Peru Election 2006

The return of Alan García
John Crabtree
Open Democracy, June 6, 2006
The second presidency of Alan García will test his claim to have learned from the mistakes of the first, reports John Crabtree.
Peru’s president-elect, Alan García Perez, promises to be a rather different Alan García to the angry young man who became president in 1985, determined to eschew orthodox economics, limit his country’s debt-service payments to 10% of exports, and build what he called un Perú diferente. The victor of the second round of elections on 4 June 2006 says that he acknowledges his past mistakes – which led to hyperinflation in his last year in office, 1989-90 – and will respect the rules of liberal economics.
With 95.56% of the votes counted, García led the nationalist candidate, Ollanta Humala, by 52.77% to 42.23% (excluding null and void votes). The populist ex-army officer Humala had topped the poll in the first round on 9 April, while García only narrowly secured a second-placed lead over Lourdes Flores (presidential candidate of Peru’s centre-right Unidad Nacional [UN] coalition). The second-round poll showed that García had vanquished Humala by appealing to Flores’s supporters, from whose lips the phrase “the lesser of two evils” has been common in the last eight weeks.
During the campaign, García promised that a new government under his leadership would be “responsible”. It would keep the public-sector deficit in check, support the December 2005 free-trade agreement (FTA) negotiated with the United States by the outgoing Toledo administration, and create a climate that favours foreign investment. This message was music to the ears of Peru’s worried business community, for whom Alan García had long been a bete noire, but whom they also regarded as preferable when compared with Humala.
Humala’s campaign, by contrast, had proclaimed the need for much tougher rules for foreign investment, which has boomed in Peru on the back of surging world mineral prices in recent years. He had virulently opposed the FTA, which he portrayed as a sell-out to United States economic interests that would have damaging economic consequences for the poorest in Peru. The campaign revealed, and the final votes confirmed, that support for Humala was strongest among poor voters, especially in the rural highlands in the south of the country and in the urban townships that surround Lima and other cities.
Reversing a reputation
The García government of 1985-90 left the country in a disastrous state, with consumer prices spiralling out of control and the economy mired in the deepest recession since the 1929 Wall Street crash. Peru’s international creditors were angered by the heterodox policies García pursued in his early days, and bankers were in no mood to come to his rescue when they failed to deliver and the economy went from short-lived boom (1986-87) to bust. García made repeated attempts to restore relations with the International Monetary Fund and the World Bank, but these institutions reacted with cold indifference.
García also wrecked his relationship with local businessmen when, determined to speed up investment in an already faltering economy, he resorted to nationalising the country’s commercial banks. Most major local businessmen had interests in the banking sector, and were outraged by what they considered a flagrant attack on private property. The campaign to discredit García, and eventually to replace him in 1990, was led by Mario Vargas Llosa, the well-known novelist.
García’s first government was also a major disappointment to his Alianza Popular Revolucionaria Americana (American Popular Revolutionary Alliance [Apra] party. Apra, founded in 1924, is Peru’s oldest mass-based party, but its previous attempts to gain office were systematically blocked by the conservative armed forces. It had to wait until 1985, and the García breakthrough, to win power.
In its infancy, Apra was a progressive party that sought to overturn the country’s archaic social structures through agrarian reform and policies of industrialisation. By the 1950s, during the cold war, its outlook had become more conservative and markedly anti-communist. García set out in the 1980s to re-establish the party along more modern, social-democratic lines.
The legacy of García’s government led to an about-turn in national policy under his successor, Alberto Fujimori. Fujimori, enthusiastically supported by the Washington-based multilateral banking institutions, initiated an aggressive liberalisation of the economy, privatising most state companies and changing the rules to attract foreign investors. After Fujimori’s disgrace and fall in 2000, the government of Alejandro Toledo maintained a similar sort of policy package. However, Toledo’s economic approach failed to fulfil his much-vaunted election promises of creating more employment and reducing poverty.
Against the tide
In seeking to heed more orthodox liberal economic ground-rules in his second period in office, García will be bucking the trend being established in some other Andean countries, notably Bolivia and Ecuador, where more interventionist and statist policies have been adopted. García spent much of the second-round campaign attacking Venezuela’s leftist president Hugo Chàvez, whom he repeatedly accused of meddling in Peru’s domestic affairs by supporting Humala’s candidacy. Chàvez’s heavy-handed diplomacy helped García to tap into a Peruvian nationalism of his own, defending the country from what he described as outside interference.
