Analysis: Peru's Humala dares to go where Lula never went

LIMA Wed Jul 27, 2011 2:13pm EDT

Peru's President-elect Ollanta Humala speaks to reporters at Havana's Jose Marti Airport July 19, 2011. Humala is on a one-day working visit to Cuba. REUTERS/Desmond Boylan

Peru's President-elect Ollanta Humala speaks to reporters at Havana's Jose Marti Airport July 19, 2011. Humala is on a one-day working visit to Cuba.

Credit: Reuters/Desmond Boylan

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LIMA (Reuters) - Peru's leftist President-elect Ollanta Humala, who takes office on Thursday, has dared to move further toward the center, if not the right, than the man he emulated during his campaign -- Brazil's former President Luiz Inacio Lula da Silva.

Humala, a former army commander who used to scare investors with fiery rhetoric, won office in June after promising to govern as a business-friendly leftist like Lula.

But the cabinet Humala has assembled, by nearly every measure, is more conservative than the one Lula put together when he took office in Brazil in 2003. That suggests Humala will keep the existing economic model intact while intensifying the fight against poverty that afflicts a third of Peruvians.

Humala stunned skeptical investors last week by appointing a veritable "dream team" of two respected economists who are adored by Wall Street to lead the Finance Ministry (Luis Miguel Castilla) and central bank (Julio Velarde). Peru's stock market rallied and its currency hit a three-year high on the news.

Both officials, who have doctorates in economics from top U.S. universities, worked for outgoing President Alan Garcia, a fervent believer in free markets Humala once railed against for benefiting the rich instead of the poor.

Humala also chose a prominent exporter to lead the Trade Ministry -- a move that ensures the country's many free-trade agreements with partners ranging from China to the United States will be honored.

Humala, who lost the 2006 election running as an acolyte of Venezuela's socialist leader Hugo Chavez, has undergone a dramatic transformation to show he will be a conciliatory centrist in one of the world's fastest-growing economies.

"Humala is keeping the central banker and the deputy finance minister from the existing government. Brazil didn't do that in 2003 -- it was thought that there had to be a change," said Gray Newman, chief economist for Latin America at Morgan Stanley.

Lula replaced his predecessor's economic team, which he had criticized for being too orthodox and close to Wall Street.

One Peruvian hedge fund manager joked that by choosing a "right-wing" finance minister Humala may have stopped modeling himself after Lula altogether and is now copying Garcia.

Humala has sought to calm critics who distrust him for railing against foreign investors in the past and leading a failed revolt in 2000 against former President Alberto Fujimori, later jailed for corruption and human rights crimes.

So far, Humala has faced relatively little rancor in his party for moving toward the center, whereas Lula spent years taming hardliners in his Workers' Party who complained he had sold his soul to capitalism after making three unsuccessful bids for the presidency as a strident leftist.

Lula's first finance minister was a public health doctor from his party, Antonio Palocci. His pick to lead the central bank, Henrique Meirelles, was initially criticized by Wall Street insiders because -- even though he spent years as a banker and had degrees in engineering and business -- he was not an economist with a reputation as an inflation hawk.

Both eventually won the trust of investors but it took months. Humala's economic team already has credibility.

FEW PARTY INSIDERS

Lula's first cabinet was stacked with party insiders, but in Humala's 18-member Cabinet there are few people who could be regarded as leftists and only several hail from his Gana Peru party, which, unlike the Workers' Party in Brazil, has a short history and little institutional depth.

Most are technocrats, businessmen, or members of the Peru Posible party that Humala hopes will vote with his party in Congress to give it a majority.

They will be tasked with carrying out Humala's anti-poverty plans, which includes raising the minimum wage and guaranteeing a small pension to all Peruvians over 65. Social spending would be funded by a tax on the windfall profits that some mining companies say they are willing to pay.

Lula's first chief of staff was Jose Dirceu, a former radical who spent time in jail before fleeing to exile in Communist Cuba.

Humala's cabinet chief is Salomon Lerner, a millionaire businessman who has collaborated with governments of virtually every political stripe since the 1970s.

But Humala did borrow at least one page from Lula's playbook when he appointed his cabinet.

He named as culture minister Grammy award-winning singer Susana Baca, an important figure in Afro-Peruvian music.

She is a contemporary of Brazilian pop star Gilberto Gil, who was Lula's first minister of culture and sometimes gave impromptu guitar performances after policy speeches.

(Reporting by Terry Wade)

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