Chávez, Lula, or Humala?

Since his June 5 election as Peru’s next president, Ollanta Humala has been the subject of intense debate. Observers have wondered aloud whether he will be a Chávez or a Lula, or something else altogether. The debate matters: how Humala chooses to govern will directly impact Peru’s ability to sustain its historically high growth, or whether the country will squander its recent success. How the United States reacts will impact Humala’s choices, and shape the bilateral relationship for years to come.

That observers are having this debate at all reflects the reality that most people outside Peru are not sure exactly who Ollanta Humala is, or what he stands for. His previous run for the presidency in 2006 presented a candidate in the Chávez model, more interested in the distribution than the creation of wealth, more interested in currying favor with Caracas than with Washington or Brasilia. Frightened, Peruvians unified in second-round voting to bring Alan García back as president despite the abject failure of his first term from 1985-90. Peru’s voters were rewarded when García went on to turn Peru into an engine of growth. He leaves office having remade Peru’s economy in meaningful and significant ways.

Perhaps recognizing electoral realities, Humala learned from his own defeat and assiduously sought to remake himself for the 2011 elections. He brought in political advisors from Brazil who spruced up his personal image making him more approachable, he toned down anti-investor and anti-free trade rhetoric while beginning to discuss his interest in working with the private sector, and he publicly shunned Caracas’ support. Quite consciously he presented himself as a Lula disciple, socially aware yet fiscally conservative, and was rewarded with a narrow but clear victory.

Yet the question remains and is now more pressing than ever: who is Humala, and what does he believe? Clues would normally be gleaned from the people that a president-elect has around himself and has nominated to cabinet positions, although such announcements have not yet been made. Investors are skittish; the day after the election trading had to be suspended on the Lima stock exchange. Share prices have since recovered somewhat, but bonds continue to underperform since the election showing continued investor wariness. Clearly, Humala has a large task at hand, convincing people that he is more a Lula than a Chávez, but he also has an equally large opportunity to show his interest in continuing Peru’s march toward development.

Foremost, the president-elect should quickly announce his economic team, including members who have a record of sound economic management and understanding of the global economic environment. He will need to show sensitivity to Peruvians who have not yet shared adequately in Peru’s economic growth; announcement, for example, of an effective model for conditional cash transfers would help, as would a commitment to sustained economic dialogue with disaffected regions and promulgation of a serious plan to tackle corruption. At the same time, openness to the international economy, meeting Peru’s existing commitments, and continuing to build Peru’s trade and investment profile, is a sine qua non of continued growth, without which he cannot effectively meet his commitments on poverty alleviation.

Second, the president-elect has made clear that he is intent upon increasing the role of the state in Peru’s economy, particularly in the extractive industries. Such steps will likely include, for example, increased taxes, export restrictions in the gas sector, and increasing oversight and regulatory requirements, including an increase in the minimum wage. While well-meaning, the new government will need to ensure that its proposals do not discourage investment or hiring in the formal sector, which would only reinforce one of Peru’s most pressing problems: its inability to date to create jobs in the formal sector. Informality reigns, which is one of the reasons that the benefits of growth have not been better distributed across Peru. This was a primary reason for Humala’s election in the first place. It would be doubly ironic if he were then to take steps that actually increased Peru’s inability to create jobs in the formal sector, leading to enhanced calls for an even stronger hand in Peru’s economy and reinforcing a downward economic spiral over time.

For its part, the United States has a critically important role to play in encouraging Humala to pursue a pragmatic, social democratic path that seeks rather than rejects cooperation with Washington. Unless proven otherwise, we should not assume that he retains an affinity for Venezuela’s leader or method of governance. Similarly, it would be a mistake to force him into a confrontational “us or them” corner, demanding declarations on this or that topic before he even assumes office. The truth is that Humala is a work in progress. He himself may not know exactly where he wants to take Peru. Engaging with him at an early stage to encourage responsible actions on economic integration, counternarcotics and corruption, the environment, and other important matters would support a more positive agenda. An early invitation to visit Washington for meetings with the President, Secretary of State, and others including the private sector is therefore critical.

Simply put, Washington needs to acknowledge that much is at stake in Peru and act accordingly as Humala readies to receive the presidential sash. Brazil, China, and Venezuela, to name three, have specific interests in the country and would not be upset if the decade-long warm relations that the United States has enjoyed with Peru were to cool. Early missteps by the United States toward Humala could sour relations with Lima, to the detriment of U.S. interests.

The relationship with Peru under Humala will change from the easy friendship that the United States enjoyed under García, but we need not lose Peru. This is a matter of strategic significance for the United States in South America. Peruvian voters have spoken. Now it’s up to policymakers to respond.