The risk of throwing it all away
Populists like Ollanta Humala (pictured below) threaten to overcome divided moderates in one of Latin America’s fastest-growing economies
Mar 31st 2011
LIMA
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LIVING in Peru’s capital is like watching a film on fast-forward. Every few months you can spot a taller skyscraper, a swankier hotel, glossier shops and restaurants, new roads—and more traffic. House prices in the leafier neighbourhoods have almost doubled in the past two years. Rapid change is not confined to Lima. The only provincial cities of any size that do not already boast one or more new shopping malls and multiplex cinemas are about to get them. These are the tangible results of a decade in which Peru’s GDP grew by over 5% a year, the highest rate among Latin America’s bigger economies.
Since 2006 the growth has accelerated, averaging 7% despite the world recession. Some good effects have been widespread. The share of Peruvians living in poverty fell from 49% in 2004 to 35% in 2009. Much of the Pacific coast, where farmers export asparagus, grapes and a plateful of other products, enjoys full employment. Though many parts of the Andean highlands remain poor, the arrival of paved roads is cutting journey times, and some farmers there have joined the export boom with artichokes and herbs. Social indicators have improved. Between 2005 and 2010 Peru climbed 24 places in the United Nations Human Development Report, which ranks countries by income, life expectancy and educational measures. It now scores better than Hugo Chávez’s Venezuela.
This success has been based on “a combination of good policies and good luck”, as the World Bank put it in a report released this week. The good luck was the boom in the world price of Peru’s mineral exports (it is the world’s largest silver producer, second in copper and zinc and sixth in gold). The policies include the successful pursuit of price stability, fiscal rigour, foreign investment and open trade. They were first adopted in the 1990s by Alberto Fujimori, an elected autocrat whose regime collapsed amid systematic corruption, but they were pursued more effectively by two democratic presidents, Alejandro Toledo and Alan García..
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Given the quickening progress, one might expect Mr García, the president since 2006, to have chosen a successor set to romp to victory in an election on April 10th. Both Brazil’s Luiz Inácio Lula da Silva and Colombia’s Álvaro Uribe managed that feat last year. But no. Mr García’s approval rating languishes at 26%, according to a poll by Ipsos-Apoyo. His APRA party doesn’t even have a candidate.
Instead, Peru’s election runs some risk of turning into a lesson in what happens when economic growth is not backed up by more effective government, and when a democracy is hobbled by weak and fragmented political parties. Mr García chose to pour public money into roads rather than social programmes. That helped sustain growth. But a fifth of Peruvians still lack access to piped water, almost a fifth of children are malnourished and health care is patchy. The interior ministry, run by a series of APRA mediocrities, has failed to stop Peru from becoming the world’s biggest cocaine exporter. Although it is still a fairly safe country, the murder rate tripled between 2002 and 2008, according to Ciudad Nuestra, an NGO in Lima. Gangland killings among drug mafias are a frightening novelty.
Polls show that roughly two of every three Peruvians want democracy and only moderate reforms of economic policy. They retain the painful memory of a quarter-century wasted by leftist and populist policies, notably in Mr García’s first term in the 1980s. (It was only in 2005 that income per head surpassed its level of 1981.) But they are also disgruntled by rampant corruption, rising crime and a sense that most of the benefits of the boom are going to the few. Income distribution has become less unequal, but only a bit. And none of the politicians seems to inspire them much.
Toledo has floundered. The three candidates who stand for continuing and improving the policies of the past decade—Mr Toledo, his former prime minister Pedro Pablo Kuczynski, and Luis Castañeda, a former mayor of Lima—have squabbled among themselves. The result: a poll released by Ipsos-Apoyo on March 27th found that in a desperately tight race the front-runner is now Ollanta Humala, a populist former army officer, who came out one point ahead of Keiko Fujimori, the daughter of the former president. That suggested it could be she and Mr Humala who will go through to a run-off ballot in May.
A short, lithe, copper-skinned man, Mr Humala appeals to the third of Peruvians who have yet to see much benefit from the modern economy, partly because he looks like them. He came within six percentage points of beating Mr García in a run-off in 2006. Back then he made no effort to hide his ties with Venezuela’s Mr Chávez.
This time Mr Humala’s pitch is more moderate, with echoes of Lula. He says he would distribute wealth more equally through a “national market economy”. This seems to come down to “national planning”, and renegotiating or cancelling foreign companies’ contracts to run ports and operate mines and gasfields. Mr Humala also promises to give a modest non-contributory pension to the 1.2m Peruvians over 65 who, he says, do not have one. He promises to be tough on crime and corruption. He wants to change the constitution—the tactic used by Mr Chávez to stay in power in Venezuela—but he insists he will leave after five years.
Ms Fujimori’s main goal seems to be securing an amnesty for her father, who is serving a 25-year sentence for human-rights abuses. She would not change economic policy. But she is hardly a guarantee of democratic reform or the rule of law.
A few weeks ago Mr Toledo was comfortably ahead in the polls. But he has come under fire for his personal failings. His critics accuse him of heavy drinking and cocaine use, which he denies. Mr Toledo has lost support, especially among younger Peruvians, to Mr Kuczynski, a former IMF official and investment banker. Aged 72, Mr Kuczynski has through clever campaigning pulled off the improbable feat of turning himself into a political novelty. He promises to introduce a professional civil service and legalise the vast mass of informal businesses. But he started late, his support is concentrated among the better-off, and his opponents have made much of the fact that he holds an American passport as well as a Peruvian one.
The tightness of the race means that a televised debate on April 3rd may be decisive. Centrist opinion may rally behind whichever man, Mr Toledo or Mr Kuczynski, seems more likely to win. Much is at stake. Mining firms alone are poised to invest $42 billion in Peru over the next three years, according to Luis Carranza, a former finance minister of Mr García’s. But to keep the boom going beyond that, he cautions, requires deeper reforms of education, health and government. Neither Mr Humala nor Ms Fujimori would offer them.
Mr Humala’s rise has injected alarm into the complacency prevalent among Peru’s businessmen, prompting a sell-off of shares and the currency this week. Mr Humala would lack a majority in Congress and would find it much harder than Mr Chávez to establish an elected autocracy, even if he wanted to. But his manifesto reads like a recipe for five years of wasted opportunities, at best.
Even if Mr Humala gets to the run-off, he may well lose, as he did in 2006 when Peru was in worse shape than it is today. But much will depend on who his opponent is. Although rivals are sceptical of Mr Humala’s new-found moderation, it may yet broaden his appeal. Both Mr Humala and Ms Fujimori embody risks that a majority of Peruvians would prefer not to entertain. But will they now find a way to express that in their vote?
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