Kuczynski’s Challenge To Build Dialogue As Peru’s New President

By Carlos Valdivia

Peru has elected a new leader. Liberal Pedro Pablo Kuczynski – better known as “PPK” – won the runoff election against populist Keiko Sofia Fujimori. The results were announced on the 9th of June, four days after the elections. Kuczynski came in first by a slight difference of only 41 438 votes of more than 18 million votes casted, making it one of the tightest elections in Peruvian history.

After securing almost 40% of the vote in the general election on April 10th, Fujimori did not manage to maintain political momentum. In the last two weeks prior to the decisive date, main polls had started showing a decline in voting intention on her side, ultimately giving Fujimori 49.88% of valid votes on election day, against Kuczynski’s 50.12%.

Keiko Fujimori inherited the widespread support achieved by the populist government of her father, Alberto Fujimori (1990-2000), who is currently serving a 25-year sentence for crimes against humanity, embezzlement and corruption.

Kuczynski has now a tough road ahead as he will be facing a majority opposition in Congress, where his political group, Peruvians for Change, obtained only 18 seats out of 130, whereas Fujimori’s Popular Force movement secured 73. The President-elect will be taking office from incumbent President Ollanta Humala on July 28th, Peru’s independence day. Despite the tight results and the intense campaign, Kuczynski has called for dialogue to “start working together for the country’s sake”.

Center-right PPK will also need to establish a strong line of dialogue with Veronika Mendoza’s leftist Broad Front coalition, which secured 20 seats in Congress, and with whom he has several disagreements in terms of economic policy.

This has been an emotional-roller-coaster election for many Peruvians. So how did the results end up so tight? One week prior to runoff election, main polls showed a difference in voting intention as big as 5% in favour of Fujimori. However, as the decisive day approached, PPK managed to shorten this distance and even surpass Popular Force’s candidate 48 hours before Peruvians voted on Sunday June 10th. A series of faux pas on Fujimori’s side and fortunate events and developments allowed Kuczynski to take the lead.

First, Keiko Fujimori changed her attitude in the last weeks of the campaign and assumed a more aggressive tone, harshly attacking PPK during the last debate. According to Rosa Maria Palacios, a Peruvian journalist and political analyst, this was a tactical error and showed a side that might have reminded people of the times of her father’s ruling. This transformation, together with scandals that connected her closest political circle to suspicious practices, including a money laundering investigation linked to one of Fujimori’s top aides and main financier, Joaquín Ramírez, allowed for a great deal of the undecided vote to shift towards supporting Kuczynski.

Second, PPK received political support from Veronika Mendoza, the 35 year-old left wing candidate who ended up third in the primary elections on April 10th with 18.1% of the vote. With this, Kuczynski gained a great number of Mendoza’s voters in the southern part of Peru, where she received widespread support. In a rarely seen political move, the left came to the right’s rescue. “In the Broad Front we will always be able to put Peru’s interest first. For its memory and dignity” Mendoza said a few days after the election, when presenting the proposals she would submit to the President-elect. In the words of Nobel laureate Mario Vargas Llosa – who also ran for President against Alberto Fujimori in 1990 – : “the left has saved democracy in Peru”.

Third, Kuczynski managed to effectively communicate one main message to Peruvian voters: that the runoff election would not be between him and Keiko Fujimori, but between democracy and authoritarianism. By conveying this simple but effective message, PPK was able to gain the support of the very strong anti-Fujimori vote, located mainly in Lima, where 34% of voters are registered. Before each voting day, on April 5th – the 24th anniversary of Alberto Fujimori’s self-coup of 1992 –, and on May 31st, around fifty thousand and seventy thousand citizens, respectively, filled the streets of Lima to protest against Keiko Fujimori and the Fujimori legacy of corruption and authoritarianism.

Kuczynski inherits a country in economic slowdown a slowing and with surging crime rates. For many, he is arguably the best-educated and technically prepared politician that has been elected president of Peru. He studied politics and economics at Oxford and Princeton, has worked for the World Bank and the Peruvian Central Bank, was appointed Minister of Energy and Mines during President Fernando Belaúnde’s administration in the 1980s, and served as Minister of Finance and Prime Minister under President Alejandro Toledo (2001-2006).

Peru was the star of South America for several years, with an outstanding 5.9% average GDP growth rate in the last decade, driven mostly by rising commodity prices. Now, PKK has promised to bring economic growth up to 5% annually after 2018 and has guaranteed to do so by attracting investment to finance social programs, improve education and water and sanitation infrastructure.

