Peru's Humala edges ahead; markets nervous

Reuters News
Posted: Jun 03, 2011 2:13 PM
Peru's Humala edges ahead; markets nervous

By Patricia Velez and Teresa Cespedes

LIMA (Reuters) - Left-winger Ollanta Humala is within striking distance of winning Peru's presidential election on Sunday, unsettling financial markets as investors worry he will impose tighter state control over the economy.

A Catholic University poll on Friday gave the former army officer a 3-point lead over right-wing lawmaker Keiko Fujimori and pollster CPI showed he was 1 point ahead. A Datum poll showed Fujimori, the daughter of jailed former President Alberto Fujimori, had seen her lead narrow from about 2 points to just 1.2 points.

Peru's stocks and currency have swung wildly this week as polls showed Humala narrowing in on, and even edging ahead of, market-favorite Fujimori.

The stock market was down 2.5 percent on Friday while the sol currency was 0.27 percent weaker at 2.764 per dollar.

Fujimori's father opened Peru to higher trade and slayed hyperinflation while he was president in the 1990s, but he was later sent to prison for corruption and for using death squads to crack down on left-wing insurgents.

Humala, who narrowly lost the 2006 election, has sought to win over moderate voters by toning down his fiery anti-capitalist rhetoric and railing against the 36-year-old Fujimori for having worked in her father's discredited government.

Investors worry he will implement interventionist policies, boost social spending and undermine fiscal stability in one of the world's fastest-growing economies. Peru has grown nearly as fast as China over the past few years but a third of Peruvians still live in poverty.

Stocks fell 6 percent on Wednesday before bouncing back on Thursday as competing polls gave an edge first to Humala and then to Fujimori.

The volatility comes just as Peru's stock market has tied up with peers in Chile and Colombia in a bid to compete with Brazil, Latin America's economic and investment powerhouse.


Humala says financial markets and corporate executives have no reason to fear him and that he has shed his radical past.

"It's time to know the face of poverty ... Economic powers want to pressure us, confuse us, keep us living in fear," Humala told thousands of supporters at his closing campaign rally at a square in the Peruvian capital on Thursday night.

He decried what he called Alberto Fujimori's dictatorship of the 1990s, and promised to raise the minimum wage, ensure free healthcare for all and guarantee pensions for the elderly.

Humala has sought to cast himself in the vein of Brazil's center-left former President Luiz Inacio Lula da Silva, and has distanced himself from his one-time political mentor, Venezuela's firebrand leftist leader Hugo Chavez.

He has vowed to prudently manage the economy and respect foreign investors who plan to pour $40 billion into mining and oil projects in Peru over the next decade.

Like Fujimori, he wants to impose a windfall profits tax on firms in the country's vast mining sector. He also says the state must vigorously regulate the economy and exert more control over "strategic" natural resources. Still, he has ruled out taking over private firms.

Markets are wary and prefer Fujimori, who has warned that Humala could roll back free-market reforms that were first implemented by her father and contributed to stability after years of economic chaos and guerrilla wars.

Peru's five-year credit default swaps rose 6.3 basis points to 150 basis points on Friday, driving up the cost of insuring the country's global bonds against default.

While Humala and Fujimori are from opposite ends of the political spectrum, both have criticized the scant trickle-down of wealth in a major metals producer enjoying a global commodities rally.

"Keiko means economic continuity, while Ollanta is planning another model that will mean we lose investments and suffer economically," said 41-year-old security guard Eduard Venegas, as he listened to Fujimori's closing speech at a rally in Lima that was smaller than Humala's.

"For me it comes down to economics, not politics."

(With reporting by Caroline Stauffer and Alejandro Lifschitz in Lima and Manuela Badawy in New York; Writing by Simon Gardner and Terry Wade; Editing by Kieran Murray)