If it Ain’t Broke, Humala won’t fix it

Patricio Navia

Buenos Aires Herald, August 20, 2013

 

New York — Two years into his five-year term, Peruvian President OllantaHumala is experiencing low popular support. After being elected on a platform of reform and having earned the support of the poor for his promise to reduce inequality, Humala hasmaintained the market-friendly economic policies championed by his predecessors. His inability to fulfill electoral promises has taken a toll on his popularity. However, precisely because the economic policies that he fiercely campaigned against as a candidate have brought much-needed resources to the public sector to fund social programmes, Humala has refrained from pushing for radical reform. As if following on the old English saying that “if it ain’t broke, don’t fix it,” Humala has chosen to stay course on economic policy even if that means reneging on some of his campaign promises.

 

Since the resignation of Fujimori in 2000, Peru has experienced strong economic growth. The economy is now twice as large in per capita terms than in 2000. The continuity in market-friendly economic policies has lifted millions out of poverty. Access to education and health has expanded markedly in urban areas whereas potable water and electricity are more widely available in rural Peru. Poverty has declined from 42% in 2007 to 27.8% in 2012. Though the country has a long way to go when compared to its southern neighbour Chile, Peru is richer in natural resources, has a more diverse export basket and has a bigger domestic market. More than half of its 30 million people are barely getting to the point of being classified as consumers. Moreover, as hundreds of thousands are pulled out of poverty every year, the growth of the middle class nicely complements the dynamic export sector as engines of economic growth.

 

Market-friendly reforms were introduced in the 1990s by President Alberto Fujimori. After two disastrous decades of military and populist rule, Fujimori was elected into office in 1990. Two years later, with military backing, he closed Congress and became a dictator. Under a new custom-made constitution, Fujimori was re-elected president in 1995. Though he built popular support after defeating the Shining Path guerrillas, his government also violated human rights and fostered a culture of corruption and impunity. Eventually, when he ran for a third term in 2000, Fujimori alienated many moderate supporters. Accusations of electoral fraud tainted the presidential election and Fujimori eventually resigned in late 2000.

 

A caretaking government led by Valentín Paniagua organized new elections in 2001 and led a transition back to democracy. Economist Alejandro Toledo, a moderate reformist was elected in 2001. A controversial character — and also prone to protecting cronies — Toledo’s most important legacy was to improve and deepen the market-friendly reforms implemented by Fujimori. Toledo’s marital infidelities and the corruption scandals under his administration damaged his reputation. Two years into his term, Toledo’s approval was in the single digits. In the 2006 election, Humala campaigned on an anti-neo-liberal platform, blasting market-friendly policies for the high poverty levels and associating free market policies with corruption and abuse. Humala lost in the runoff against Alan García, a former president whose populist policies caused a deep crisis — with high unemployment and hyperinflation — in the late 1980s. Despite their reservations on García, Peruvians chose the former populist over the anti-neo-liberal candidate. García’s second term was an economic success, but the president’s questionable personal traits damaged his approval. Peruvians quickly felt out of love with García. In his second year, García’s approval rating was in the mid 20s.

 

In 2011, Humala ran again. This time, more mature and moderate, Humala still campaigned on the promise of redistribution and pro-poor policies. He wanted to better distribute the benefits of economic growth. After other real moderates were left out of the runoff, Humala faced Keiko Fujimori, the daughter of the former dictator, in a peculiar run-off. Nobel Prize winner Mario Vargas Llosa aptly characterized the election as a choice between cancer and AIDS. In the end, Humala was elected president.

 

In office, Humala has stayed the course on economic policies. As a former military officer, he has cracked down on guerrilla activity, hoping to increase his approval. Though he has promoted some social policies, the mal-functioning state has limited his redistributive plans. Poverty has declined far less than it should have, given Peru’s 6% sustained growth level. Having abandoned his promise of radical redistribution, Humala now favours socially-oriented market-friendly policies. Insufficient state capacity has limited the trickle-down effect of economic growth. Still, the Peruvian president has abandoned the anti-neoliberal crowd that he used to belong to when he was a candidate and has now joined the Pacific Alliance with the market-friendly leaders of Colombia, Chile and Mexico.

 

Humala’s 29% approval is the lowest he has had in his two-year term. Though that is no reason for satisfaction, it is still higher than the approval his two predecessors had in their second year in office. When compared to Toledo and García, the former anti-neoliberal candidate who as a president embraced market-friendly policies has at least one reason to be satisfied.