Eurasia on the Peru Presidential race

Here's the latest take on the Peru Presidential race from regional think-tankers Eurasia Group. Sorry, no link available as it was handed on by a recipient of the Eurasia mailing service. FWIW, I'll definitely stick to my own call made last night.

PERU: Humala has become the favorite to win the presidency
4 April 2011 03:15 PM EDT

Nationalist candidate Ollanta Humala is likely to make it to the second round in the 10 April vote and then go on to win the presidency in the 5 June run-off (we are assigning a 60% probability to this outcome). We previously expected moderate candidate Alejandro Toledo to make it to run-off and win, but the latest round of polls suggests the odds that Toledo will be in the run-off have dropped below 50%. While Toledo would probably defeat Humala in a second round run-off, now there is higher probability of a scenario in which Humala faces either Keiko Fujimori or Pedro Pablo Kuczynski. Humala will likely defeat either of the two. If Humala wins, he won't down the Hugo Chavez path, but economic policy will likely take a negative turn.

The latest round of opinion polls released over the weekend show that Ollanta Humala has consolidated his frontrunner position and will most likely make it to the 5 June second round. The race for the second spot in the run-off remains open, however, with three other candidates -- Alejandro Toledo, Keiko Fujimori and Pedro Pablo Kukzynski -- facing a very tight race for this spot. An Ipsos/Apoyo poll conducted with ballots and released on 3 April shows Humala with 27.2% support (up from 22.8% a week ago), followed by Keiko Fujimori with 20.5% (down from 22.3% a week ago), Alejandro Toledo with 18.5% (down from 21.7%), Kuczynski with 18.1% (up from 15.7%) and Luis Castaneda with 12.8% (down from 15.0%). A Datum poll released on 1 April showed support for Humala at 21.4% (up from 17.6%), and Toledo with 17.4% support (down from 19.4% on the previous week) tied in second with Kuczynski, who had 17.5% support (unchanged from the previous week). Keiko Fujimori had 16.4% (slightly up from 16.1% last week) and support for Castaneda dropped to 12.6% from 15.5% last week. A poll conducted by the Catholic University and also released on 1 April shows Humala as the frontrunner with 26.9% support followed by Toledo (20.8%), Fujimori (20.3%), Kuczynski (18.5%) and Castaneda (13.3%). All the polls surveyed both urban and rural areas.

With Humala very close to making it to run-off, the key issue rests on who he will face. We had so far believed that moderate candidate Alejandro Toledo would be his opponent, but have pointed out that there was a growing risk that Toledo would not make it to the run-off. Support for Toledo has been on a sustained downward trend, while support for Fujimori has been more or less stable, and support for Kuczynski is on the rise. Toledo may still make it. The race will probably remain tight (last night's debate on national television will have little impact on voters' preferences), and his chances are now similar to those of Fujimori and Kuczysnki. But this means the combined probability of a second round scenario in which Humala faces either Fujimori or Kuczysnki is higher than the probability of second round scenario in which Humala faces Toledo.

This matters because Toledo would probably defeat Humala in a run-off, but a candidate other than him would probably lose. We have long been arguing that a key driver of this election is the strong desire for change among the electorate, even if most want moderate change, and that most observers have been underestimating Humala's chances (see PERU: Humala may be more competitive than most think, from 18 November 2010). This desire for change helps explain Humala's rise in the final weeks of the campaign and will benefit him in a run-off against candidates that have a center-right profile and are more clearly associated with the establishment. And contrary to what many pundits argue, voter preferences in Peru have been fairly stable, and probably didn't change all that much since the last election in 2006. In 2006, Humala had a similar level of support near this stage of the campaign (26% vote intention in late March). He ended up with 30.6% of valid votes. The other two main contenders were Alan Garcia, who essentially campaigned on a populist platform and Lourdes Flores, the candidate more closely associated with the status quo. Garcia made it to the run-off with a very tight margin over Flores (24.3% versus 23.8%) and went on to defeat Humala by only five points in the run-off after Garcia was able keep his base and obtain support of moderate and center-right voters. This time around Humala will probably be even more competitive, given that he has moderated his discourse in comparison to the 2006 election and, perhaps more importantly, probably will not face a candidate like Garcia that can appeal to such a wide constituency.

If Humala faces Keiko Fujimori, the dispute would be tight, but he would have an edge. The two have a similar base of support among the poor, but Humala would probably look more appealing to voters for two main reasons. First, he would make a more convincing case that he represents the "change" that most Peruvians want. Fujimori, whose father was president for ten years, will probably have a harder time presenting herself as the candidate of change. Second, most voters have a negative recall of her father's government. The latest Ipsos/Apoyo second round simulations show that Fujimori's previous lead has vanished and she would tie with Humala at 42%. Much as we have been arguing, second round poll simulations showing Humala behind should be taken with a grain of salt given that voter intentions are not clearly defined yet. The key is to ascertain how each candidate matches up with broader voter preferences and identify their respective vulnerabilities, and to look at previous voting patterns.

If Humala faces market-friendly candidate Kuczynski or even Luis Castaneda in a run-off, the odds of a Humala victory would be even higher. There has been an impressive increase is support for Kuczynski over the last few weeks, and some observers view him as potentially becoming the "outsider" that many Peruvians would like to see in the presidency. However, Kuczynski has gained support mostly among wealthier Peruvians in Lima, and his profile as a technocrat associated with the elite in the capital probably means that he will face difficulty in gaining much more support among other segments of the electorate and in other areas of the country. Moreover, he was prime-minister and minister of the economy under Toledo, and many voters would view his career path as being at odds with change. According to Ipsos/Apoyo, Humala would defeat Kuczynski in a second round by a slight margin (43% vs 41%), but the odds of Humala winning are probably higher than this results suggests. The same line of reasoning also holds for Castaneda, who still holds a large lead against Humala in second round simulations (46% vs 37%).

A likely Humala administration would likely push the limits on macro and microeconomic policies, but most likely will not go down the Hugo Chavez path. (See PERU: Humala won't represent business as usual, but neither will he go down Chavez's path, from 1 April). After he assumes office, he would probably send positive signals on monetary policy and tests the waters of fiscal policy. We expect Humala to appoint respected economists to the central bank's board and keep the bank's autonomy. But he is likely to gradually push the envelope in fiscal policy. Eventually, a more expansive fiscal policy could generate growing tensions with monetary policy if the central back begins a tightening cycle capable of dampening growth. While Humala is unlikely to undermine the central bank's autonomy, he is likely to try and exert more pressure on monetary policy in comparison to the current administration. In the meantime, Humala would most likely seek to increases taxes and expand state controls on key sectors whilst avoiding to overtly breaking contracts. A possible but unlikely scenario (25%) in one in which Humala conducts no meaningful change in comparison to a scenario in which a moderate candidate such as Toledo wins. The least likely scenario is one in which he follows the Chavez path (15%).

Erasto Almeida