Shunning Chavez Fuels Humala's Rise in Peru Presidential Polls

By John Quigley

Ollanta Humala campaigned for Peru's presidency in 2006 wearing red T-shirts and expressing admiration for Venezuelan socialist leader Hugo Chavez. This year, he's donning business suits and vowing to expand ties with investor-favorite Brazil.

The former army officer's change in raiment and rhetoric has helped boost him into first place in polls ahead of the first round of voting April 10. Investors including Barclays Capital, who in December dismissed him as a "radical" also-ran after Peru grew 8.8 percent last year, now say the outcome of a likely runoff on June 5 is too close to call.

While abandoning the anti-capitalist rhetoric has allowed Humala to build support beyond his rural base, it's unclear if he'd govern with the same restraint, said political analyst Alvaro Vargas Llosa. Peru's stocks, bonds and currency fell in the past three weeks as Humala overtook congresswoman Keiko Fujimori and two other rivals who are tied for second place.

"There is real reason to fear that Humala won't be part of the modern left," said Vargas Llosa, a senior fellow at the Independent Institute in Washington. "It's a real risk because we've never had it so good."

Humala had 26 percent support in a nationwide poll taken March 26 to April 1 by Lima-based researcher Ipsos Apoyo, up from 21 percent a week earlier and 10 percent in January. Fujimori, the daughter of jailed former President Alberto Fujimori, trailed him with 18 percent support, while former President Alejandro Toledo had 17 percent support and Toledo's former Finance Minister Pedro Pablo Kuczynski had 16 percent. Fujimori, Toledo and Kuczynski support outgoing President Alan Garcia's policies promoting free trade and foreign investment.

Market Selloff
Humala's surge and fading support for Toledo has caused investors to reassess the threat of a nationalist government increasing state control over Latin America's fastest-growing major economy the last five years.

The cost of insuring Peru's debt against default rose to its highest since 2009 this week on concern a Humala presidency would jeopardize $50 billion of mining, energy and infrastructure investment that the government expects will fuel 6.5 percent growth over the next five years. Peru is the world's second-largest producer of copper and No. 1 in silver.

Peru's sol has declined 1.2 percent against the U.S. dollar since March 20, when Humala began gaining in the polls, making it the worst performer among 25 emerging-market currencies tracked by Bloomberg. The Lima General Index has fallen 7.4 percent in the past month, the fourth worst performance among 90 primary stock indexes tracked by Bloomberg.

"Foreign investment is not going to be as rosy if Humala wins," said Edwin Gutierrez, who helps manage about $6 billion of emerging market debt at Aberdeen Asset Management in London. "Higher royalties and higher taxation in the mining sector is a viable threat."

Lula's Advisers
After the sell-off, Humala on March 28 issued a "Letter to the Peruvian People" vowing to maintain Garcia's fiscal policies and support for an independent central bank.

He's also downplayed his ties to Chavez, which sparked controversy during the 2006 campaign, when he lost by 5 percentage points to Garcia. Instead, he's seeking advice from Brazilian campaign advisers Luis Favre and Valdemir Garreta, who helped former union leader Luiz Inacio Lula da Silva sweep to power in 2002. Chavez last month on state TV called Humala a "good soldier."

"It's a long time since I've been to Venezuela," Humala, 48, said in a March 23 interview in Trujillo. "I've traveled more to Brazil. Peru has a historic opportunity, having a frontier with a country that is a world power."

Armed Rebellion
Still, investors worry the changes are cosmetic. Like Chavez, who as a paratrooper led a failed coup in 1992, Humala has been dogged by his past support for armed rebellion. In 2000, as a lieutenant colonel, he led 50 soldiers who seized and occupied for a week one of Phoenix-based Southern Copper Corp. (SCCO)'s mines to protest corruption that beset Fujimori's government.

Humala's platform includes proposals to raise royalties on mining output and ban gas exports to bring down domestic fuel costs. He also said he'll renegotiate free trade agreements with the U.S., China and the European Union that Garcia says will double Peru's exports to $70 billion in 5 years.

"Humala will use taxes to finance his social projects for four or five years, but that will run out when no one does any mining exploration," said Carlos Galvez, Chief Financial Officer of Cia. De Minas Buenaventura SA, Peru's biggest precious metals producer, in a March 25 telephone interview. "Then he'll have to start expropriating like Chavez."

Toledo's Decline
The 65-year-old Toledo, who negotiated a free trade agreement with the U.S. while president from 2001 to 2006, is the only candidate capable of defeating Humala in a runoff, according to the Ipsos Apoyo poll. A candidate needs to win half of all ballots cast in the first round to avoid a runoff.

After staking out a lead in January, Toledo became the target of attacks by other candidates. While his indigenous heritage allowed him to peel votes away from Humala's base, Toledo awoke too late to voters' anti-establishment sentiment while focusing on pro-business rivals like Kuczynski and former Lima mayor Luis Castaneda, said Vargas Llosa.

In a runoff scenario, Humala trailed Toledo by four percentage points and was tied with Fujimori and Kuczynski, according to Ipsos Apoyo.

Barclays, in a December report, said "support for a radical political proposal to reverse the economic reforms of the past two decades seems to have been neutralized." The Eurasia Group, a Washington-based political risk firm, said in January that Humala was unlikely to reach the runoff.

Gridlock in Congress
If Humala wins the presidency, his government will lack the majority in Congress needed to push through controversial proposals, said Fernando Tuesta, a professor of politics at the Catholic University in Lima.

Humala's Nationalist Party may win about 32 of the 130 seats in Peru's unicameral legislature, compared with 31 for Fujimori's "2011 Force" and 25 for Toledo's "Possible Peru" movement.

Gridlock may force Humala to follow the path of other Latin American leaders such as Lula and former Chilean President Michelle Bachelet, who despite their socialist roots maintained policies that bolstered investment and growth, said Tuesta, a former chief of Peru's electoral authority.

Vargas Llosa isn't as sure.

"You don't need a majority in congress to dismantle democratic institutions or the economic model," said Vargas Llosa, the son of 2010 Nobel Prize literature laureate Mario Vargas Llosa. "If Humala wins with a big mandate and there is a fervor going along with the caudillo, I don't see how you're going to stop him."

To contact the reporter on this story: John Quigley in Lima at
To contact the editor responsible for this story: Joshua Goodman at