MercoPress. South Atlantic News Agency

Humala seems ready to accept Peruvian economy is robust and on the right track

The president-elect said the US is a strategic ally for Peru

In a week’s time Ollanta Humala takes office in Peru as president for the next five years.

The former Army officer famous for his firebrand nationalism and closeness with Venezuela’s Hugo Chavez when he ran in 2006 has rapidly proven to be a pragmatist who considers the United States a crucial ally of Peru, is willing to improve relations with neighbouring Chile and has accepted as flagship Brazil’s Lula da Silva Workers Party that supplied him with the talent and imagination to ensure his electoral victory.

His interventionist vision on business and private enterprise has also changed drastically and with a booming Peruvian economy (spurred by commodities exports), he has said that foreign investors must be ensured clear rules so they keep going to Peru and anticipated that the current president of the Central bank will be ratified by his administration.

The latest data from May shows that the Peruvian economy is growing at an annualized 7.1% which is below last year’s spectacular performance but still robustly strong and underpinned by a sustained domestic demand.

The 3-month average of commerce activity rose 9.1% year on year signalling continued healthy consumption even when there has been a slowdown in industry and construction growth.

According to Peruvian central bank president Julio Velarde many companies put investment plans on hold in May and June, and weaker cement sales suggest lower construction activity.

Humala’s announcement that he would confirm Velarde in his job helped the Peruvian stock market, although the Lima General Index still has further to advance to recover the 20% fall since the end of last year when the president-elect credentials were referred to his 2006 record, scaring investors.

However the overall picture according to foreign analysts is that Peru will expand 7% this year and 5% in 2012, because of slacker international conditions with the potential for a sustained 6% in the long term.

If this were the case there are fears of a relaxation of government spending particularly as the Humala administration will want to honour some of its social inclusion promises, which could also lead to a major debate over a mining windfall tax.

But Humala could turn out to be such as surprise as has been the outgoing Alan Garcia, who in his first elected mandate in 1985 at the age of 36, left Peru bankrupt, isolated from international financial markets and with social violence leading to a coup and the authoritarian government of Alberto Fujimori in 1992.

When Garcia stepped down in 1990 Peru was suffering Weimar republic hyperinflation, GDP had dropped 20% and international reserves were 900 million dollars negative.

But in these last five years Garcia, a gifted speaker, has turned into an apostle of orthodox economics and pro-business, determined to attract foreign investment and overtake neighbouring conservative Chile as the best long term performing economy of Latin America, which he has partly achieved.

Forecasts indicate President Humala could undergo the same transformation for the good of Peru and its people.