Peru: More of the Same?

Earlier this year, Peruvians elected Ollanta Humalá Tasso as their President. Humalá is a former army officer who led a short-lived revolt against then-President Alberto Fujimori in 2000. While unsuccessful, his actions may have contributed to Fujimori’s downfall.

Radical Nationalism?

Humala ran for president in 2006 on a socialist, nationalist platform. His campaign was branded as ethno-nationalist, largely because his father and several other relatives espoused an extremist pro-indigenous, ethno-nationalist line. While he disavowed the extreme position, traditional elites considered him a threat to the established order. He achieved a plurality on the first round of balloting, but failed to win 50% of the vote. The right and centre rallied behind Alan García, as the “least bad” option, and Humalá was narrowly defeated on the second ballot. Strong backing by Venezuela’s President Hugo Chavez, including character assassination of Alan García, may well have helped turn Peruvian voters against Humalá. There were also fears that Humalá would bring Peru into Hugo Chavez’s leftist, anti-American, anti-capitalist Bolivarian Alliance for the Americas (ALBA).While Humalá dropped off the political radar for several years, the ‘ethno-nationalist” label has stuck with him

In 2011, he again ran for president, this time on a moderate socialist platform aimed at increasing the state’s role in the economy and in the distribution of wealth. He suggested, early on in the campaign, that he liked the Brazilian model for social programs, and that he intended to retain Peru’s existing economic and trade policies. In the 2011 elections, the centre cancelled itself out by fielding three candidates, and no majority was achieved on the first round. The second round saw Keiko Fujimori (seen as the reactionary right), pitted against Humala (seen as the radical left). Humala won a narrow victory with 51.5% of the popular vote. Thankfully Chávez did not provide any “help” during these elections, and Humalá was able to distance himself somewhat from his radical relatives. After the elections, Humala moved quickly to assure elites and investors that there would be no major policy swings. His cabinet is considered moderate left and centrist and he has put together a liberal economic team. It is likely that he will stick with the current economic model, with a modest increase in social spending. If the Brazilian model remains his option of choice, Peru will seek closer ties with the moderate left in South America, including Brazil, Chile and possibly Colombia.

Poor Presidential Performances

Since Alberto Fujimori (Japanese-Peruvian: 1990-2000), Peruvians have elected a Quechua (Alejandro Toledo: 2001-2006), returned to the traditional elite (Alan García: 2006-2011), and once again chosen an indigenous president (Ollanta Humala: 2011-2016). While Fujimori retained considerable popularity until 2000, his successors enjoyed little public support, with Toledo finishing with a less than 10% approval rating, and García with less than 20%. Under the regimes of all of the last three presidents, economic growth was strong – over the past 5 years, GNP growth has averaged 7.2%/annum and poverty levels have dropped from 45% to 31%. Notwithstanding these achievements, Presidents – whether from traditional elites, the indigenous or Sino-Peruvian communities - have not been able to cement a strong public following, and the populace at large remains disillusioned with its politicians.

In terms of policy, García was criticized – perhaps unfairly - for emphasizing infrastructure projects and neglecting social programs. If Humalá retains the policy direction of his predecessors, he is likely to experience the same precipitous decline in popularity. Expectations on the part of the poor and marginalized are likely too high and will be disappointed. The belief that “trickle down” does not work is likely to be heightened. Humala has promised to raise the minimum wage substantially, but with almost 70% of the work force in the informal economy, such a measure is likely to have little impact on the welfare of ordinary citizens or on his popularity.

Is Peru Governable?

Humala must increase his tax base and improve delivery mechanisms if he really wishes to address issues of poverty and social exclusion. He has suggested that taxes will be raised on new mining concessions and that he will allow the export of natural gas, both of which may increase government revenues but are unlikely to be of sufficient magnitude to make a significant impact on poverty. Furthermore, traditional elites, which remain powerful in congress, are unlikely to support the diversion of scarce government revenues to social programs, and their somewhat shaky support for Humalá will further fall off should he insist on greater social spending. In any event, they will not support initiatives that could strengthen Humala’s position with the poor. Peruvian politics leave little room for manoeuvre for presidents – the elites will turn on them if they attempt to reform the system.

Past efforts to decentralize governmental responsibilities and services to the departments largely faltered, leaving confusion. In addition, Peru lacks a professional civil service at the central and local levels with the skills, experience, and tools necessary to implement development projects in the interior, or to supervise implementation by the private sector. In many parts of rural Peru, the state remains largely absent. Without better human infrastructure, sustainable development in the interior is doubtful.

As in the past, development will be effected largely by “trickle down”, supplemented largely by ad hocefforts of non-governmental and private groups. We thus expect continuing low-level social unrest, disillusionment with government, and perhaps a less attractive investment climate in the countryside as more emphasis is placed on taxes, environmental and social impact issues.

Nonetheless, we expect Peru to maintain healthy GDP growth, primarily due to a largely unfettered private sector and a robust mining/energy sector, as long as mineral and petroleum/natural gas prices remain strong. There will be slow but steady progress on poverty alleviation over the next 5 years, but Humala – unless he adopts a Fujimori-like policy of regular, well-publicized visits into the interior where his is able to offer tangible help and assure the poor that he has their interests at heart – is likely not to retain strong public support, and a second term is clearly in doubt.