Leftist favored in Peru vote but run-off expected
LIMA (Reuters) - Left-wing nationalist Ollanta Humala is set to win the first round of Peru's presidential election on Sunday as poor voters rally behind him, but he may struggle in a run-off against one of three rivals backed by big business.
Humala, a former army officer who favors greater state intervention in the economy, has moderated his anti-capitalist views since narrowly losing the 2006 race and holds a lead of 7 to 10 points over three more market-friendly candidates who are tied in an unpredictable contest for second place, polls show.
Vying for a spot in the June 5 run-off in one of the world's fastest-growing economies are former President Alejandro Toledo, former Prime Minister Pedro Pablo Kuczynski and lawmaker Keiko Fujimori.
They have tried to blunt Humala's chances by saying he would pursue a statist agenda that would roll back reforms and jeopardize some $40 billion of foreign investment lined up to tap Peru's vast natural resources over the next decade.
Those warnings have sought to scare many Peruvians who are enjoying growing wealth and remain haunted by the destabilizing hyperinflation and guerrilla insurgencies of the 1980s and 1990s.
But Humala has surged in the race by shedding his hardline image and recasting himself as a soft leftist in the mold of Brazil's popular former President Luiz Inacio Lula da Silva.
To lift out of poverty the one third of Peruvians left behind by a decade-long boom, Humala promises "gradual" change instead of a sharp break.
He has taken to wearing ties, carrying rosary beads to show he is a devout Roman Catholic and promising to be fiscally prudent while respecting the independence of the central bank and honoring the country's many free-trade pacts.
Those tactics have persuaded some on Wall Street and in Peru's large mining sector that he has matured and is no longer like his brother and father, two well-known Peruvian radicals.
Roque Benavides, chief executive of Buenaventura, Peru's biggest precious-metals miner, said Humala's proposal to raise taxes on mining companies would hurt competitiveness but said he does not fear him.
"The next president will have to operate within democratic canons and with the canons of the market economy, so I think the risk is limited," Benavides told Reuters.
NO THREAT TO CREDIT RATING
Moody's ratings agency has said Peru's investment-grade credit rating would not be threatened by an Humala victory.
Other analysts see him as South America's next Lula, rather than the more strident leftist President Hugo Chavez of Venezuela, from whom Humala has sought to distance himself.
"Humala would be marginally worse than Lula in his second term," said Benito Berber of Nomura Securities. "That means he will generally be a moderate, but if he wins we should expect a deterioration of Peru's fiscal position."
Still, Peru's sol currency and the country's main stock index have dipped over the last two weeks on worries Humala could raise taxes on miners, increase government subsidies or exert greater control of "strategic" sectors like electricity.
Manuel Saavedra, head of local pollster CPI, said Humala is the clear favorite, even though a quarter of voters are still undecided and he will fall short of winning a majority of votes on Sunday.
"It's almost a fact that Humala will win in the first round. But the run-off is another election entirely and it will be difficult to win again," he said.
Humala got 30 percent of the vote in the first-round in 2006 before losing to President Alan Garcia, who cannot run again, by 5 percentage points.
The run-off this year could be just as tight.
Toledo, 65, the architect of Peru's free-trade pact with the United States, has the best chance of beating Humala because their families are from the Andes and they compete for the ethnic vote in a country with indigenous roots, though Toledo has support from all social classes.
Kuczynski, 72, a former Wall Street banker who is known as "El Gringo" because of his European parents, could have trouble gaining traction outside of Lima, the capital, where he is strongly backed by wealthy voters.
Fujimori, 35, is shunned by many voters because her father, former President Alberto Fujimori is now in jail for corruption and human rights crimes stemming from his crackdown on insurgencies in the 1990s.
"The scenario that would cause the highest market volatility is Humala versus Kuczynski followed by Humala versus Fujimori," said Nomura's Berber. "(But) the market would price in a Toledo victory."
(Additional reporting by Marco Aquino and Teresa Cespedes; Writing by Terry Wade; Editing by Anthony Boadle)
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