The Andes Climb’s Creaky Crevices

Peru’s Q1 20 percent stock market selloff worsened, with small bond foreign inflows also reversing, as populist candidate Humala won the first round presidential contest with a slight lead over second-place finisher Fujimori, with the business community’s preferred choices Toledo and Kuczynski eliminated. The ruling center-right APRA party of President Garcia, whose approval rating is 25 percent, did not even field a contender. Humala’s opponents claim that with his platform of more equal wealth distribution through a “national market economy” he remains allied to Venezuela’s President Chavez, who campaigned on his behalf during the last effort at the top post. The former army officer now portrays himself as a moderate who will uphold current fiscal and monetary directions while renegotiating international mining contracts, extending state pension coverage, and changing the constitution. His law and order stance mirrors Fujimori’s who serves in Congress and draws support from her father’s admirers recalling privatization and anti-terror successes and downplaying subsequent corruption charges and convictions. Toledo commanded a wide early margin but faded, with the competitive reform initiative seized by longtime investment banker PPK, who ultimately fell short as too old and elite to appeal to young, poor and working class voters especially outside Lima. Last year GDP growth was almost 9 percent with credit up 20 percent, according to the central bank, which has intervened on both sides of the exchange rate and introduced prudential restrictions on speculative positions. The pre-election goal of achieving budget balance has been undermined by additional food and fuel spending, with commodity inflation spurring incremental interest rate upticks. The government has won good marks for building infrastructure, in particular roads to remote rural destinations, but has been in charge during a wave of killings associated with drug violence.

The country has supplanted neighboring Colombia in the cocaine export standings, and in addition to cross-border security implications, commercial ties are at risk with the poll outcome with large cement and electricity investments. Chile’s LAN airline has its main hub in Lima, and the stock exchanges between the three jurisdictions have joined in a formal alliance. Colombian President Santos already has a packed diplomatic agenda agreeing to a labor union treatment compromise to break the impasse over the US free trade agreement, and recently hosting a summit in an attempt to reinvigorate links with Venezuela. One ratings agency has restored investment grade status while record flooding continues to challenge fiscal adjustment and anti-inflation mettle, with Andean topography still defying surefire scaling.