Troubled Days Here Again?

 Is Peru’s post-election instability a bellwether for the region?

The June 2021 elections in Peru split the country in two. Supporters of the leftist Pedro Castillo, a union leader and socialist, faced off against Keiko Fujimori, daughter of former dictator-president Alberto Fujimori and the embodiment of the status quo. While the official certification of the election results has been delayed amid widespread protests due to unsubstantiated claims of election fraud by Fujimori, international election monitors have affirmed that Castillo won the popular vote. An analysis of the results provides a glance into what to expect for upcoming elections across Latin America, where voters hit hard by the effects of the Covid-19 crisis, poverty, and corruption are demanding change. This unrest has the potential to exacerbate the class divide and further destabilize the weak democracies in the region.

In the red corner…

Castillo, a previously unknown rural schoolteacher campaigned on the slogan “Never again a poor man in a rich country”. Unofficial results suggest he won the Peruvian election with a margin of 44,000 out of 17.6 million votes cast. This achievement was surprising since Castillo’s political party “Free Peru”, garnered less than 4% of the popular vote in the January 2020 parliamentary elections.

Free Peru was established by Vladimir Cerrón, a Cuban-educated Marxist doctor. Cerrón unsuccessfully ran for president in 2016, and attempted to run in 2021 before being disqualified due to corruption charges. Cerrón has expressed support for Nicolas Maduro in Venezuela and has ties to Shining Path, a Marxist terrorist group whose 1980s insurgency plunged the country into near civil war. Although Cerrón is currently imprisoned, he continues to be an influential figure in the party and critics have warned that Castillo is a figurehead for Cerrón’s ideology.

…and in the blue.

Fujimori, conversely, is an establishment figure whose constituents are Lima elites, the educated and wealthy city-dwellers. Her father, former president Alberto Fujimori is notorious for bringing economic strength to Peru, yet being charged with corruption and human rights abuses. Similarly, while Fujimori has pledged a return to pre-pandemic stability in Peru, she also is faced with pending corruption charges. However, her supporters are more fearful that Castillo will set the country on the path of Venezuela or Cuba, and have promised to go to extreme lengths to install Fujimori and keep Castillo from power. A group of over 60 retired army officers have urged the military to refuse to acknowledge Castillo’s presidency. While the worry from her supporters may be legitimate, Fujimori’s attempt to invalidate the results has empowered the country’s latent right-wing movement and disenfranchised rural, indigenous voters who overwhelmingly voted for Castillo. As election officials investigate Fujimori’s accusations of fraud, protests on both sides continue.

What next?

Yet despite the harsh rhetoric and fearmongering from Fujimori supporters, there are indications that Castillo’s policies will be more moderate than expected. For example, despite promising to rewrite the constitution and nationalize the country’s key mining and energy sectors, Castillo has named Pedro Francke, a former economist at the World Bank, as his economic advisor. Francke has expressed support for free market policies and balancing the budget, while distancing himself from nationalizations and currency controls. In addition, Castillo has said that he will reappoint Julio Velarde as the head of Peru’s central bank in an effort to maintain market stability. Moreover, Free Peru only holds 37 out of 130 seats in congress, which will ostensibly force Castillo to seek compromise with the opposition.

More broadly, Peru’s experience has implications across Latin America. With nine countries holding key elections in 2021, the potential for economic and social disruption cannot be ignored. Nor can the new, troubling political playbook in which losing candidates undermine the democratic process by crying fraud. The resulting protests and increased tensions are a potential minefield in a politically volatile arena.

Peru’s new, revisionist president will be checked by a diverse legislature, but the effects of the pandemic combined with the region’s unpredictability may result in a new rise of the Latin American left. This shift, alongside Castillo’s rhetoric has been alarming to many, however the stark division within Peru may now be their largest concern.

In order to continue to reap the rewards of Peru’s developing economy and natural resources, investors should take measures to understand its complex risk profile. Most of all, they should not underestimate the surging resonance of Castillo’s mantra: “Never again a poor man in a rich country.”