Populism Clouds Peru's Presidential Race

Report Americas

Populism Clouds Peru's Presidential Race

April 5, 2006 4 min read

Authors: Stephen Johnson and Edwar Escalante

Despite 5 years of peace and prosperity, growing numbers of Peruvians seem anxious to return to the bad old days of populist spendthrift governments, an empty treasury, and hyperinflation. The problem is that strong foreign investment and steady economic growth of more than 5 percent per year haven't been enough to help Peru's poor-who make up half the population-achieve social mobility.

Outgoing President Alejandro Toledo's policies were a good start toward eradicating poverty, but jobs depend on an educated workforce, strong rule of law, the absence of burdensome regulations, and a commercial code that helps the poorest of citizens start a business as easily as the richest. One potential successor is likely to embrace such reforms, while the other dismisses them. Peruvians will make their choice on April 9.

Toledo's Legacy
Elected in 2001 as Peru's first indigenous head of state, Toledo turned out to be as unremarkable as his predecessors were eccentric. He neither divided citizens with fiery rhetoric nor made unrealistic promises. As a reward, his public opinion ratings sunk to the teens and stayed there.

Nonetheless, Toledo's low-key leadership left room for the congress, courts, and local governments to grow in effectiveness. And Peru's economy has expanded while others in the region are struggling. This past year, growth topped 6 percent while inflation hovered at 1 percent. 

In contrast, populist president Alan García (1985-90) bankrupted the treasury with ill-conceived spending programs as Sendero Luminoso terrorists ran through in the countryside. Alberto Fujimori (1990-2000) restored the economy and stopped the Sendero but did so by imposing an elected dictatorship.

Progress or Populism?
The leading candidates for the presidency are conservative attorney Lourdes Flores Nano and retired army officer Ollanta Humala. Around twenty others are also in the running, including former presidents García and Valentín Paniagua. If no one wins more than 50 percent of the vote, a runoff will take place on May 7.

Flores Nano, who ran against Toledo in 2001, advocates balanced budgets, free trade, and rule of law, as well as an assault on poverty through better education and economic policies that favor small producers. Until recently, she had the lead, with up to 34 percent of the projected vote in ever-shifting polls.

Coming from behind, retired army officer Ollanta Humala, overtook her late last month. Humala is a populist and nationalist who would not have chance in ordinary times but has carefully exploited the growing unpopularity of traditional candidates and their unwillingness to tackle poverty. Only six years ago, Humala led a failed military uprising against president Fujimori and was jailed.

As Fujimori's reputation declined, Humala's ascended in a story that echoes the biographies of Venezuelan President Hugo Chávez and former Ecuadoran president Lucio Gutierrez. Both tried to overthrow discredited chief executives, served short prison sentences, and came back as successful presidential candidates. (Ecuador's congress fired Gutierrez for exceeding his powers in dismissing the Supreme Court a year ago.)

Humala is reminiscent of past strongman leaders. He is charismatic and considers General Juan Velasco Alvarado-whose socialist dictatorship (1968-75) imposed statist policies, nationalized industries, and carried out an ill-conceived land reform that nearly collapsed Peru's economy-his model.

Humala denies his idea of nationalization amounts to expropriation and claims his plans would just put business at the service of the nation. But he clearly would like to reduce foreign investment from Chile and the United States, even though Peru has trade and investments in those countries that would be adversely affected.  

Risking another economic meltdown, Humala would abandon the U.S.-Peru trade ties and renegotiate contracts with foreign investors, triggering capital flight. To keep the economy afloat, he would have to dip into national reserves unless an already overcommitted Chávez comes to the rescue with his checkbook-not likely.

Copying campaign promises from Bolivian president Evo Morales, Humala opposes free trade with the United States and coca eradication. Imitating both Morales and Venezuelan president Hugo Chávez, he would convene a constituent assembly to rewrite the constitution to prolong his stay in power and presumably isolate institutions and politicians that might oppose him.

Although Humala denies he has received campaign funds from Chávez, he did visit the Venezuelan leader in Caracas this January, obtaining a public endorsement. Peru recalled its ambassador from Caracas and accused Chávez of meddling in Peru's internal affairs. At the same time, the Venezuelan leader branded Flores the "candidate of the oligarchy"-a phrase Humala now uses to describe her.

In fact, Humala hints that he would establish his own oligarchy by crushing opponents. He reportedly wants President Toledo and members of his party remain in Lima after his inauguration so that they can be investigated for corruption. This threat suggests a debilitating witch-hunt against an administration that has been relatively clean compared to those of Fujimori, García, and Humala's hero General Velasco. Humala himself was a part of Toledo's government, serving as a military attaché in France and Korea.

Peruvians should expect Humala to purge the armed forces of all but his own followers and begin muzzling the press. His wife has already talked of a potential military purge while his jailed brother, Antauro, has declared that TV channels and radio stations should be nationalized. And even though he claims-like Chávez-to be a reformer, Peru would probably slide back into a quagmire of corruption once he began deciding public matters on the basis of personal loyalty.

Of the two candidates, one wants to carry out the orders of the people while the other would give the orders. One would empower the poor to participate in the economy and get ahead on their own while the other would give them handouts in exchange for obedience. The election has become a choice between democracy and dictatorship. Peru has limited experience with democracy, but plenty with dictatorship. Voters should learn from previous mistakes.

Yet the country's biggest error is the one that has inflated Humala's prospects the most. Despite Toledo's macroeconomic reforms, Peru's economy is still plagued by harsh government regulation and a weak justice system that fails to protect personal property. Reluctance to promote competitive markets has caused Peru's ranking to fall 27 positions in 6 years in The Heritage Foundation/Wall Street Journal Index of Economic Freedom.

How ironic that this failure to fully liberalize may lead to the election of a president who promises to undo what economic progress Peru has achieved to this point.

Edwar Escalante is Executive Director of Andes Libres, a new Cusco-based institute that studies politics and economics in Peru. Stephen Johnsonis Senior Policy Analyst for Latin America in the Douglas and Sarah Allison Center for International Studies at The Heritage Foundation.


Stephen Johnson

Former Senior Policy Analyst

Edwar Escalante

Senior Policy Analyst on International Economics