Editorial: Peru steps back from the brink (June 14, 2006)

Peruvian voters have thankfully taken a step back from the abyss with the election of moderately left-leaning Alan Garcia to the presidency over radical Hugo Chavez-groupie and former comandante Ollanta Humala.

In a run-off election between the two candidates held on June 4, Garcia secured only about 53% of the vote, winning the capital, Lima, but failing to win over mining regions such as Huancavelica and Junin, and tourism centres Cusco and Arequipa.

Garcia’s victory is, in part, a rejection of the intrusion of Chavez, Venezuela’s hot-headed president, into Peru’s domestic politics. Chavez drew the ire of many Peruvians through his overt backing of Humala as a way to export his reckless “Bolivarian revolution” to Peru.

During the campaign, Garcia had painted Chavez as a “midget dictator with a big wallet,” describing his interference in Peru’s election as “shameless” and characterizing him and his Bolivian acolyte Evo Morales as “spoiled children” and “historic losers.”

Chavez, for his part, called Garcia “corrupt” and “a genuine thief, a demagogue and a liar,” and said that he and outgoing Peruvian President Alejandro Toledo were both “crocodiles from the same watering hole.”

The name-calling prompted both countries to withdraw their respective ambassadors in May, and at presstime, Chavez was insisting that Garcia apologize to him before diplomatic relations can resume.

Peruvians, of course, were also directly rejecting Humala and his Peruvian Nationalist Party or PNP, whose policies and postures are designed to appeal to the basest instincts of Peru’s Amerindians by using a toxic brew of the worst “isms”: racism, ultra-nationalism, militarism, authoritarianism, and anti-capitalist collectivism, including the forced nationalization of mineral resources and persecution of entrepreneurs. (We don’t know what commitment the PNP has to free speech, but there’s no reason to be optimistic.)

A victory for Humala would have triggered a financial and political crisis in Peru, with essential, new foreign investment drying up overnight, existing Peruvian capital fleeing to safer jurisdictions in Latin America and beyond, and Peru’s brightest and best citizens dusting off their passports.

At a personal level, Garcia’s win represents a remarkable comeback story for him at the head of the Peruvian Aprista Party or PAP (also referred to by its original name Alianza Popular Revolucionara Americana or APRA).

Garcia, now 57, was Peru’s president from 1985 to 1990, and he left the country economically ruined and tormented by an emboldened Sendero Luminoso — the Maoist guerillas who murdered thousands of Peruvians in the 1980s and 1990s.

Garcia’s erratic leadership and spectacular failures as president paved the way for the decade-long ascendancy of hardliner Alberto Fujimuri and his chief advisor Vladimiro Montesinos — both of whom are now in jail, the former in Chile and the latter in Peru.

Garcia fled into exile in 1992 when Fujimori tried to arrest him, only returning to Peru in 2001 after a judge ruled that the statute of limitations on his corruption charges, which he had always denied, had expired.

Today, Garcia is replacing the unpopular Alejandro Toledo, who beat out Garcia for president in a run-off election in 2001, but recently polled around the 10% level. Toledo was legally barred from seeking a consecutive term.

When Garcia first assumed the presidency at the tender age of 36, inflation in Peru was at 163% annually, but by the time he left office five years later, it had hit a whopping 7,482%.

However, this time around, Garcia says “there will be no inflation.” He adds: “my desire is not to repeat any of the errors I may have made. Do you think I want my tombstone to read: ‘He was so stupid that he made the same mistakes twice’?”

Garcia also says that during his upcoming term, he wants his party to “demonstrate to the Peruvian people . . . that it will not convert the state into booty.”

Garcia’s victory should save the recently negotiated Peru-U.S. trade accord — which would have been scrapped had Humala become president.

While Peru is no paradise, the country has made some hard-won social and economic progress in the past few decades, and mining by both domestic and foreign companies has played a central role, bringing in about a third of the country’s taxes, with mineral products accounting for more than half of Peru’s exports.

Peru’s leading export is now copper, with US$3.4 billion worth of it produced in 2005. Gold exports come in a close second in value, with half of it coming from the Yanacocha mine. Indeed, Peru is Latin America’s largest gold producer and it has risen to fifth place globally, behind only South Africa, the U.S., Australia and China.

Foreign direct investment into Peru last year totalled US$2.5 billion, up 39% from the previous year, and Peru attracted about US$105 million of mineral exploration spending last year, making the country one of the world’s top half-dozen destinations for mineral-exploration dollars.

While foreign and domestic miners in Peru are cheering Garcia’s win, they should also brace themselves for a hike in taxes on mining profits, as Garcia promised to institute in his campaign. The resulting funds will be earmarked, says Garcia, for spending in the social realm of his racially and economically divided country, where economic growth has averaged a blistering 4.5% annually for the past four years, but the poverty rate has only declined a couple of points, to 52 per cent.

Humala, meanwhile, is basking in his strong second-place finish and is vowing to carry on with his push to nationalize the country’s oil and gas assets, punish a “corrupt” elite, and redistribute the country’s wealth to Peru’s poor Amerindians and mestizos, who number more than half the country’s 28 million inhabitants.

The national elections held in April left Humala’s PNP in a leading position with 45 seats in Peru’s 120-member Congress, compared with Garcia’s PAP’s 36 seats, and Humala is now looking to expand his base in local and regional elections due to be held in November.

Unfortunately, we probably haven’t heard the last of Humala and his radical agenda for Peru.