The Pandemic Depression
The Global Economy Will Never Be the Same
For the past ten years, Peru and the United States have been good friends. A succession of fairly elected presidents in Lima pursued closer ties with Washington, culminating in a free-trade agreement approved by the U.S. Congress in 2007. During the controversy following the 2009 coup against President Manuel Zelaya in Honduras, Peru supported the United States in recognizing elections in Honduras in November. Yet, in Peru’s presidential election this month, the pro-American candidates were defeated. Instead, Ollanta Humala, a mestizo leftist who in 2006 had been allied with Venezuela’s Hugo Chávez, won the first round of the elections and eked out a narrow victory in the runoff.
In the run-up to the first round of voting, on April 10, Peru’s mainstream politicians seemed overly confident that their market-friendliness and proven democratic credentials would carry them to victory, as in the decade’s previous elections. After all, the past ten years had seen enormous growth: Peru’s GDP had risen by more than 6 percent annually, the highest rate of any country in South America. Much of Peru’s economic boom was thanks to a worldwide surge in mineral prices (Peru is the world’s largest producer of silver, its second-largest of copper and zinc, and sixth-largest of gold). The growth lifted millions out of poverty: between 2001 and 2011, Peru’s poverty rate fell from 55 percent of the population to 31 percent. Unemployment declined considerably. And projects to improve infrastructure and communication were visible nationwide.
It stood to reason that Peru’s voters would want to maintain the basic economic and political principles that had guided the past decade’s policies and elect one of the three mainstream candidates who upheld them -- Alejandro Toledo, Peru’s president from 2001 to 2006; Luis Castañeda, the mayor of Lima from 2003 to 2010; or Pedro Pablo Kuczynski, one of Toledo’s premiers and finance ministers. These three candidates were overconfident, however, and failed to ally. In the first round, they split the market-friendly, pro-democratic vote. They won 44 percent of the vote together, but none won enough votes individually to move into the runoff.
The two anti-establishment candidates, Humala and Keiko Fujimori, won 32 and 24 percent of the vote, respectively -- not stunning victories, but enough to move forward. The Peruvians who voted for them were doubtful that free markets had worked for them and were very concerned about crime and corruption. Although many of the country’s overall socioeconomic indicators were positive, the gains had been unevenly spread and discontent in the country’s interior was higher than many had imagined. Throughout the country, salaries were rising slowly at best. Most workers remained outside the formal sector and were vulnerable to abuse. Moreover, indigenous peoples believed that their fears about pollution from the mining and energy industries were being ignored. And increases in crime and corruption plagued the country; by one estimate, Peru’s murder rate tripled between 2002 and 2008.
Accordingly, a sizable portion of Peruvians voted for change. During the first round of the election, Keiko Fujimori promised a return to the policies of her father, Alberto Fujimori, who was president from 1990 to 2000. Rightly or wrongly, some Peruvians believe Alberto Fujimori saved Peru by cracking down on the country’s brutal Maoist insurgency in the early 1990s. Keiko Fujimori argued that, just as her father had defeated terrorism, she would defeat crime. Further, Alberto Fujimori had initiated Peru’s transition to the free market; with huge revenues from the privatization of state companies, he had provided schools, roads, and other benefits to remote communities. As a result, in some Peruvians’ views, his government had been more socially inclusive than the governments of the 2000s. Yet Keiko Fujimori’s closeness to her father was problematic -- Alberto Fujimori was also authoritarian and corrupt and he is currently serving a 25-year sentence in a Lima prison for his abuses. Nonetheless, Keiko Fujimori expressed pride in her father and promised that she would pardon him. In doing so, she was able to galvanize the support of the Fujimori base, while alienating many others.
Humala’s ethnic heritage helped him appeal to Peru’s large indigenous population. Peru has been an unequal country since its birth; ethnic, class, and geographical disparities endure. So, although Humala was always very unlikely to win Lima, he was extremely popular in several highlands areas. Yet his background also had troubling features. In 2005, while he was serving as a military attaché to South Korea, he had endorsed his brother Antauro’s failed rebellion against the Toledo government, which he saw as corrupt. During an attack on a police station, four policemen were killed and Antauro was convicted and imprisoned. Meanwhile, Humala’s parents have publicly supported an ideology called etnocacerismo -- named after General Andrés Cáceres, a Peruvian hero of the 1879 War of the Pacific, who rallied indigenous Peruvians against Chilean invaders. This ideology is ultranationalist and, to some analysts, fascist. Humala’s parents were also prone to making shocking statements; for example, in March 2006, his mother commented that homosexuals should be shot. And, of course, Humala had ties to Chávez, who reportedly helped fund his 2006 presidential campaign and possibly his 2011 one, as well.
