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How Elections In Peru Could Change The Direction Of the Economy

220px-Pedro_Pablo_KuczynskiThe elections in Peru on April 10, resulted in no single candidate gaining more than half of the popular vote. This is what is required in order to prevent a run off. The two top presidential contenders were together able to garner 61% of the vote. Keiko Fujimori, the conservative daughter of a jailed former president received 40% of the vote and the centrist economist Pedro Pablo Kuczynski secured 21%.

What is important for investors is that neither candidate, will threaten the economic model that has been in place for a quarter of a century. Veronika Mendoza the leftist candidate, had received only 19% support from the electorate earlier this month. It is an encouraging sign that Peruvians on the whole have finally abandoned, the siren call of income redistribution and the socialist model of economics.

Verónika Mendoza

Verónika Mendoza

Ms. Mendoza has emerged as one of the leading representatives of the left in Peru. Her populist message includes a 50% increase in total government spending. She is also advocating a withdrawal from free trade agreements and reasserting national sovereignty, over the interests of multinational businesses.

Fujimori and Kuczynski will face each other on June 05, to determine which one of them will succeed President Ollanta Humala who is term limited. The two remaining candidates will compete to capture the share of votes that went to Ms. Mendoza and other former contenders.

Fortunately for Peru President Humala who won the 2011 election, decided to respect the constitutional term limit restrictions. He did not seek to change electoral law, as is the case in Bolivia and Ecuador.

Keiko Fujimori, President of the Popular Force.

Keiko Fujimori, President of the Popular Force.

Keiko Fujimori from the Popular Force Party is seen far more vulnerable, despite her acquisition of the largest vote share in the first round election. Her father Alberto was an authoritarian president during the 1990s and many Peruvians continue to be disenchanted, with the close family connection. In a recent study 42% of those polled stated, they would not vote for Fujimori in the upcoming June election.

Ms. Fujimori a member of Congress from 2006 to 2011, had previously made it to a runoff with President Humala in 2011, but lost to him by a narrow margin.

Outside of Peru, Alberto Fujimori is seen as a human rights violator and a practically a dictator. However inside the country, he is widely regarded by a sizable portion of the population.

Former President Fujimori presently serving a prison sentence for corruption and murder, is the leader who implemented the economic reforms, that allowed Peru to become a model of prosperity and growth today. He forced the country to turn away from policies that had brought nothing, but extreme poverty and hyperinflation to the populace.

Alberto Fujimori 45th & 47th President of Peru. In office 9 January 1993 – 22 November 2000.

Alberto Fujimori 45th & 47th President of Peru. In office
9 January 1993 – 22 November 2000.

He is also credited with restoring internal security in the country, by combating the incidences of terrorism and influence of the Shining Path insurgency.

Mr. Kuczynski is the son of European immigrants and is a former World Bank economist. At 77, he has an impressive resume having been Minster of Energy and Mines from the years of 1980 to 1982 and Economy and Finance minister from 2001 to 2002. He was also the Prime Minister from 2005 and 2006. He has always been viewed as being pro-business.

Kuczynski is also considered to be somewhat more moderate on a number of social issues. He represents the Peruvians For Change Party. Only 32% of voters when polled, claimed they could not support him in an election.

Pedro Pablo Kuczynski

Pedro Pablo Kuczynski

Kuczynski who working in the private sector, was able to amass a fortune from an investment portfolio. Although he is considered the least corrupt among most of the leading politicians of experience, many Peruvians consider his close ties to the United States as a major liability.

He does not speak well publicly and at 77, his advanced age has become an electoral issue.

It is this grade of moderation that is likely to make him more palatable to more Peruvians than the aforementioned Fujimori. It is also why Ms. Mendoza has talked about eventually endorsing him in the upcoming election. She and her party The Broad Front, considers Fujimori a far greater threat to the political system of Peru.

In March of 2016, two possible contenders were disqualified from participating in the presidential election. Julio Guzman was barred as a result of violating internal All For Peru party rules. Cesar Acuna Peralta from the Alliance For Progress, was disbarred for handing out money during campaigning. This was a violation of the new electoral law, that was passed by Congress in November of 2015.250px-Peru_(orthographic_projection).svg (1)

The two other candidates that came in 4th and 5th place in the first round of voting were Alfredo Barnechea from the Popular Action Party and Alan Garcia from the Popular Alliance Party. Barnechea is a former member of the Congress from 1985 to 1990. Garcia is a former President of Peru. His held the office from 1985 to 1990 and again from 2006 to 2011.

For investors in South America, an encouraging sign is the lack of broad support for Veronika Mendoza. Her party platform is difficult in a country that well remembers, how the state planning model and over spending, led Peru to an economic crisis in the 1980s.

President Ollanta Humala in 2011

President Ollanta Humala in 2011

She repeatedly calls for bringing the central bank under additional governmental control. Her desire is to offer far easier credit. Mendoza also insists that environmental rules need to be stepped up. This is quite controversial in a country that is dependent on mining.

Peru’s currency and equity markets fell drastically earlier this year, when it looked like Ms. Mendoza might qualify to participate in the presidential runoff in June. She seemed to not understand the lack of investor confidence in her policy positions. That both domestic and foreign investment would leave the country en masse, was not part of her economic calculations.

Finally her insistence on rewriting the national constitution, likely doomed her candidacy in a nation weary of political machinations of leading politicians.

At this point, because of the high negatives towards the Fujimori candidacy, it is likely that Kuczynski will prevail in the upcoming election. Most investors and business people will be comfortable with that outcome. That there will be no attempt to circumvent democracy by President Humala is also a good sign, that the hard won prosperity and stability obtained by Peru will continue. This is despite the near collapse in the commodities market, that had dealt a severe blow to economic development throughout Latin America.

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