terrorists escaping from prisons, to a carton of milk that costs millions of soles [Peru’s currency].”
Yet she has failed to land any telling punches. Mr García, whose leftwing Apra party is disciplined and well organised, has been aggressively marketing a simple message: that he has the sensible, moderate, centrist policies that Peru needs. “We have always fought against the powerful and the right wing. But we will also confront demagoguery and false solutions,” he said in Trujillo on Tuesday.
The result may be close but whoever makes it through will find it difficult to halt Mr Humala’s march to power.
Ms Flores will have a tough time countering her image as a defender of Lima’s political and economic elite. Even if, as some suspect, she and Mr García have struck a secret deal to unite in the second round against Mr Humala, it may be a tall order to persuade activists and followers of Apra to support her.
“The average Apristas will go for Humala, particularly outside Lima,” says Enrique Ghersi, a political analyst and former congressman.
Finding himself the more moderate option for the first time in his career, Mr García would no doubt seek to cast himself as an experienced elder statesman, contrite about the past and determined to rewrite his role in Peruvian history.
However, for many Peruvians and for foreign investors a second round between Mr Humala and Mr García would be a nauseating choice.
Fear of Mr Humala would normally prompt the middle class to support any opponent but the Apra leader has a very high negative rating among voters: some 40 per cent say they would never support him. The different dynamics of the second round, however, may provoke them to hold their noses and allow Mr García back.
In the frenzied pre-election atmosphere there have been some signs of a shift to Mr García. Ms Flores cancelled a press conference with the international media this week as news of the Apoyo poll broke.
Pollsters have hinted that in the final days since their last surveys, the former president’s steady momentum might give him the edge. In 2001 they dubbed it: “Alan’s last chance”. The former president may be about to get another.
Editorial Comment: Humala’s warning
Financial Times.com, April 7, 2006
Peru has been one of Latin America’s best performing economies, with recent growth averaging 5 per cent annually. All the more surprising then that, Ollanta Humala – a radical nationalist former army officer who promises a break with past policies – could win the country’s presidential election, the first round of which takes place on Sunday. This prospect will concern foreign investors in Peru’s lucrative mining and hydrocarbons sectors since Mr Humala is committed to increasing taxes and revising contracts. But it ought also to interest portfolio investors who have been ploughing money into financial markets across Latin America.
Given the region’s strong performance in the past couple of years, their optimism is hardly surprising. Asian demand for Peruvian copper and other raw materials, relatively high commodity prices and low international interest rates have paved the way for three successive years of current account surpluses and, with currencies appreciating against the dollar, the region’s external debt burden is lightening. But the market is paying too little attention to some worrying political trends.
True, leftwing governments entering office in the past five years have pursued cautious fiscal and monetary policies so that inflation in most countries has been subdued. But a more virulent and less market-friendly populism – exemplified by Mr Humala – is emerging in some countries. Old-style policies such as nationalisation and price controls are again on the agenda in Venezuela, Argentina and Bolivia.
Brazil and Mexico, the region’s biggest and most sophisticated economies, may not be entirely immune from this populist mood, a result in part of continuing high levels of social exclusion and poverty. Andrés Manuel López Obrador, the former leftwing mayor of Mexico City who has led opinion polls for more than a year ahead of July’s elections, is widely expected to maintain cautious fiscal and monetary policies. But like Luiz Inácio Lula da Silva, Brazil’s president – to whom he is being compared – Mr López Obrador may well shy further away from the reforms needed for faster and more sustainable economic growth.
In Brazil – whose widely expected ascension to investment grade is at the centre of financial market ebullience – the markets have shrugged off the departure of Antonio Palocci, the impressive finance minister. However, the government’s unwillingness to contemplate further fiscal reforms such as changes to its burdensome pension system is worrying. As Bill Rhodes, Citicorp banker and veteran of past Latin America debt disasters, pointed out this week, investors may be underestimating the risk of weak policies and low growth. Such is the liquidity in international financial markets, the good times may well last for some time. But confidence can evaporate quickly. Investors should ensure they have a well-planned exit strategy.