But with the mainstream candidates defeated, the runoff came down to a vote between Humala and Keiko Fujimori -- a choice that Peru’s Nobel laureate, the writer Mario Vargas Llosa, had at first compared to deciding between “terminal cancer and AIDS.” Moving into the final round, both candidates had to reach out to the democratic center; because he did this slightly better than Keiko, Humala ultimately won, by almost three points.
For her part, Fujimori won the support of the Peruvians who believed that, given her connections and campaign statements, she might not be democratic but would at least be market-friendly. Castañeda and Kuczynski endorsed her candidacy and most of Peru’s major media did, too. Before the final vote, she reversed her promise to pardon her father. Still, during her campaign, her lieutenants’ threats against journalists and the president of Peru’s Supreme Courts reminded Peruvians of her father’s abuses. Further, she retained ties to too many people connected to her father: during the presidential debate one week before the runoff, Humala pointed out that one of her campaign advisers had been a health minister in Alberto Fujimori’s administration and was considered responsible for the forced sterilization of more than 300,000 women during a family planning initiative gone awry in the mid-1990s. Keiko responded flippantly and lost key votes.
Unlike Fujimori, Humala had begun his move toward the mainstream before the final round. Whereas in his 2006 presidential campaign, he had constantly been pictured grimacing in a red polo shirt, by 2010 he was regularly donning a suit and a smile. He hired technocratic campaign advisers associated with the very popular former president of Brazil, Luiz Inácio Lula da Silva. Humala emphasized that his model was Lula, not Chávez, and made sure that neither Chávez nor his own eccentric parents were anywhere to be seen. Instead, his picture-perfect family -- an attractive Peruvian wife, two daughters, and a baby boy -- was ever-present.
Although in December 2010 the Humala camp had issued a platform that was very critical of what it called “the neoliberal economic model,” it soon replaced it with more moderate plans. Indeed, Humala’s key economic proposals were similar to those of the other candidates: higher wages, especially for teachers and police; the expansion of Peru’s conditional cash transfer program; and pension and daycare programs. To finance all this, Humala called for a windfall profits tax. Meanwhile, he promoted reducing natural-gas exports and encouraged dialogue with indigenous communities worried about environmental damage. And on May 19, he promised on the Bible to leave office willingly at the end of his term and maintain Peru’s economic framework. His pledges earned him endorsements from Vargas Llosa and Toledo.
Once he takes office, Humala will be constrained from pursuing radical policies. The day after the final vote, Peru’s stock market plunged, proof that in the twenty-first century, global financial capital is highly mobile. Public opinion will also limit his options. In contrast to the populations of many Latin American countries, Peruvians are generally opposed to statist economic policies, which they believe failed the country in the 1970s and 1980s. Moreover, with control of only 36 percent of the seats in Peru’s legislature, Humala needs the support of other parties to govern. He is expected to ally with Toledo’s Perú Posible party, which has 17 percent of the seats and would hand him a small majority.
In terms of foreign policy, it was clear during the campaign that Humala intended to pursue closer relations with Brazil; only three days after his victory, Humala traveled to Sao Paulo and hugged an ebullient Lula. But it is not clear how the U.S.-Peruvian relationship will evolve. Although the Obama administration and Humala have both said that they will work together, there were some rough patches on the campaign road. The Obama administration was officially neutral. However, in private meetings, U.S. officials were reportedly nervous about the Chávez-Humala link. The administration’s concerns may have been intensified by prominent Republicans’ pro-Fujimori positions. Former New York City mayor Rudy Giuliani joined Fujimori’s campaign as an adviser on crime. Only a few days before the runoff, former Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega denounced Humala, claiming there was evidence of Chávez having funded Humala’s campaign, although he did not produce it.
When a leftist president is elected in Latin America, mutual suspicions too often plague the relationship from the start. Each side waits for the other to take the first step, and neither does. Instead, after one incident or another, mistrust escalates. But there is too much at stake for the Obama administration to let this happen with Humala -- it must reach out.
For one, if relations between the United States and the Humala government become tense, there is a risk that Humala could ally with Chávez. China’s role is also dramatically expanding on the continent; China is the first or second most important trading partner with Peru, Brazil, Argentina, and Chile, and it is a major investor in those countries and in Venezuela. China emphasizes that its interests are economic, but that could change over the long run. Already, China participates in Latin America’s regional organizations, and it does not share the United States’ pro-democracy position.
Humala’s election is the second time during the Obama administration that a Latin American country has swung from the right or the center to the left. In 2009, Mauricio Funes was elected president of El Salvador. Secretary of State Hillary Clinton attended Funes’ inauguration and, in his inaugural address, Funes praised her and Obama. Subsequently, Funes and Obama exchanged official visits and achieved a friendly relationship. By reaching out to Humala, Obama can increase the chances that this will happen again.