In early June, Alan García, the leading Social Democrat, defeated Ollanta Humala, a former commander known as a strong nationalist, in the second round of Peru’s presidential elections. This means that García will once again lead his country, which he left in deep economic crisis after his first presidential term from 1985 to 1990. In any other Western country, it would be hard to explain García’s re-election. However, the waters in Latin America have lately become turbulent because of a so-called populist wave that has little to do with political trends in the rest of the world. Populism’s foremost exponents are Hugo Chávez in Venezuela; Evo Morales in Bolivia, and Fidel Castro in Cuba. In Peru, the populist movement has lately become stronger, and voters went to the polls to choose between the moderately leftist policies of Garcia and the radical left approach of Humala. Ultimately, Peruvians chose “the lesser evil,” notes Carlos Malamud, chief researcher on Latin America at the Real Instituto Elcano [in Madrid, Spain.]


It is also hard to understand why the people would bring back as president a leader whose days at the helm left Peru with an inflation rate of 7,600% while practically sinking its local banks. In addition, García was forced to face several charges of corruption. Ultimately, he opted to leave Peru for Colombia after Alberto Fujimori was elected his country’s president. García did not return to Peru until Fujimori fell in 2001.


García managed to get into the second round of the latest presidential elections by outpolling conservative candidate Lourdes Flores by the narrowest of margins. In the first round, Humala was the clear winner. However, Humala failed to get a plurality of the votes, thanks to his anti-imperialist rhetoric and his threats to review the contracts of multinationals that operate in the country’s prosperous mining sector.


According to Malamud, one of the keys to García’s victory in the final round was his public confrontation with Chávez during the months before the voting. Malamud says that voters perceived that there was “a threat to convert Peru into a Bolivarian satellite.” Throughout the region, the Venezuelan leader was trying to expand his “Bolivarian Revolution,” which was inspired by Simón Bolívar, historic symbol of South America’s 19th century rebellion against Spain. Nowadays, Chávez’s criticisms are directed, above all, toward the United States, its rich neighbor to the north. Bolivia is the latest country to join the populist camp. Its president, Evo Morales, along with Castro and Chávez, have formed an axis of La Habana-Caracas-La Paz. They have forged several political and economic agreements within a framework known as the Bolivarian Alternative of the Americas.


Nevertheless, Hugo Macías Cardona, a professor at Colombia’s University of Medellín, says that Chávez did not play the major role in Humala’s defeat. That role was played by another populist, Evo Morales. In Macías Cardona’s view, Morales’ recent decision to nationalize the country’s hydrocarbon sector was so badly timed that it damaged the relationship that Chávez was constructing with Humala. “Given the reactions in the markets and the perceptions of the electorates, Peru could not continue in the steps of Bolivia. Humala lost his election in Bolivia, not in his own country.”


David Tuesta Cárdenas, a professor at the Pontifical Catholic University of Peru, says that Garcia’s “more moderate rhetoric, which showed respect for the rules of the game – whether you call it maintaining the current constitution or respecting [foreign] investments – faced off against Humala’s radical rhetoric,” and contributed enormously to Garcia’s victory.


In addition, Malamud believes that García has benefited in these elections from being “perhaps not as trustworthy, but definitely more well-known than Humala.” In addition, Garcia’s party, the Peruvian Aprista Party, is better positioned in the Peruvian political system. García’s message was also more credible, “especially for many Peruvians who have benefited from the economic growth in recent years. Humala was viewed as a menace to” that growth. Alejandro Toledo, the outgoing president, leaves his country looking healthy in its financial accounts, constantly enjoying growth rates of 4.6%.


García’s Challenges

García will assume power in July. “He will have to guarantee the governability of the country, and that means he will have to set up alliances in the parliament both on the left and on the right, since García has the second largest group in the parliament,” explains Malamud. Although García won the election with 54.6% of the vote, compared with 45.4% for Humala, the nationalistic Humala dominates the Parliament because his party, the Union for Peru (UPP) won 45 seats in last April’s elections, compared with 36 seats for Garcia’s Aprista party.


On the other hand, notes Tuesta, “The President will have to work on an effectively focused poverty program that gives a signal to the country’s unprotected sectors.” Tuesta believes that Toledo had already begun a program called “Juntos” [“Together”], although it is still in a pilot phase. Tuesta believes that García should continue with that project but adds that he needs to find ways to make it very transparent and depoliticized.


Malamud agrees that one of the most important challenges for García will be to bring economic growth to the poorest regions in the south, where Humala got more support [than García]. On the contrary, Tuesta warns, “Conditions are becoming ripe for cultivating the social movements controlled by Humala or any other populist – following a bit in the wake of Evo Morales in Bolivia – who can bring instability back to the life of the country.”


Short term, Tuesta adds, “García will have to form an independent economic team that has responsibility for macro-economic policy.” Long term, he says, “The President will have to keep reducing the debt level, which is still at 37% and seems likely to approach 30%. He will also have to improve educational standards (the country ranks last in Latin America in language and math tests) and tackle poverty (50% of the population is below the poverty line).”


Above all, however, Tuesta recommends that Garcia “give clear signals” so that his disastrous moves in the past do not take a toll. Otherwise Peruvians could become impatient with his leadership. For his part, the president has not hesitated to admit his past errors in public. He attributes them to his youth and previous lack of experience.


