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Peru's Moment of Opportunity

Interviewee: Michael Shifter, President, Inter-American Dialogue
Interviewer: Aimee Rawlins, Production Editor, CFR.org
June 7, 2011

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Ollanta Humala, the retired military officer who defeated Keiko Fujimori in presidential elections June 5, has raised fears that he will emulate the extreme leftist politics of Venezuela's Hugo Chavez, whose policies he championed when he ran for president in 2006. But expert Michael Shifter, president of the Inter-American Dialogue, argues that Humala eschewed those connections during the recent campaign in favor of a more moderate stance. Shifter says Humala capitalized on many Peruvians' frustrations with the country's inequality despite the fact that it is Latin America's fastest-growing economy. His strong support in poorer regions of the country is a "real opportunity" to eradicate some of the recent unrest and bridge the gap between Peru's poor and the business and elite classes, Shifter says. He acknowledges that this is a tall order, but says if Humala follows through on campaign pledges to provide moderate reforms--along the lines of Brazil's Lula de Silva--then he has a chance to be successful.

Do you see Peru's election outcome as a referendum on the fact that despite the country's growth over the past decade, many Peruvians do not believe they've benefited from it?

It's a mandate for moderate change. The Peruvians like economic growth, and many have benefited somewhat. But they still lack opportunities; they still feel excluded from this bonanza that Peru has been experiencing in recent years. And they're angry and resentful toward their political leaders. And Humala very effectively tapped into that mood in the country. I don't think Peruvians want to overhaul the economic model that has been producing some benefits, but they do want better distribution of the fruits of development, and they also want less corruption. They want the political elite to pay attention to parts of the country where Humala did very well--the south and the eastern part of the country--that are poor and have not enjoyed the real benefits of this great boom.

Humala was criticized for being too left-leaning, and people questioned his associations with Chavez, despite the fact that he distanced himself in this election. Was his evolution to a more moderate stance authentic? Will that carry through in his governing?

I don't think Peruvians want to overhaul the economic model that has been producing some benefits, but they do want better distribution of the fruits of development, and they also want less corruption.

The test of that was the election, where he succeeded in convincing enough Peruvians that he had distanced himself from Chavez. If he'd failed to convince them, he would not have been elected. Peruvians are hoping that there's been a conversion and a transformation--and that he's realized that the model that Chavez forged for Venezuela is not right for Peru, and won't work in Peru. Now, there are a lot of Peruvians who didn't vote for Humala, who are obviously skeptical of that, and believe he still is fundamentally aligned with Chavez, and that it will become clear. That's why the markets reacted negatively to Humala's victory. It may take awhile to convince those people that Humala has adopted a more prudent and moderate set of prescriptions for Peru's problems, but he did withstand a lot of criticism and a lot of attacks, not only by the Fujimori campaign, but by much of the mainstream media in Peru. He was quite steady and consistent and disciplined, and enough people believed him for him to become president of Peru. Now is the time to show that he really has become more moderate than he was just five years ago.

Investors reacted quite sharply to his victory, with the sol dropping more than 1 percent and the stock market plunging. Are these fears misplaced, or are they appropriate given his track record?

I think [investor] fears are exaggerated. I understand their fears and would point to some of his positions, including his first set of proposals, which he later moderated. He's come up with different ideas, [and] there are legitimate questions about which Humala we're going to see as president. If Humala attempts to carry out some of the more radical ideas that Chavez has pursued, it will be a recipe for failure.

Peru is not today where Venezuela was when Chavez came to power in 1999. Peru has a booming economy--it's been the fastest-growing Latin American economy in the last decade. Peruvians have enjoyed this growth. But there is disaffection with the politics as usual, and there is criticism that there are still very high levels of inequality. And that's the message: to correct some of those imbalances and those inequities. The resentment and anger that have been building in some parts of Peru have made the country very volatile.

Humala has a chance, if he succeeds in carrying out some of these social policies, to make the country more stable. Whether he'll be able to do that is a big question--he'll have to adopt an attitude that is not "us versus them" or engage in the kind of confrontational politics that we've seen in Venezuela, Bolivia, and Ecuador. He's going to need the business class, the traditional political sectors, in order to govern. This will put a lot of his promises and rhetoric to a real test.

He's talked a lot about reforming the mining industry and has pushed to renegotiate some of the mining and energy contracts. Can you outline the current state of affairs in this industry, and explain how some of his proposals will impact it?

The United States looks to establish relations with countries that are growing economically, that have committed to social equity, and are democratic. And if Humala has promised those three elements, and he carries through with that promise, then I don't see why there would be a problem.

One has to put this in the perspective of [current President Alan] Garcia's government that's ending now. His was the most investment-friendly government imaginable. All the incentives for investment were there--there were very minimal taxes and royalties from mining companies, so Peru was an enormously attractive place, and the terms were very, very favorable.

What Humala is proposing is not to expropriate or nationalize these companies--he's vowed not to do that--but to have what we would call a windfall profit tax and get more royalties so that he can finance some of his social spending programs. He has to convince these companies that it's still worth them coming to invest, that they shouldn't be threatened by these measures, that Peru is still a very good investment. [He has to show] that he embraces these companies, but that they would bear more of a tax, and they'll still be able to have a considerable profit while paying that tax. That's sort of the balancing act he's going to have to try to maintain--carrying out what he has promised to implement, while not scaring away foreign investors.

How will Humala's victory impact U.S. relations with Peru?

Relations have been good with the Garcia government. The United States will be watching very closely what Humala does and what appointments he makes. He's got a very mixed group of advisers, and he's got to decide who are going to be the key people in his government. But this is an opportunity to continue to have a relationship with Peru. The United States looks to establish relations with countries that are growing economically, that have committed to social equity, and are democratic. And if Humala has promised those three elements, and he carries through with that promise, then I don't see why there would be a problem. If he becomes antidemocratic or authoritarian, then I think that could be a concern that would make relations more difficult. But certainly, if one takes him at his word, he says he wants to maintain good relations with the United States, and that he respects the terms of the free trade agreement between Peru and the United States. I don't see any reason why there would be any reason to have a tense relationship.

What effect do you see the election having on Latin American politics in general?

Peru is a very interesting case in the Latin American scenario, because it is this great poster child for investment and free-market economics in the past couple of years, [and has a] spectacular growth rate, and yet it's a country where there are fault lines and schisms in society. If Humala can succeed, it would be a big setback for the kind of politics that we've seen in Venezuela, particularly, where one person rules and makes all the decisions. The results have been very disappointing [in Venezuela]. And it would provide further proof that this kind of leftism--this moderate, pragmatic leftism--where you deal with social problems within a democratic framework--is kind of a consensus model in Latin America. I think in some ways, this is the most severe test of it--because even though Peru has performed so well economically, socially it's sort of polarized. And certainly, this election exposed this polarization that we'd never seen before.

Humala lost overwhelmingly in Lima, which is relatively wealthy, while he had key support in poorer regions. Does he have a plan to bridge this polarization?

His victory speech was encouraging. He talked about reconciliation and building bridges, he talked about a government of concertación--it means everyone kind of works together. The initial signs are encouraging. But it requires a real strategy on specific issues. [The fact that] he is so popular outside of Lima, in the poorer parts of Peru, is important, because those regions have become a tinder box due to the mounting resentment. Garcia couldn't even travel to some of those areas. So that's a real opportunity, but he also has to convince Lima--he needs the capital to govern effectively as well. He needs to bridge those two worlds--those two pieces of Peru. That's going to be hard to navigate, and he'll have to be politically very skillful. Peru's a very complicated country. I don't think anyone should underestimate the difficulty of what he's facing.

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