The election of García, notwithstanding his past record, is welcome news in Washington. Coming a week after the electoral victory of Álvaro Uribe in Colombia, it will help reinforce an anti-Chàvez axis among the Andean countries. As well as opposing the FTA, Humala had promised to legalise coca farming in Peru. Peru is, after Colombia, the world’s second largest producer of coca, the raw material for cocaine, and production has been on a steady upwards trend in recent years.
The foreign-investment community – as well as local businessmen – will also heave a sigh of relief that Humala did not make it to the presidency. They feared Humala’s pledge to rewrite the contracts on which mining corporations do business in Peru, and believe – despite suspicion of García’s “personalist” demeanour – that the new president will follow policies that continue to attract investment.
This shift in business sentiment has been apparent from the moment it became clear that García had pipped Flores to reach the second round, when the markets rallied in the knowledge that García would be better placed to beat Humala. Businessmen think, with some justification, that García will appoint one of their own as finance minister to convince the markets that there will be no return to heterodoxy.
A stony road
However, Alan García will not find it easy to govern Peru. The most immediately important reason is that a García government will not have a majority in the new, 120-member unicameral congress. The largest single grouping in this body, also elected on 9 April, will be Humala’s Union por el Perú (UPP), with forty-five seats against Apra’s thirty-six. Apra will, therefore, have to strike deals with a number of smaller parties if it is to gain enough votes to secure legislation.
The most obvious ally would be the Unidad Nacional coalition, which has seventeen seats. But even its support will not be sufficient for a majority, and Apra could possibly be forced to do a deal with the Fujimori camp’s Alianza por el Futuro (AF). But the price tag attached to any deal with the fujimoristas would probably be the dropping by of extradition charges against the former president, until recently under arrest in Chile as he sought to return to contest the election.
García will then find it difficult to structure a coherent government without first offering seats to rival parties in the new cabinet. Peru’s political system operates on a presidentialist basis, but the lack of a stable majority in Lima’s congress can easily lead to constitutional gridlock. The precedents are not encouraging: the last time a government ruled Peru without a majority – after Fujimori’s election in 1990 – tensions between the executive and the legislature paved the way to Fujimori’s palace coup (autogolpe) on April 1992, when by executive fiat he closed congress and sacked the supreme court.
García may also find relations with his own party problematic. If he strays too far in a rightward direction, he is likely to arouse hostility within his own party ranks. Apra has a reputation for being a disciplined party, but several prominent party figures elected to the new congress harbour ambitions for the party leadership at some stage. Again, the precedent is instructive: García’s 1985-90 term in office was marked by sharp tensions between him and Apra’s leaders, who felt that he ruled without taking his party sufficiently into account.
García will therefore need to maintain a delicate political balance: between maintaining business confidence and preserving macroeconomic stability while at the same time honouring his party’s historic ambitions to build a more equitable and fair society. In his speech to jubilant supporters on the 4 June election night, García did not hesitate to express the need to “transform” Peru.
If such language proves more than crowd-pleasing rhetoric, it may betoken a somewhat more interventionist policy in areas where market economics are seen to work deficiently. It may mean, for instance, restoring the state-run agrarian bank shut by Fujimori. Banco Agrario was widely seen as corrupt, but its closure left many farmers without access to credit. An Apra government may also try to strengthen the regulatory system, where there have been repeated complaints about (to cite just one example) the level of tariffs charged.
García may also give more attention to areas neglected by his predecessors, such as health and education. Peru’s social-welfare system has long been in a condition of decay, and poor education and healthcare are among the prime reasons for the fact that more than 50% of the population live in poverty (and 24% of these in extreme poverty). Perhaps the biggest challenge of all will be to find ways by which the country’s booming export economy begins to benefit the millions of Peruvians who live without proper employment opportunities or health facilities in urban shantytowns or in rural communities. These are the people who voted for Humala and who will be looking to Alan García for a transformación that brings them some tangible benefits.