Peru Election 2006

John Crabtree, Comment is free… The Guardian, June 5, 2006 03:55 PM
Second-time round Peru’s new president favours ‘liberal economics’. Washington is happy; less so are other Latin American leaders.

The election of Alan García as the next president of Peru bucks a trend in some other Andean countries towards more interventionist, less liberal economic policies. Whereas in neighbouring Bolivia and Ecuador, governments have recently opted to overturn contracts with key foreign investors, García promises to pursue policies that acknowledge the need for outside investment in developing his country’s economy.
The victory of García over Ollanta Humala, the left-wing nationalist candidate in the June 4 second round of presidential elections, also represents a reverse for Venezuelan president Hugo Chávez, who had urged Peruvians to vote for Humala, not García. García was able to exploit Chávez’s overly strident support for Humala as a flagrant case of interference in Peru’s domestic affairs. García’s hostility to Chávez has earned him friends in Washington.
During the campaign for the second round, García made clear his espousal of what he called “responsible” economic policies, clearly not those of Bolivia’s President Evo Morales who on May 1 announced his intention to nationalise his country’s largely foreign-owned hydrocarbons industry. García, by contrast, emphasized the need for policies to attract foreign investment, not repel it. He also made clear that he supported the Free Trade Agreement negotiated by outgoing President Alejandro Toledo. Both Chávez and Morales – as well as Humala – have bitterly criticised Toledo for agreeing to a trade deal that risks wrecking the Andean Community (CAN).
García’s preference for liberal economics also contrasts strongly with his own policies when president for the first time (1985-90). On that occasion he espoused heterodox formulae that challenged directly the orthodoxy of the World Bank and the International Monetary Fund (IMF). He also threatened to limit debt servicing to 10% of the value of annual exports.
However, the economic denouement of his first government – Peru ended up with hyperinflation and an unprecedented recession – has hung like an albatross around his neck ever since. Criticism was particularly bitter from the local business community, which castigated what it saw as his corrupt and inept government. The Fujimori government which followed in 1990 managed to stabilise the economy, accepting the policies of market liberalisation advocated by the international financial community.
In staging his political come-back, García had little option to express repentance for past mistakes. But his shift towards orthodox economics also is a consequence of the political situation he finds himself in. In order to win the second round, he needed the support of those who voted for the centre-right Unidad Nacional (UN) in the first round. In particular, he had to win overwhelmingly in Lima, UN’s main stronghold, where he came a poor third in the first round.
When he becomes president again on July 28, García will have to appeal to different interests. He will need the support of the business community, but also to the support of poorer Peruvians, most of whom voted for Humala. His economic policies are therefore likely to include measures designed to make “trickle down” trickle further. More emphasis will be placed on the need to deal with chronic problems of health and education. Other key issues in the election campaign have been the need for employment and for policies to deal with crime in the country’s urban areas.
Although the economic climate is benign – growth this year will probably exceed 6% – Garcia may well run into political difficulties. His party has only a minority (36 seats) in the 120-member legislature. The biggest party is Humala’s Union por el Perú (UPP) with 45 seats. This may make for awkward coalition formation, possibly accepting unwelcome terms from UN.
Or it could mean doing a deal with those in Congress who support Fujimori. The price for their support is clear: lifting the extradition charges which Peru’s former president, currently in Chile, has hanging over him. Since it was Fujimori who, in 1992, forced García into a 12-year period of exile, this may be seen as a price too high to pay.