However, Kuczynski will take the Andean country’s lead in a less favourable world economic context. The Chinese economic slow-down and its focus shift towards internal markets have impacted mineral prices such as copper and gold, Peru’s top metals, representing 43% and 35% of all mineral exports in 2015. These changes, together with the weakening of the Peruvian Nuevo Sol (PEN) due to the increase in US interest rates, have increased market instability and eroded investors’ confidence.

In Peruvians for Change’s extensive government programme, at least 70 of 280 pages in total were dedicated to detail their proposals to promote economic growth, tackle informality, diversify and increase productivity, and attract investment. Some have taken the extent of Kuczynski’s plan as an indicator of better technical expertise, comparing it to Fujimori’s 68-page programme and Mendoza’s 64-page document. So far, the President-elect has confirmed only one name for the members of his cabinet: Alfredo Thorne, to be appointed Finance Minister. “The most important thing is that the benefits of growth get to the people”, the future minister has said about the set of policies and reforms he will be pushing forward. But how do Kuczynski and Thorne plan to do this?

First, they want to stimulate the economy by implementing a series of measures that will allow for the increase in consumer demand and private investment. In order to do this, they have promised to raise the fiscal deficit to a maximum of 3% of GDP, to be lowered down again to around 1% by 2021. Kuczynski and Thorne plan to accompany this stimulus with a tax reform that seeks to increase tax collection while reducing the tax load on consumers. With this in mind, the general sales tax will go from 18% to 15% over the course of three years, which, in the optimistic scenario they provide, would increase tax collection by as much as 2% by 2019.

Thorne identifies overregulation in the mining and infrastructure sectors as a hurdle that is slowing down the economy. According to their calculations, by reactivating projects on stand-by they would re-inject an amount equivalent to almost 50% of total private investment or 12% of GDP. This pledge raises concerns among environmentalist groups, who have seen the lightening up of regulations as potentially harmful for green conservation efforts, as was the case for the debate on the elimination of environmental impact assessments in the seismic phase of oil exploration projects in 2014. Amid Kuczynski’s environmental policies, he has offered to get 50% of informal miners to adopt the Clean Gold programme by 2021 and to strengthen actions to mitigate climate change. These included the incorporation of half of all indigenous communities in forest protection projects and the increase in the amount of legal wood exports to 60% by the end of his five-year period.

In a country where almost 70% of the non-agricultural workforce is in the informal sector, improving worker’s situation is essential. Besides tackling Peru’s overly complicated bureaucratic machinery, PPK plans to create fiscal incentives, such as the reduction of the general sales tax mentioned above, and the granting of special tax payment structures for companies with revenues lower than PEN 9 million (USD 2.7 million) for 10 years, giving them the possibility of tax amnesties, provided that they formalize their fiscal status. By implementing these and other measures, Kuczynski hopes to lower informality by 20% towards 2021.

Kuczynski and Thorne’s strategy to diversify the economy also includes boosting agro-industrial production and tourism. The agricultural sector employs 30% of Peruvian workers and accounted to 5.3% of GDP in 2014. PPK has promised to increase by 10% a year the budget of this sector, develop irrigation infrastructure, improve seed quality, and help small-scale and family farmers to better integrate to markets and value chains. However, their liberal proposals have raised concern among leaders in the agricultural sector, worried that they might be oriented to benefit big agro-industrial capital, ultimately harming family farmers and biodiversity.

Other critics have targeted Thorne’s “Firm Land” plan to promote the formalization of rural property, after he declared his intention to individualize communal property to facilitate mining investments. As a recent study shows, land titling is not enough to guarantee secure tenure rights. A platform that represents indigenous peoples, farmers’ communities and women’s organisations has already published a communiqué in which they criticize Thorne’s lack of understanding of communal rights to land.

The tourist sector, another of the country’s flagships, generated USD 3.8 billion in 2014 with more than 3 million people visiting Peru. Through building regional strategic plans, formalizing tourist operators, improving data collection and developing competitive circuits, PPK hopes to attract 10 million visitors by 2021. Great investments in improving security and the USD 16.5 billion in transport infrastructure projects will have to accompany these policies if this goal is to be met.

With the implementation of these and other measures, Kuczynski plans to create 3 million formal jobs and to bring Peru to the 50th place in the Global Competitiveness Index, from its current 65th position. Additionally, as a first-day-of-government measure, he has offered to increase minimum monthly salary to PEN 850 (around USD 257).

One of PPK’s main challenges will be to establish effective dialogue with different fronts. His liberal policies are already receiving criticism from several groups, including indigenous peoples and environmentalists. Mendoza’s coalition has declared that it will not be part of Kuczynski’s cabinet. For the next five years Kuczynski will have to work hard to build political consensus while linking the promised economic growth with more equity and social inclusion. When his term is over, Kuczynski will be 82 years old.

 

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