Pedro Pablo Kuczynski (PPK) won Peru’s presidential runoff election during June. The runoff was between two center-right candidates each of whom promoted a continuation of the country’s pro-development path. The differences, however, were stark. The 77-year-old PPK, a former finance minister and successful investment banker, argued that cutting taxes and reducing the regulatory burden would bring more business into the formal economy and grow revenue for the government. He also promised to reform the police and improve the judiciary system, and make running water available to all Peruvians.
By a thin margin, Peruvians voted for a president that advocated for economic stability and growth. While his opponent, Keiko Fujimori, lost her bid for the presidency, her Popular Force Party won 56% of congress vs. 14% for PPK’s party. So, political power remains divided in Peru.
Peru has been one of Latin America’s fastest-growing economies. Without reform, many believe that growth could slow or stall. PPK was the minister of economy and finance in the Toledo administration in the 2000s. During this period, a mining sector financed by foreign investment emerged and flourished alongside liberal trading policies. Peru’s economy grew at a compounded annual rate of 5% from 1999 to 2008. Even the 2011 election of Ollanta Humala, a populist, didn’t derail the country’s pro-business success as many had feared.
Obviously, Peru benefited from strong metal prices during the last 20 years, especially gold and copper. Even with the global financial crisis and softening demand from China, the country maintained a healthy growth rate, which speaks volumes about the structure of its free-market economy. Peru wisely established large foreign currency reserves during the peak of the last rally in metals prices, which has insulated the country from inflationary issues that are affecting other South American nations. Falling gold and copper prices in 2014 and 2015 did cause Peru’s GDP to decrease to 2.4% and 3.3%, respectively.
To be successful, PPK will need to restore order for the mining sector, which is complicated. A lack of social services, civil unrest and protests related to environmental issues (real and perceived) are disrupting business in remote resource-rich regions. Exporting these resources built the Peruvian economy, but much of that wealth is seen as being centralized in Lima far from the actual communities that support the mining operations. PPK knows the mining business and the issues; he has been involved with it indirectly since he served as the minister of energy and mines in the early 1980s.
PPK’s victory follows a significant political reversal in Argentina and Brazil’s recent steps toward cleaning up corruption. Hopefully, he can maintain the positive momentum that Peru has experienced from its resource sector and share the prosperity with the remote parts of the country. He could be part of an emerging group of center-right politicians that turn the tide for Latin America.
Steve Fiscor, E&MJ Editor-in-Chief,