Peruvian president Ollanta Humala does not like labels. During the campaign that carried him to the presidency last June, he refused to accept that he was the standard-bearer of the left. Eight months into office, he refuses to accept conjecture that he has now settled squarely to the right.
While skirting the ideological debate, Humala has moved to implement the vast majority of his signature campaign promises and find a middle ground – a third way, according to congress speaker Daniel Abugattas – that many Peruvians support.
The president’s popularity stood at 59% in late February, according to Ipsos Apoyo, the leading polling firm – no small feat for a man who most pundits had written off only a year earlier in the heat of the presidential race.
His support surged from the low double digits in February 2011 to slightly above 30% in April, allowing him to lead the pack of 11 candidates and make it to a June runoff. He defeated Keiko Fujimori, daughter of former president Alberto Fujimori, with 51% of the vote in run-off balloting.
Abugattas, serving his second five-year term in congress with Humala’s party, says Humala has not changed his ideals, only modified the path to achieving “economic growth with social inclusion”, the administration’s catch phrase.
“I would not say that he has changed, but that he has adapted to the responsibility of running the country to benefit Peru’s 30 million people. He has moved from being a candidate to being a leader and statesman,” Abugattas tells Emerging Markets.
A number of people on the left, some of whom were by Humala’s side when he ran the first time in 2006, feel differently. None of them is currently in the government.
In the cold
The president passed over the architects of his economic plan for key posts when he announced his cabinet, choosing instead free-market technocrats. Luis Miguel Castilla, deputy finance minister in the previous government, was appointed as economy and finance minister. He has become a top figure in Humala’s inner circle. Julio Velarde, who has run an effective central bank, was appointed to another five-year term.
The slow exodus of the left became a stampede in December, when the president, reeling from an anti-mining strike in the northern Cajamarca region – his support since taking office was lowest in December, at 47% – decided on a massive cabinet shake-up.
Out went premier Salomón Lerner, who now has the record for the shortest tenure of a premier at the start of a government, and 10 other ministers. Following them was a long list of Humala advisers, including Félix Jiménez, who served as the future president’s economic counsel from 2005 through the 2011 elections.
Carlos Tapia, an adviser from the 2006 race who left as a political adviser last November, claims Humala caved in to “neo-liberal technocrats” and sold his voters short. Sinesio López, another former political adviser, says that Humala has been “taken hostage” by the country’s traditional economic class. That Humala had 75% support among the wealthiest class in the February survey by Ipsos Apoyo – a 31-point jump from August – is proof to the left that the president has tacked hard to the right.
The leftist lawmakers in Humala’s 47-member congressional delegation threatened to bolt in January, but have reconsidered. The president caused a minor uproar by stating that his Gana Peru coalition was only a vehicle for the elections and has since disappeared.
He invited lawmakers – most on the left – to join his Partido Nacionalista if they wanted. The initial outcry was against Humala, but it quickly turned to Oscar Valdés, a retired army colonel who replaced Lerner as premier. Valdés, and not Humala, has been blamed for the right-wing shift. Congressman Javier Díez Canseco, head of the Socialist Party that joined the Gana Peru coalition, has called for Valdés to go. He says the administration is stable enough to withstand the exit of a second premier after only three months in the post.
THE PRICE OF COHESION
Despite the criticisms, the cabinet under Valdés has been much more cohesive, and Humala’s order that debate between ministers take place in cabinet meetings and not in the media has eliminated public spats that hurt the administration in its first four months.
“The president presents policies that are discussed by the ministers. Policy is implemented once the cabinet is in agreement. There can still be discussions on the way to implement decisions, but they must remain in the cabinet,” says Valdés.
The handling of the anti-mining strike in Cajamarca highlights the president’s shift to the right. Humala, as a candidate, pledged that the $4.8 billion Minas Conga project would not be built if it depleted water resources. He said water would come before gold.
But he changed gear in October, claiming that the region could have both “water and gold”, and pronounced that Conga, the largest mining investment so far in the country’s history, would go forward.
