From the Editor - Peru Takes a Turn for the Left

Steve Fiscor
Ollanta Humala claimed a narrow victory (52.6%:47.4%) over Keiko Fujimori in a Peruvian runoff election on June 5, 2011. The election signals a shift for Peru. In a 2006 presidential campaign, Humala lost to Alan Garcia. In the meantime, Peru reaped five years of solid economic growth. From 2005 to 2010, per capita gross income rose 82% to about $5,200. Yet, voters opt for a leftist former military commander over a conservative congresswoman, who was widely favored by business. Another Latin American country changes course, but this time the influence is different.

Peru’s importance in the mining sector is well-documented. In March, E&MJ ran an extensive report on Peruvian mining. The reoccurring theme throughout the piece was the country, which is already a mining leader, was on the verge of becoming a major mining hub. Peru produces 15% of the world’s silver, 12% of its zinc, 9% its gold and 7% of its copper. On the Monday following the election, Peruvian stocks registered a 12.5% decline. Mining companies such as Southern Copper and Cia de Minas Buenaventura took a direct hit, but began to recover as this edition went to press.

Many Peruvian voters admitted they didn’t like either choice. Sound familiar? His looks helped. He is a native Peruvian. Humala led a coup against Fujimori’s father, a former Peruvian president who is now serving a 25-year jail term. He started this campaign with a 200-page proposal for governing the country, brandishing a populist flare. Instead of engaging leaders from Venezuela, Ecuador or Bolivia, he embraced former Brazilian President Luiz Anacio Lula de Silva. Former consultants from da Silva’s governing party helped him shape his message and replace his plan with a five-page document.

Could this be a sign of a continental integration among developing Latin American economies? Peru represents a gateway to Pacific markets for Brazil. They share a border, but they have largely ignored each other until recently. Both countries have complementary mineral production. Business between the two countries has grown significantly during the recent commodities boom.

Similar to many parts of Latin America, a high level of discontent is brewing between the people in rural areas and their wealthier counterparts in urban regions. It would be naïve to believe Humala will not attempt to make some modifications to the Peruvian economy and redistribute wealth. Mining companies would agree with an approach that saw more of the royalty and tax revenue being invested in the infrastructure for the regions surrounding the mines rather than city centers 1,000 km away. Hopefully he will resist rewriting the rules on mining taxes, royalties and foreign trade.

Even though the election outcome is not what the business community wanted, it might not be as negative as originally perceived if Humala continues to moderate. During the last 10 years, two types of leftists have come to power in Latin America—those that resemble Hugo Chavez and those that resemble da Silva. Da Silva was viewed as a radical when he was first elected and he grew into a role as a business-friendly president that saw a country flourish. Garcia leaned hard to the left and quickly learned the benefits of free markets. Humala’s party holds a little more than one-third of the seats in the Peruvian Congress, so he will have to compromise. If he reverts toward the policies of his neighbor to the north, who politicize economies to enhance their power, he can expect the same results. Peru made its decision and now Humala has to make his.

Steve Fiscor, Editor-in-Chief, E&MJ

As featured in Womp 2011 Vol 05 -