This Time Around, Toledo Loves The Free Market

Can the onetime radical grab the presidency in April?

A year ago, Alejandro Toledo was the choice of the Peruvian masses in a barnstorming campaign to vote President Alberto K. Fujimori out of office. But last week a different Toledo was on parade--and not in some tiny plaza in the Andean highlands, but in Davos, Switzerland, which each year plays host to the global powerfest that is the World Economic Forum. There, the sober-suited, necktied reformer preached free-market gospel: "I believe the role of the government is to create conditions for the private sector to flourish," he told BusinessWeek.

It's Toledo, the Sequel. The Peruvian shoe-shine boy who grew up to become a PhD economist is making a second run at the presidency after losing against Fujimori in what many think was a rigged election. This time around, the candidate favors dark suits over shirtsleeves and bandanas. The sartorial switch is calculated to appeal to the conservative business elite that pegged Toledo as a rabble-rouser. Yet suspicions linger that beneath those tailored lapels beats the heart of a populist.

Six months after Fujimori's 10-year reign collapsed in a mess of graft, lies, and videotape, Toledo, a 54-year-old former World Bank economist, has emerged as the front-runner in the Apr. 8 presidential election. The latest nationwide poll shows Toledo 20 points ahead of his three main rivals.

The past year has been a hair-raising ride for this son of poor Peruvian Indians. Although Toledo did not succeed in his quest to deprive Fujimori of a controversial third term in last April's elections, he did manage to build up a solid following. Voters outside Lima identified with his Andean features, admired his glamorous, Belgian-born wife, and yearned to replicate his boy-from-the- provinces-made-good story.

Even so, Toledo's campaign got off to a slow start this year. The message of his Peru Posible party was stale, his economic program vague, and he was dogged by a firebrand image acquired during the street protests he led against Fujimori. And Peru's business leaders prefer the center-right candidate, Lourdes Flores Nano.

Yet Toledo has revved up his campaign with a more detailed message. While he talks about free-market reforms, he's making employment the main plank of his platform. To accommodate the nearly 300,000 young people who enter the workforce each year, Toledo has pledged to create 2.5 million jobs over the next five years. To do that, he will offer tax incentives to companies that invest in labor-intensive sectors, such as tourism and agriculture. That, in turn, Toledo says, should help lift foreign investment to $4.5 billion a year and spur annual economic growth to an average of 7%.

Peru's $54 billion economy could certainly use a boost. Private-sector analysts are forecasting growth of just 2.5% this year, largely because political uncertainty has depressed investment. But business leaders wonder how Toledo can reconcile his promises of tax cuts with big government spending on housing and education. They also question the candidate's commitment to privatization--a hot-button issue in Peru.

Yet investors, both local and foreign, take comfort from Toledo's choice of Pablo Kuczynski, a former Energy & Mines Minister and onetime managing director of First Boston Corp., to head his team of economic advisors. "People will give more weight to his appointment of Kuczynski than to his campaign promises," says Ricardo Adrogue, a vice-president at Salomon Smith Barney in New York.

Peru's business leaders may begin to warm to Toledo now that former President Alan Garcia has tossed his hat in the ring. A left-leaning populist who ruled Peru from 1985 to 1990, Garcia is best remembered as the man who defaulted on the country's foreign debt and printed so much money that inflation exceeded 2,000,000% during his term. Needless to say, the prospect of Garcia back in power terrifies investors. Next to him, Toledo's dark suits and earnest manner look pretty good.

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