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“I'm going to follow my own path. The path of resolving problems of Peru, basically the theme of inequality that generates poverty, violence and exclusion. That's my compass.”
- Ollanta Humala
Elected leaders hope to inspire and not be the cause of despair. For their leadership to have credibility, it is important to be accepted not just by supporters but also by groups that have divergent political or ideological views. From this perspective, Ollanta Humala, elected this month as the next Peruvian president, will begin with a large handicap. He won the tight election with a slender majority and has very little acceptance among other political parties. Worse still, the Peruvian business community and financial markets believe the Humala administration will harm the country’s economic growth. The day Ollanta Humala won the election, the country’s main stock market index slumped 12% and the currency weakened. Not quite the warm reception the new leader must have been hoping for after a hard fought campaign.
Considering Humala’s career so far, it is not very surprising that his victory is being received with much apprehension, if not downright hostility. Perhaps the worst allegation against Humala is that he is not a democrat at heart. A former army officer, Humala led an unsuccessful military coup against the Alberto Fujimori government in 2000. He was subsequently pardoned and sent abroad as the country’s military attaché to France and then South Korea. Humala was forced to retire from the army in 2004 and is said to have supported another unsuccessful coup attempt led by his brother to unseat the Alejandro Toledo government in the following year.
Humala’s well known friendship with Venezuelan President Hugo Chavez has further harmed his democratic credentials and has made Peru’s business community wary of his future economic policies. They know that Chavez has repeatedly rewritten the Venezuelan constitution to channel executive authority to the president’s office and to extend his term in office. And many in Peru believe Humala will also be willing to ignore the existing constitutional provisions in Peru to strengthen his political position. In Peru’s 2006 presidential campaign, Chavez supported Humala when he lost to current president Alan Garcia. There have been allegations, though unsubstantiated, that his recent campaign was also partly funded by the Venezuelan leader.
Fears about radical shifts in economic policies are more widespread. More than a decade of highly conservative economic policies has lifted the Peruvian economy and the country is expected to enjoy the fastest growth in the region this year. Peru has established a stabilization fund, using some of its export earnings, to meet contingencies. The government’s fiscal health is robust, with a surplus budget expected this year, as the country used part of the export surplus fund to finance the stimulus program during the 2009 economic downturn. Under Chavez, Venezuela has followed diametrically opposite economic policies. Venezuela has brought important sectors of its economy under the government’s direct influence and has spent beyond its means on welfare programs. Despite the increased earnings from oil exports, the Venezuelan economy is expected to decline this year. Even if Humala adopts a few of the policies followed by Chavez, many feel the shift in economic policy direction could not be more dramatic.
“In no way does the victory of Humala represent a step backwards for the economy.
But if he does not stick to his commitments to democracy and freedom, I will be the
first in line to remind him of his promises.”
- Mario Vargas Llosa, Nobel laureate.
However, it would be unfair to prejudge Humala only on the basis of his earlier actions and political associations. His pronouncements since he gathered the most votes in the first round of elections suggest that Humala is acutely conscious of the challenges he faces to win wide support. He has expressed readiness to favorably consider the country’s current economic framework and has sworn not to change the present constitution. His aides have actively sought to allay fears about the government expropriating private business assets. The relatively weak position of his party in the country’s parliament will likely prevent Humala from making major policy deviations, even if he wants to.
More encouragingly, Humala appears to be remodeling his policies to mirror the political and economic philosophy of a highly admired leader from the region, former Brazilian President Lula da Silva. When he came to power, Lula was also seen as highly unfriendly to businesses and financial markets. However, over the course of two terms in office, Lula followed policies that encouraged private businesses and attracted large scale investments. At the same time, Lula also introduced programs aimed at reducing poverty and providing food security, besides affordable housing and education. Under Lula’s watch, economic volatility was rendered a thing of the past and Brazil became one of the most prominent emerging economies. This is a development model that most other countries in the region now consider favorably, and may work fine for Peru as well.
Even so, it is likely that Humala will have to eventually carve out his own development model and forge his own path. He may have to adapt the successful models from elsewhere to the unique circumstances and needs of his country. Perhaps if Humala can signal such a pragmatic policy approach, the skeptics will be easily disarmed and investor confidence can be restored. Both Lula da Silva and Indian Prime Minister Manmohan Singh, another accomplished emerging market leader, were greeted by equally dramatic market declines when they first took office. Given this, it appears that Ollanta Humala has a chance to map out his own destiny.
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