Peru—A Fox Guarding the Hen-House?
April 11, 2006
The first round of the Peruvian elections has turned Ollanta Humala, a nationalist former military officer and strong admirer of Hugo Chávez, into the leading force in Peruvian politics, with about 30 percent of the vote. It is not one hundred percent clear who will face him in the runoff because the vote is not yet fully counted, but former president Alan García, a socialist, has a tiny edge over Lourdes Flores, the pro-business, center-right candidate.
Against what many wishful thinkers are predicting, I think Humala is going to be hard to stop even if he gets only 30 percent of the vote. I base this opinion on three factors.
Humala is the only candidate with a strong presence throughout the country—he won in 19 out of 25 regions. His bastions of support in the Andean south and center got Alberto Fujimori and Alejandro Toledo elected in 1990 and 2001 respectively. A candidate with a dominant position in the south, the center, and the east, with one-quarter of the vote in Lima (which represents a third of the electorate), and some support in various northern provinces, is going to be hard to beat, even if García is able to attract many of Flores’s middle and lower middle class votes.
Secondly, the country has shifted to the left in ideological terms. Although Humala’s support has to do more with sociology than with ideology because it comes from mestizo Peruvians with strong indigenous roots who feel excluded from the prevailing institutions, both he and García’s party are critical of globalization and what they term free-market “neoliberalism.” Together, their two parties will have 78 out 120 seats in Congress. Their combined votes reflect a critical mass that runs contrary to what Lourdes Flores stands for. If García goes to the right in order to woo Flores’s voters, he may lose some of his base to Humala.
Finally, an alliance or pact between García and Flores might play into Humala’s hands in the second round (by definition a highly polarized scenario) because he presents himself as the scourge of the political establishment. It will be a match between “traditional politicians” and the “outsider”.
The big question, in case of an Humala victory in the runoff, is whether the nationalist candidate will become another Chávez. He has already announced he will call a constituent assembly in order to change the Constitution, which will in turn give him the power to call new elections for Congress. That is exactly how Chávez managed to concentrate power and began to erode democracy in Venezuela. However, Humala did not get an outright majority in the first round and faces a very tough “pre-emptive” resistance from the establishment, something Chávez did not face before he had consolidated his position. Moreover, Humala will not have $50-billion worth of oil money available every year.
If Humala wins, he will, however, have a lot of cash in his hands because the minerals that Peru exports are producing a lot of revenue for the government and the outgoing administration is leaving behind substantial monetary reserves. If this is not enough to turn Peru from a mediocre democracy into an authoritarian regime, it will be enough to engage in fiscal profligacy and left-wing populism with impunity for a few years.
If Humala makes good on his promises to revise foreign investment contracts, to vote against the recent FTA with the United States and to nationalize natural resources, investment in Peru will diminish. Not a good thing for a country that needs more of it. The economy has grown by about 20 percent in the last five years but poverty has been reduced by between 2 and 4 percent. This means Peru needs much higher levels of investment in order to dramatically reduce poverty.
Peruvian voters are right to feel disgust at their prevailing institutions and to feel excluded from the realm of opportunity in a nation where 98 percent of businesses are forced to operate outside of the law and therefore have low productivity. The problem here is that the Humala remedy would end up killing the patient.
If, on the other hand, Alan García were to win, we could expect a less catastrophic administration than the one he headed in 1985-1990 but still one that will engage in at least some left-wing populism. He is unlikely to undertake the type of reform Peru needs in order to enfranchise those millions of excluded citizens who need to be brought into the market economy. A Lourdes Flores administration, though probably much better at the macro rather than the microeconomic level, would preserve much of the current legacy.
The issue of law and order has become even more important than jobs for millions of Peruvians. Crime and violence in poor neighborhoods has had a dismal response from the state and many people are desperately taking the law into their own hands. Many poor Peruvians see in Humala as a tough guy who will provide security for them. What they will end up doing, unless they turn away from him in the runoff, is put the fox in charge of the hen-house.
