June 6, 2011 / 12:20 AM / 8 years ago

Left-winger Humala wins Peru election, markets dive

LIMA (Reuters) - Left-wing former army commander Ollanta Humala won Peru’s presidential election and vowed the poor will share in the country’s new wealth but financial markets plunged on fears that he will ruin the economy.

Peruvian presidential candidate Ollanta Humala and his wife Nadine Heredia greet supporters as they appear in a city square in Lima June 5, 2011. REUTERS/Janine Costa

Right-wing lawmaker Keiko Fujimori, the daughter of jailed former President Alberto Fujimori, conceded defeat on Monday as results from over 90 percent of ballot boxes gave Humala a lead of more than 2.7 percentage points.

Peru’s stock market sank more than 12.5 percent, its biggest loss ever, before trading was suspended until Tuesday. The sol currency fell 1.24 percent, prompting the central bank to offer to sell about $215 million in deposit certificates aimed at curbing the currency’s fall.

Humala has dropped some of his more radical proposals since narrowly losing the last election in 2006 and senior advisers tried to reassure markets on Monday that he will run the economy prudently, but many investors simply don’t trust him.

Shares in mining companies fell as much as 15 percent because Humala has said he wants to impose a windfall tax Humala on Peru’s vast mining sector.

Major firms from neighboring Chile that have units in Peru also saw their shares fall sharply while Peru’s sovereign bonds plunged in New York on the vote outcome.

Investors worry that Humala, who takes office on July 28, will increase state control over the fast-growing economy and throw away fiscal discipline.

They are keenly awaiting his picks for finance minister and central bank chief as a sign of whether he will adopt moderate policies or push for radical change. It is not clear when Humala will start making his key appointments.

Kurt Burneo, a top economic adviser to Humala and a former central bank and finance ministry official tipped as a possible finance minister in the next government, said that those selling Peruvian assets would get burned.

“Those speculating now are simply going to lose their money because everything is very solid,” Burneo told Reuters.

He said Humala guarantees counter-cyclical fiscal policy, will respect the central bank’s independence as well as investments made by private companies, and will cut Peru’s debt-to-GDP ratio, now at around 22 percent.

Peru is a major metals exporter and one of the world’s fastest-growing economies over the past decade, but a third of its people are stuck in poverty and Humala has promised to spread around the benefits of the economic boom.


“We want economic growth with social inclusion,” Humala, 48, told thousands of cheering supporters at a rally in downtown Lima that stretched into the early hours of Monday. “We can build a more just Peru for everybody.”

Thousands of followers danced in jubilation, chanting “Humala Presidente! and “Fujimori never again.”

After losing the 2006 election, Humala toned down his anti-capitalist policies to try to win over centrist voters.

He vows to run a balanced budget, bring experienced technocrats into his government and respect foreign investors who plan to spend $40 billion on extractive projects in Peru in the next decade. He also wants to give the poor a greater share of Peru’s natural resource wealth and end social conflicts over minerals and oil.

Another of Humala’s chief economics advisers, Felix Jimenez, who is seen as a possible central bank chief, insisted that investors have nothing to fear.

“Our economic proposals are totally sensible: to maintain macroeconomic equilibrium, consolidate growth and create conditions for private domestic and foreign investment growth,” he told Reuters.

Fujimori, 36, was favored by business leaders but many voters rejected her because her father is serving a 25-year prison sentence for corruption and using death squads to crack down on suspected leftists when he was president in the 1990s.

Humala, who as an army commander led an unsuccessful revolt against the elder Fujimori in 2000, had hammered his rival for working in her father’s authoritarian government.

Fujimori warned Humala could wreck Peru’s economy by dismantling the free-market reforms begun by her father. Those reforms helped set the stage for unprecedented growth in the past decade as Peru left behind the hyperinflation and guerrilla wars of the 1980s and ‘90s.


Critics say Humala is still a hard-liner at heart who will take over private firms and try to change the constitution to allow himself to run for consecutive terms like his one-time mentor, Venezuela’s firebrand leftist leader Hugo Chavez.

“Humala has four different manifestoes. He doesn’t convince me and represents a return to militarism of the past,” said 35-year-old security guard Julio Cauche when he went to vote.

Humala says the state must vigorously regulate the economy, although he has ruled out taking over private firms.

Some on Wall Street said the market had sold off too much.

“We would frankly look for opportunities to add exposure. I think the market has probably overreacted a bit here,” said Joyce Chang, global head of emerging markets research at J.P. Morgan.

Slideshow (9 Images)

Humala says he will only serve one term and emulate moderate leftists like Brazil’s former President Luiz Inacio Lula da Silva.

Highly disciplined from his military days, Humala jogs around his neighborhood each morning and keeps his hair cropped short. His entourage calls him “comandante.”

He is likely to forge closer ties with Brazil’s center-left government, reinforcing Brazil’s growing influence in South America at a time of U.S. economic stagnation.

With reporting by Terry Wade, Patricia Velez, Marco Aquino, Simon Gardner in Lima and Manuela Badawy, Daniel Bases and Walter Brandimarte in New York; Editing by Kieran Murray and Cynthia Osterman

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