Stopping Chávez


Unlike the case with Garcia, Alvaro Uribe’s reelection [in Colombia] was no surprise. Uribe won the support of the electorate more because of his methods than because of any concrete results [during his first term.] His achievements consisted of working to rebuild the economy and reduce insecurity, using economic aid and personnel from the United States channeled through the Colombia Plan, which aims to combat drug trafficking and guerrilla activity. According to Expansión, the Spanish business newspaper, forecasts of an Uribe victory were helpful in closing two deals involving Spanish companies. In the first deal, BBVA, the Spanish bank, purchased Granahorrar, a Colombian mortgage bank, for 424 million euros. In the second, Telefónica [the Spanish telecom firm] was awarded a portion of Telecom [the Colombian telecom operator] for 369 million euros.


It’s not for nothing that Colombia has become one of the leading countries in Latin America when it comes to inspiring business confidence. Most of the Spanish capital in the region is concentrated in four countries: Colombia, Brazil, Mexico and Chile. Those four markets have attracted a combined 57% of Spain’s cumulative gross investments of 112.3 billion euros. That means 61.2% of all Spanish investments in the region do not run any risk of suffering the kinds of nationalization measures that recently took place in Bolivia.


The reelection of Uribe confirms that confidence. Along with the victory of García in Peru, “it sends financial markets a calming signal about the security of their investments, and it obviously means that populism in the region is weakening,” says Macías. With Uribe and García at the helm, “the Andean countries [Colombia and Peru] continue to spin more within the orbit of the United States than within the orbit of Europe and other regions of the world. Uribe’s election implies continuity.” In addition, Malamud says, “Chávez has lost the opportunity to strengthen his position over the entire Andean region … This is taking the steam out of the Bolivarian Revolution in the Americas.”


According to Luis Fernando Agudelo Henao, a professor at the University of Medellín (Colombia), Latin America now has “a more democratic left that is interested in resolving national problems through institutional means — in Chile, Brazil and Argentina, and hopefully also in Peru. There is also another sort of left wing that has a less democratic calling, as in Venezuela and Bolivia.”


Uribe’s Challenges


Nevertheless, Uribe faces enormous challenges during his second administration. Agudelo believes that his foremost challenge will be to shore up his country’s long-term chances for economic growth by implementing reforms that strengthen the revenues of the State, along with its capacity to make investments. He must also stabilize the country’s long-term public finances through structural tax reform; reform transfers to territorial entities, and enact structural reform of the pension system.  


On the other hand, Macías explains, “The economic indicator that has deteriorated the most in Colombia is income distribution.” For more than five decades, he says, “the political, social and military dynamics have been constructing a society in Colombia that has enormously inequalities. Nevertheless, this topic does not appear among President Uribe’s priorities.” Agudelo believes that it is necessary “to introduce this topic into [future] discussions about overall public spending and economic policy. Indicators of income distribution have not improved, and the great majority of Colombians remain poor, despite the sustained growth of the first four years.”


Unemployment figures have also reached very high levels, even in comparison with the other countries of the region, explains Macías, although Uribe is having some success in that regard. On the other hand, Macías notes that the U.S. Congress has to sign the free trade agreement with Colombia, and “start to generate results in terms of real export growth, while neutralizing the many negative effects that implementation of the treaty will generate.”


Finally, Macías believes that it is necessary to preserve the dynamics behind high economic growth, and extend the high-growth phase of the economic cycle. It won’t be an easy task, however, “mostly because rising interest rates in the United States and Europe will lead to a great deal of capital flight from Latin America. That will mean that fewer resources will be available for investments, and those investments will be more expensive.”


“It is important to highlight that Colombia has stood out in the region because of its macroeconomic stability, and that no economic surprises are expected in the near future,” notes Macías. “Some variables, such as inflation, are under strict controls that have been strengthened during the administration of President Uribe.”


Mexico, the Centerof Attention


When it comes to the upcoming July elections in Mexico, Malamud is cautious about making value judgments. First of all, at this stage, some surveys put conservative Felipe Calderon ahead of leftist Andrés Manuel López Obrador, who supports some populist positions. However, some other polls foresee a technical standoff. “There is still a month to go, and either one of the two men can win,” Malamud says. “You cannot make generalizations about Latin America. Each country is a different world and foreign investors known that.” As a result, he stresses, “If Humala would have won in Peru, foreign investors would have pulled back quite a bit. The chances for López Obrador to win are a different thing altogether. Most analysts take it for granted that there will not be any worrisome changes from an economic point of view. Mexico’s proximity to the United States complicates any populist adventures [by Mexicans] that go beyond a certain point.”


Mexico has its own unique dynamics, says Macias. “There, the relationships that the candidates are managing with the United States are very important. Of all the countries in the region, Mexico is the most integrated with its northern neighbor, from a political, cultural and economic viewpoint. In addition, Mexicans look to Latin American countries to set their standards; they prefer to compare themselves with developed countries, even if there are no powerful reasons to do so.”


According to Agudelo, there are more important considerations in the minds of Mexican voters, namely “the immigration situation, income levels, corruption, the quality of work and regional imbalances. It is not so much about the geopolitical configuration of the region. I believe that the July election in Mexico is important for consolidating true democracy through political parties and with their visions of alternatives. There are three candidates — Calderon (PAN), Madrazo (PRI-PVEM) and López Obrador (PRD-PT) — and each candidate’s chance of winning depends on his skill at convincing Mexicans to resolve their social, political and immigration problems, and by going beyond personally attacking a political system that is trying to consolidate its progress as a democracy.”


Democratic success in the Mexican elections, adds Agudelo, “will be excellent news for all of Latin America, which will not feel any decisive impact from the situation in Venezuela, Colombia and Peru.” In any case, Macías concludes, “continuity will also win in Mexico.”