López has predicted that Conga will be decisive for Humala, and Marco Arana, a former Catholic priest and head of the newly registered Tierra y Libertad political party, says the Humala administration appears willing to do whatever it takes for Conga to go ahead, regardless of his past promises. “He has turned his back on Cajamarca, on the people who believed in him,” Arana says.
Political analysts agree that resolution of the issues surrounding Conga, which is being developed by US-based Newmont Mining, Peru’s Buenaventura and the World Bank’s IFC, will likely have a major influence on the president’s support.
“The president’s approval rating is strong and reflects a sense among voters that the country is headed in the right direction. Resolution of the Conga problem through negotiation should maintain this support,” says Giovanna Peñaflor, head of the Imasen polling firm.
The administration has hired three consultants, two from Spain and one from Portugal, to review Conga, focusing primarily on water issues. They began work in late February. While there is still concern that the technical review will be tailored to the government’s position, there is also a sense that the administration is willing to find solutions. This contrasts with the style of former president García, who accused indigenous communities opposed to extractive industries of being stumbling blocks to development.
Santiago Pedraglio, a political scientist and journalist, says support from Humala stems from the administration’s effort to carry out the key components of the president’s roadmap since taking office. “There is a general opinion of Humala as serious and committed to improving the country. This has comforted voters who were not convinced by him during the campaign,” says Pedraglio.
The government pushed through congress three laws to increase revenue from mining – an additional $1 billion annually – and has created the hallmark social programmes Humala promised as a candidate. These include a new pension plan for poor senior citizens with no other coverage, a universal day-care programme, a scholarship programme for the 5,000 brightest students from poor districts and two job-creation initiatives.
The administration also created the new Development and Social Inclusion Ministry and has announced important public investment in transportation and citizen security – the top two concerns of Peruvians in most polls.
Positive macroeconomic numbers are also helping to boost the country’s positive outlook. GDP in 2011 expanded by 6.9%, slower than the previous year, but stronger than most countries in the region. Growth for 2012 is pegged at 5.5%, the highest in South America. Inflation, which hit 4.7% last year, has started to drop, and the forecast from the country’s largest bank, Banco de Crédito, is 2.5% for 2012.
Exports in 2011 stood at $46.3 billion, up 30.1% from the previous year, while imports were $36.9 billion, up by 28.3%. Also, the government posted a fiscal surplus equal to 1.8% of GDP, erasing a deficit of 0.3% from the previous year. Private investment increased 11.7% in 2011, according to the central bank, and is now equivalent to nearly 20% of GDP.
The markets reacted positively in late January to the administration’s placement of $1.1 billion in new debt, the first bond placement since 2010. The country raised $500 million reopening its existing 2050 bond and $600 million in Peruvian nuevos soles for its existing 2031 bond.
FISCAL STRENGTH
Fitch Ratings said in February that Peru has the lowest need for financing in the region in 2012, given its strong fiscal position and low debt amortization schedule – Peru’s financing needs are around 1% of GDP. Chile and Uruguay are next, with financing needs equivalent to 2% of GDP.
The government has already announced two investment packages for 2012 to help protect the economy in case of a meltdown in Europe or the US. China is now Peru’s biggest trading partner, but the central bank does not foresee major problems with China in 2012.
Businesses like what they see, with major investments planned in a host of sectors, from shopping malls to petrochemical plants. “The economy just keeps getting stronger and stronger,” says Martin Emkes, international managing director of Arthur J Gallagher International, an insurance broker, when it announced its entry into the Peruvian market in mid-February. “I think the future of Peru looks fantastic, and we are keen to get in at this moment.”
The Humala administration has also come around to embracing free-trade agreements – something the president railed against in the 2006 campaign. It has taken a strong position in pushing for conclusion this year of the nine-nation negotiations for the Trans-Pacific Partnership (TPP) that called for the foundation of a regional Asia-Pacific trade union. Also in the talks are Australia, Brunei Darussalam, Chile, Malaysia, Singapore, New Zealand, the US and Vietnam. Canada, Japan and Mexico are in talks to join.
Criticism from the left notwithstanding, Humala heads for the first anniversary of his victory with a growing economy, surging popularity and no major political opposition. The challenge now is complying with the second prong of his administration’s promise – social inclusion.