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Peru: Markets Uneasy with Radical Candidate Advancing in the Polls

By Bertrand Delgado, Alex Giron and Renzo Merino


The latest polls by Ipsos Apoyo show an important change in trends among voters during the week of March 14. While Toledo (Possible Peru Alliance, right of the center) remains as the leader, his share of the intended vote went from 26% to 23%, on the back of his arguments with President Alan Garcia and his attacks on Kuzcynski. Fujimori maintained her second position with a steady 19%. Humala (Win Peru Party, left of the center) jumped to third position with 17%, benefiting from his more moderate speech and the ability to attract those who are upset with the current economic model. The most important increase is the one registered by Kuzcynski (Great Change Alliance Party, right of the center), who has gained 5 percentage points (pp) to 14%, and is now tied with Castañeda (National Solidarity alliance, right of the center)—who witnessed a reduction of three pp—in fifth position. Castañeda’s campaign is likely to have been negatively affected by a report presented by the current mayor of Lima, Susana Villaran. The report disclosed that, during Castañeda’s administration, the administration of 48% of public works had been delegated to the International Organization for Migration, as international agencies do not fall under the vigilance of the Peruvian comptroller. Moreover, it was claimed that many budgets had been inflated, particularly the one for the Metropolitano, Lima’s new public transportation system. As his campaign is based on his work in Lima, these allegations have hurt his image significantly.

According to these polls, Humala has gained strength amid some factions: In the southern region of Peru, where he gained the majority of his votes in the 2006 elections; and in the lower socioeconomic levels of Lima. Kuczynski, on the other hand, has continued to gain votes in Lima, especially in the upper socioeconomic groups. In the meantime, Toledo saw his support in Peru’s capital fall, therefore he has vowed to change his strategy and focus more in that city.

In line with RGE’s view about the volatile Peruvian political scene, within the last two weeks, voting intentions have reshuffled significantly, benefiting Ollanta Humala and Kuczynski, who have advanced in the polls. Meanwhile, former president Alejandro Toledo, while still in the lead, has lost support, particularly in Lima, where one third of voters reside. However, the biggest loser, according to the latest polls by Ipsos-Apoyo and Datum, has been former mayor of Lima, Castañeda .

Figure 1: Voting Intentions in Peru’s Presidential Election

Source: Ipsos Apoyo

Datum’s results show even greater volatility, with Toledo losing almost 9 pp to 20.2%, and Humala rising to second place with 18.5%, up 6 pp. Fujimori falls to third, losing one pp, followed by Castañeda (15.5%). In fifth, Kuczynski rose by 6 pp, to 12.7%. According to Datum, 73% of respondents have decided their votes, therefore there remain a significant proportion of voters for the candidates to appeal to.

Figure 2: Voting Intentions in Peru’s Presidential Election

Source: Datum

As for Congress, Datum shows that no party would hold a majority. Toledo’s Possible Peru would win between 13.3% of the seats, Fujimori’s Force 2011 around 10% and Castañeda’s National Solidarity 10.3%. Humala’s Win Peru would not secure more than 6.4% of the seats, while Kuczynski’s Great Change Alliance would obtain a smaller proportion (approximately 7%). The ruling party, Peruvian Aprista Party (PAP) may be in danger of not participating in the next Congress unless it gets more than 5% of the votes (current poll results suggest around 4% of the vote), which is the legal threshold to participate in the distribution of the seats.

Markets seemed to react aggressively to Humala’s rise, with the PEN depreciating 0.5%on March 22 from the close on Friday, while the 5yr CDS increased 11% in the same period. Meanwhile, according to Moody’s analysts—who upgraded their outlook of Peru’s sovereign debt to positive on March 21—the political risk is small and the chances that the current economic model will change is also very low.

Overall, there is a great consensus among the candidates’ proposals (see Figure 7). Most aim to preserve the current macroeconomic policy framework, including: A responsible fiscal policy; an independent monetary policy enforced by the central bank; and the promotion of private investment. All candidates will pursue a tax reform, as they seek to increase revenues and the formalization of the economy. And only Toledo and Humala want to increase the royalty taxes that mining companies pay to the government, in order to support social spending.

RGE maintains the view that continuity in economic policy is the most likely outcome in Peru. So far, poll dynamics show that even if Humala, who is seen as the most radical candidate, goes through to the second round, he will lose to one of the four main candidates. Moreover, the next Congress will be very fragmented, reducing Humala’s ability to pass laws without negotiating with other parties. However, markets should expect a bumpy ride as we approach election day on April 10, and then the second round of voting on June 5.

Figure 3: Economic Proposals of Main Candidates

Source: El Comercio and Peru 21


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