Peru’s Stocks, Currency, Bonds Decline as Humala Faces Fujimori in Runoff

Peru stocks and dollar-denominated bonds fell as the race to be the next president narrowed to Ollanta Humala, a supporter of greater state control over the economy, and Congresswoman Keiko Fujimori, the daughter of a former leader imprisoned for human-rights abuses.

Humala, who once led an army uprising and was an ally of Venezuela’s Hugo Chavez, won 29.3 percent of yesterday’s first- round vote, after 72 percent of ballots were counted as of 10:39 a.m. New York time today. Fujimori, daughter of former president Alberto Fujimori, finished second with 22.9 percent.

The benchmark Lima General stock index fell 0.8 percent, exceeding a drop of 0.5 percent for the MSCI Emerging Markets Index. Peru’s dollar bonds due in 2025 dropped, sending yields up 3 basis points to 5.43 percent, according to data compiled by Bloomberg. The sol sank 0.1 percent to 2.8005 per dollar.

“It’s difficult to get away from the thought that Humala is more left-winged than anyone else in the election,” Jeremy Brewin, who helps oversee about $3 billion of emerging-market assets at Aviva in London, said in a telephone interview. “He perhaps leans more towards re-negotiating the things that we got used to. I am sure we are not the only people who are structurally underweight Peru.”

While a Fujimori presidency may revive the trauma of her father’s decade-long rule, the losing candidates are likely to rally behind before the June 5 runoff vote her to prevent Humala from jeopardizing the fastest economic growth in Latin America over the past five years, said Michael Shifter, president of the Inter-American Dialogue.

Past Election

“She’s not a real recipe for stability, but given the choice, there will be more resistance from the business community to Humala,” said Shifter, who hosted Humala at an event in Washington last year.

Humala, 48, won the first round of balloting in 2006 with 31 percent only to lose by five percentage points to President Alan Garcia in a runoff. The Andean nation’s stocks, bonds and currency tumbled over the past month as Humala surged from fourth into first place in opinion polls.

Former Finance Minister Pedro Pablo Kuczynski came in third yesterday with 21.1 percent support, while ex-President Alejandro Toledo won 15.1 percent. .

Both Humala and Fujimori are polarizing figures in Peru, though each has strong support in the Andean highlands where poverty affects 77 percent of the population in some areas.

Military Uprising

Like Chavez, who as a paratrooper led a failed coup, Humala in 2000 led 50 soldiers who seized and occupied for a week one of Phoenix-based Southern Copper Corp. (SCCO)’s mines to protest corruption that beset Fujimori’s government. His brother, Antauro Humala, is serving a 25-year prison sentence for killing four policemen during the takeover of the southern highland town of Andahuaylas in 2005, in an attempt to force Toledo to resign.

While downplaying his ties to Chavez and muting the anti- capitalist rhetoric used in 2006, Humala’s platform proposes raising royalty fees on mining and gas production and drawing up a new constitution. He’s also pledged to renegotiate a free- trade agreement with the U.S. signed by Garcia.

Last night, at a victory rally in Lima, Humala vowed to seek national unity as president, telling supporters that “Peru wants change without shocks to bring about a big redistribution of the country’s wealth.”

Fujimori´s Campaign

Fujimori, 35, surrounded herself by her father’s former aides including running mate Jaime Yoshiyama, who served as his Minister of the Presidency. The jailed Fujimori is credited by supporters with laying the foundations of Peru’s economic boom by slashing inflation from 7,650 percent to 3.5 percent.

He also closed Congress in 1992 and saw his grip on power tumble after his intelligence chief, Vladimiro Montesinos, was caught on videotape in 2000 bribing opposition lawmakers.

In 2009, after returning from exile, Fujimori was convicted and sentenced to 25 years in prison for ordering a paramilitary squad to kill a group of suspected Marxist rebel sympathizers.

Keiko Fujimori, the mother of two, was elected to Congress in 2006 with more votes than any other candidate. She met her American husband, Mark Villanella, while obtaining an MBA at Columbia University in New York.

Last night, she thanked her father and tried to reassure Peruvians there’d be no return to authoritarian rule.

“We must to look the future, not to the past,” she said as supporters chanted “Chino, Chino, Chino,” her father’s popular nickname. “We’re going to work with absolute respect for democracy, the rule of law, freedom of expression and the press.”

Market Jitters

The cost of insuring Peru’s debt against default rose to its highest since 2009 last week on concern a Humala presidency would jeopardize $50 billion of mining, energy and infrastructure investment that the government expects will fuel 6.5 percent growth over the next five years. Peru, the world’s second-largest producer of copper, grew 8.8 percent last year.

Peru’s sol has declined 1.1 percent against the U.S. dollar since March 20, when Humala began gaining in the polls, making it the worst performer among 25 emerging-market currencies tracked by Bloomberg. The Lima General Index has fallen 4.5 percent in dollar terms during the past month, the seventh-worst performance among 90 primary stock indexes tracked by Bloomberg.

“The uncertainty ahead of the runoff will lead to some further selloff of Peruvian assets,” said Kevin Daly, who helps manage $6 billion in emerging market funds at Aberdeen Asset Management Plc in London.

Garcia’s Legacy

Garcia, 61, whose five-year mandate expires July 28, is banned by Peru’s constitution from seeking re-election. During his term, Peru created 2.5 million jobs and had its first-ever investment-grade ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

Toledo, who had been the early frontrunner, saw support for his candidacy fade since February. Still, he was the only candidate favored to defeat Humala in a runoff scenario, by four percentage points, according to an April 3 poll by Lima-based researcher Ipsos Apoyo. The same poll found Humala and Fujimori tied in a runoff scenario, with 42 percent support each.

Whoever is elected president may face gridlock in Congress. Humala’s Nationalist Party won about 39 of the 130 seats in Peru’s unicameral legislature, compared with 31 for Fujimori’s “2011 Force” and 23 for Toledo’s “Possible Peru” movement, according to exit polls.

Mario Vargas Llosa, the Peruvian novelist who won the 2010 Nobel Prize for literature, said last month that it would be a “catastrophe” if either Humala or Fujimori were elected.

“If the daughter of a dictator who’s serving a jail sentence for being a criminal and a thief has a chance of being president, I’ll be one of the Peruvians that will try to stop her by all legal means,” said Vargas Llosa, who lost the presidency to Fujimori in 1990 and was backing Toledo in this race.

To contact the reporters on this story: John Quigley in Lima at; Ye Xie in New York at

To contact the editor responsible for this story: Joshua Goodman at

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