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Peru: Investors Worry About Humala

Investors are worried about the likelihood of a radical change in economic policies in one of Latin America’s stars.



After five years of Asia-style growth, Peru’s economic outlook appears uncertain. Ollanta Humala, a leftist radical, won the first round of presidential elections on Sunday and will face off lawmaker Keiko Fujimori in a second round on June 5. With 95.8 percent of the vote tallied, Humala from the Gana Peru party won 31.8 percent, while Fujimori from Fuerza 2011 received 23.5 percent, placing her second.

“An Humala win… would be a negative for Peruvian sol and spreads…as the market prices in increased risk to the macroeconomic trajectory that has carried impressive Peruvian economic advancement over the past decade, “ Bulltick Securities warned in a commentary today. “We expect heightened volatility in the markets in the run-up to June 5th.”


Although Humala has softened his rhetoric from the 2006 campaign, local and foreign investors don’t buy it. “While Humala's rhetoric has softened in many respects, his desire to change the constitution, which protects private sector from overwhelming state involvement, desire for increased role of the state, income redistribution, and an increase in mining royalties, ambiguity regarding existing [free trade agreements] have remained,” Bulltick says.


The International Monetary Fund estimates that Peru’s economy will expand by 7.5 percent this year, which would be the highest in Latin America, according to a Latin Business Chronicle analysis. The estimates were released yesterday as part of the fund’s World Economic Outlook and were likely based on research before the election outcome. Last year, Peru’s GDP grew 8.8 percent and in the 2005-10 period, it grew an average 7.2 percent per year, according to the Latin Business Chronicle analysis.


Although Humala won the first round, pro-market candidates garnered a combined 67 percent of the vote, showing that a majority of Peruvians do not favor radical changes. However, Fujimori won’t necessarily get the votes of her pro-market runners up.


She remains controversial in Peru due to her close ties to her father, former president Alberto Fujimori. He was president from 1990 to 2000 when he resigned amidst a growing corruption scandal involving his spy chief Vladimir Montesinos. Two years ago he was sentenced to 25 years in prison on charges of human rights abuses and he is also serving concurrently a seven-year verdict on embezzlement. Keiko is expected to pardon her father if elected president.


Former president Alejandro Toledo, who came in fourth place with 15.5 percent, may even endorse Humala due to his personal animosity with Fujimori.  Peruvian Nobel laureate Mario Vargas Llosa has said the choice between Humala and Keiko Fujimori is "a choice between AIDS and terminal cancer.”


However, Keiko Fujimori has emphasized that she will respect human rights and has distanced herself from the authoritarian policies of her father’s last years in power.


If Toledo endorses Humala, Keiko Fujimori may get endorsements from the other two pro-market candidates, former prime minister Pedro Pablo Kuczynski and former Lima mayor Luis Castañeda, which combined garnered 28.5 percent of the votes.

It is likely that Kuczynski would agree to support [Fujimori], especially if he were offered a role in an eventual Fujimori administration,” IHS Global Insight says in a commentary today.


Bulltick predicts that Fujimori will win the second round, albeit with a narrow victory. “Popular support is volatile up until the election day as is historically the case in Peru, and we think this second round will be a ‘squeaker,’ " it says. “In our view, most probable is that K. Fujimori ultimately wins the presidency as anti-Humala support consolidates around her.”


Fujimori has pledged to continue current economic policies and will be the investor favorite.  However, she is seen as a populist and has said she would tax windfall profits, according to Reuters. She has a Bachelor’s degree in Business Administration from Boston University and an MBA from Columbia University.  She has surrounded herself with advisors that are well-respected among local and foreign investors. They include:

  • Jaime Yoshiyama. Yoshiyama, her candidate for second vice president, has worked as Managing Director for Kuresa S.A., a Swiss-Peruvian office supply company with headquarters in Lima, and a former minister in the Alberto Fujimori administration.
  • Guillermo Palomino. President of Access Capital Group and a former vice president of Bank Boston in Peru and Argentina, manager of Citibank in Peru and general manager of America Leasing. Holds an MBA from the University of Miami.
  • Jose Chlimper. Chairman of Corporación Drokasa S. A, CEO of Sociedad Agrícola Drokasa and a board member of Peru’s Central Bank, construction company Graña y Montero and private airport operator Aeropuertos del Perú S.A.
  • Marino Costa. A veteran of the insurance sector in New York, London and Lima, he is a former president of Peru’s Association of Insurance Firms. As Peru’s health minister in the 1990s, he spearheaded reforms to liberalize the sector.
  • Alvaro Salcedo. Executive President of the Peru office of US-based international development consulting company Chemonics. Holds a PhD in economics from Hamburg University in Germany.
  • Augusto Bedoya. Director of consultancy Grupo Apoyo and a former transport and communications minister.




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