Ollanta Humala, the frontrunner in Peru’s presidential elections, has pledged to revise contracts with foreign investors in favour of local and state companies in the Andean nation’s strategic sectors, in one of his clearest statements yet on the issue.
In an exclusive interview with Emerging Markets, Humala said that he intends to renegotiate contracts with foreign firms who are currently exempt from paying royalties - a move that would affect the 27 foreign mining companies who benefit from so-called tax-stability contracts, seven of which expire this year.
The presidential candidate, who looks set to win the first round of Peru’s elections on Sunday, stressed that, although he has no plans to expropriate assets, he intends to place key resources “in the service of the nation”.
“This can be done by sitting down and talking to companies within a legal framework to guarantee the state’s role in these activities. This can be done through taxes, royalties, an expansion of shares, and so on,” he said, singling out hydrocarbons, energy, ports and airports as sectors for special consideration.
The former army officer refused to be drawn on which companies in particular could face nationalization. “We do not talk about nationalization of companies but activites, so we cannot highlight only [one company].” But he pointed out that “the state, which represents the nation, must have a role [in key sectors].”
“If Peruvian economic groups can assume this task we will encourage it. The state is going to call on local companies to participate in strategic sectors.,” he said. “We will cede this space to national companies.”
Humala denies that Peru has undergone a process of privatization. Instead, he says “what we’ve experienced is a ‘foreign-ization,’ which is different. Local capital did not participate in the bidding, privatizations or concessions.”
The presidential hopeful also said he would refuse to sign the free trade agreement with Washington, inked last December and yet to be ratified. “I will not sign it in its current form. It has to be an agreement that benefits national interests,” said Humala.
“If the free trade agreement allows for national development based on industry or productive activities, such as agriculture, I would be the first in line to sign it,” he said.
Nationwide polls published yesterday – just a week before the April 9 elections - put the radical nationalist Humala at 31% of the national vote. National Unity Alliance contender Lourdes Flores trails with 26% while Peruvian APRA party candidate Alan Garcia comes third with 23%. Many analysts believe Garcia could overtake Flores at the ballot box, making him the “swing man” in the contest.
Humala, who promises a “revolution” for Peru’s poor, remains well below the 50% support he would need on April 9 to avoid a May run-off with the second-place finisher. However, the polls did not cover 19% of voters in remote rural areas where Humala’s support is strongest.
Portfolio and direct investors alike are uneasy about the prospect of a Humala victory. “The market will not like this because he [Humala] has solidified his lead,” John Welch, director of emerging markets research with Lehman Brothers, told Emerging Markets.
But Humala dismisses the notion that his election would cause a huge financial scare. “They keep saying the market will collapse, but it hasn’t. This is part of the panic caused by the political terrorism created by transnational business groups that are afraid of nationalism,” he said.
If elected, Humala said his first economic initiative will be to “reactivate” the agricultural sector. “We plan on investing around 5 billion soles in agriculture through loans to small farmers using AgroBanco, which will be the link between farmers and the banking system,” he said.