![Zephyr [logo]](/images/logo.png){kind=logo}
Market Review: Peru’s 2011 Presidential Election
On Sunday, June 5, 2011, Peru’s left-leaning presidential candidate Ollanta Humala won the nation’s presidential elections, surprising investors and prompting a selloff of Peruvian stocks the following day. In the weeks before the election, polls had indicated that the more market-friendly candidate, Keiko Fujimori, would garner the majority of electorate support. To understand where Humala, less mainstream than his opponent, may take Peru, it is important to look at the path he has taken to become president and the potential impact he could have on the Peruvian political process, monetary policy and the corporate sector.
In 2006 Humala launched an unsuccessful presidential bid, running on a more radical platform than his current one. During the current campaign, Humala sought strategy and policy advice from advisors of former Brazilian President Lula da Silva, one of Latin America’s most popular and successful presidents in recent history. We believe Humala learned his lesson from his first presidential bid and is now more likely to follow the moderate policies of former President Lula da Silva.
Another important factor in shaping Peru’s future is the current favorable Peruvian economy. GDP growth is expected to be 6% this year, in large part due to an adherence to responsible fiscal policies that has attracted considerable foreign investment. Humala has seen how Peru has benefitted from these policies and we don’t expect he will alter the economic model in a way that would damage the country’s economy and, as a result, his popularity and presidency. Indeed, in speeches and talks since the election results were announced, Humala has stated he sees continued economic growth as the driver to improve social conditions in the country.
The upcoming weeks will be crucial to determine the exact path that presidential-elect Humala will take, but we are of the view that policies that are especially onerous to foreign investors are unlikely. Humala’s party only has 36% of the seats in Congress so the party will need to build coalitions with more moderate parties (such as the party of former Peruvian president Alejandro Toledo) to pass legislation. One piece of legislation that is likely to impact foreign companies is a higher tax on mining companies. There is widespread support in Peru for a redistribution of some of the profits from the mining industry and most political parties, including that of presidential runner-up Keiko Fujimori, are likely to support a windfall tax on mining profits.
We expect Humala will make appointments to key posts soon, setting the tone for his political agenda. Local pundits already have singled out moderate politicians like Beatriz Merino, the former prime minister during the Alejandro Toledo administration, to repeat as prime minister in the Humala government. Raul Salazar, who espouses orthodox macroeconomic views, is a top pick for finance minister market, observers say. The Humala administration is also discussing extending the term of the president of the Peruvian central bank, whose mandate expires in September. We believe these moves would send signals to the market that Humala wishes to provide continuity to the current economic model.
It is clear that the outcome of the elections has altered the risk-reward scenario for investors in Peru and a slower short-term growth environment for Peruvian companies can be expected due to the recent investor pullback. In coming weeks we will be tracking Humala’s decisions carefully to gauge his political priorities and the direction he will take economic policy in order to determine the impact on Peruvian equities and foreign investment in the country. We do not expect to make any changes to the Latin American strategy until announcements of the administration’s economic team and other key cabinet posts, which should provide a good indication of the economic and political direction Humala will take the country, are made.
Permanent Address: http://zephyrmanagement.com/reviews/perus-2011-presidential-election/
Back to Zephyr home