Peru’s Mountainous Fujimori Expedition
Peru stocks and bonds spurted further after double-digit Q1 jumps as investor favorite and former Finance Minister and private equity manager Pedro Pablo Kucyzynski squeaked past leftist candidate Mendoza for second place with 25 percent in first round presidential elections behind front-runner Fujimori with 40 percent. The early June runoff could be a cliffhanger with opinion polls showing a clear generational divide with PPK 35 years older, and split over the legacy of Fujimori’s father who defeated guerilla insurgency but remains in prison over corruption convictions. Should his daughter win she may try to get release on old age grounds while steering clear of an outright pardon. Her party is set to get the largest representation in Congress, but both contenders share a centrist business-friendly platform. PPK has deliberately downplayed his elite background with a rural voter appeal on both commercial mining and community impact grounds, and the perceived credibility of the balance could be decisive for the outcome. The central bank predicts 4 percent GDP growth despite commodity and construction weakness, while inflation should come down from 2015’s 4.5 percent with fading El Nino and currency depreciation shocks. Foreign investors have cut local debt exposure 20 percent as a fraction of the total with the sol at a decade low against the dollar. The benchmark rate was steady at 4.25 percent in March after a bank reserve requirement hike, and tightening may be off the table during the election period with populist spending scenarios averted.
Venezuelan President Maduro in contrast has only a 30 percent approval rating with half of respondents ready to oust him in a recall process before his term ends in 2019. He declared Fridays off to save scarce power with violent crime resulting in record kidnapping and murder. The procedural and practical obstacles to a formal removal bid have prevented a united opposition front even as parties control a majority in the legislature. The vice president who would assume power is a relative moderate, but the judiciary still allied with the regime could overturn action or the military could intervene to preempt it. The top economy official Abad introduced changes in the multi-tier currency system which increased flows to the mid-range DICOM platform at almost 300 bolivar/dollar, although the allocation was less than one-tenth the total with state oil company proceeds still sheltered. PDVSA continues to insist debt restructuring will be avoided while a voluntary liability exercise is an option approaching lumpy year-end repayments.
Offshore haven Panama got a black eye as GDP growth slipped to 4.5 percent with lower free zone activity and law firm foreign head of state and celebrity account data was leaked to a global investigative journalism network. Canal toll receipts rose slightly under a new structure and expansion should be complete by mid-year after contract complications and building delays. Tourism was expected to rise almost 10 percent this year according to industry projections but the notoriety associated with the tax avoidance revelations may spur a boycott, President Varela and top ministers rushed to defend the hub’s reputation in international media despite the uphill near-term public opinion slope.
