77-Year-Old Wall Street Favorite to Face Fujimori in Peru Runoff

  • Pedro Pablo Kuczynski to face Keiko Fujimori in June 5 runoff
  • He beat out left-leaning Veronika Mendoza for second spot

The victory by Pedro Pablo Kuczynski, a former finance minister, for second place in Sunday’s Peruvian president elections sets up a showdown between two business-friendly candidates, part of a regional backlash against left-wing politicians.

Kuczynski, a 77-year-old Oxford-trained political economist who’s spent more than 50 years championing debt control and free trade, won 21 percent of vote with 96 percent of the ballots counted, according to the electoral office. He will face Keiko Fujimori, who won 39.8 percent, in a second-round vote on June 5.

The wins on Sunday by Fujimori and Kuczynski are the latest successes by free-market candidates in a series of South American elections against opposing movements in countries including Venezuela and Argentina. Kuczynski beat out Veronika Mendoza, an anthropologist who ran on a platform to rein in the expansion of the mining industry, toughen environmental standards and end corruption. Fujimori is the daughter of a former president who enshrined Peru’s pro-business policies 20 years ago, before becoming enmeshed in a graft scandal.

The result is the “best scenario for private investment,” according to Credit Suisse Group AG analyst Juan Lorenzo Maldonado. Kuczynski’s proposals to cut taxes to spur consumption and investment as well as revive stalled mining and infrastructure projects may help improve business sentiment, he said.

Market Reaction

Peru’s currency and bonds rallied on Monday at the prospect of two business-friendly candidates vying for the presidency.

The sol gained 0.5 percent to 3.266 per U.S. dollar today, after surging 2.9 percent on Monday, the biggest one-day jump since 1994. The average yield on the country’s local debt fell 37 basis points, or 0.37 percentage point, to 6.54 percent yesterday, the most in seven years, according to JPMorgan Chase & Co.

The extra yield, or spread, investors demand to buy Peru’s dollar bonds due in 2025 instead of U.S. Treasuries has tightened 20 basis points to 142 basis points since the election.

Kuczynski is a former official of the World Bank, the International Monetary Fund and Peru’s central bank. He holds a masters degree from Princeton University and spent years in private banking in the U.S., before coming third in the 2011 race for the presidency of Peru.

“Kuczynski is seen as the most market-friendly candidate of the spectrum, so having a runoff vote between two candidates who represent a continuity of macro-economic policy is an upside,” Maldonado said by phone from New York. “If you have a Kuczynski or Keiko, the business community may feel that whatever is going to come afterwards is as good or better than things are right now.”

Kuczynski previously served as former President Alejandro Toledo’s minister of economy and cabinet chief between 2001 and 2006. During that time, he helped reduce debt and spur average economic growth to about 5 percent a year. He also helped Peru reach an agreement with the Paris Club of creditor nations to prepay $1.55 billion of debt. 

Flute Player

Since losing the bid for the presidency in 2011, Kuczynski, who plays the flute and piano and sometimes performs with Peru’s Philharmonic Orchestra, has set up a non-governmental organization to provide safe drinking water to rural Peruvians. He has been married twice and has grown children from his first wife as well as a daughter with his current wife, Nancy Lange.

The son of European immigrants, Kuczynski has had trouble attracting votes from Peru’s poor rural areas where Mendoza, a 35-year-old first term congresswoman, did well. She speaks Quechua, one of two main indigenous languages, and her support surged in recent weeks.

“Kuczynski’s a weak candidate,” Steven Levitsky, a political scientist at Harvard University, said by phone. “He’s up there in years, he doesn’t have a lot of energy, he’s not very charismatic and he’s really perceived as representing a narrow, Lima elite.”

Opinion polls suggest that the June runoff between Kuczynski and Fujimori is too close to predict. Fujimori has stressed her tough stance on crime. Her father’s legacy -- a restoration of order but to the point of authoritarianism and corruption -- has produced enthusiasm and revulsion in equal measures. Alberto Fujimori was sentenced to 25 years in prison in 2009 for ordering the killing of suspected terrorist sympathizers.

Kuczynski has campaigned on a platform to boost infrastructure development in rural areas, provide universal health insurance and modernize state services. He plans to pay for it in part by boosting government debt and cracking down on tax evasion. He’s also said he would create regulatory incentives for small- and medium-sized businesses and increase formal employment.

“Both candidates clearly believe the economic model that’s been in place for the last two decades is the right one but they’re aware adjustments are needed in areas like infrastructure, health and education, which is reassuring,” said Renzo Massa, head of fixed income and currency at Lima-based pension fund Prima AFP. “The political panorama in South America is starting to look much healthier.”

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