Global Insight Perspective

Significance

The free-trade agreement (FTA) with the United States signed earlier this week has an uncertain future in Peru. Populist nationalist Ollanta Humala (Union for Peru - UPP) has pledged to revise it if he takes office; its more ardent supporter, presidential contender Lourdes Flores (National Unity-UN), is not yet certain to take part in the run-off; and Alan Garcia (APRA) is not fully convinced by the deal's terms and also wants it to be modified.

Implications

President Alejandro Toledo is feeling pressured by the July 2006 deadline, when he will step down from the presidency, to have Congress ratify the deal to avoid its eventual elimination by Humala or Garcia. The U.S. Congress also has to ratify the deal, which is uncertain at this juncture.

Outlook

The FTA is set to be yet another point of contention as contenders prepare for the second and final round of voting.

The Race Against Time

President Alejandro Toledo signed the free-trade agreement (FTA) with the United States on Wednesday (12 April), in line with his personal commitment to comply with all legal hurdles to implementing the scheme before stepping down from the presidency in July 2006. The FTA was agreed between the two nations in December 2005, but presidential signatures and congressional ratification remained pending (see Peru: 8 December 2005: U.S. and Peru Seal Free-Trade Deal). Toledo had promised to secure the deal's formal conclusion amid the presidential elections, which occurred last Sunday (9 April) (see Peru: 24 January 2006: President of Peru Confident in Sealing U.S.-FTA Deal Prior to April Vote). Congress's consent is now the final step in a race against time for the FTA to become a reality. Toledo has announced that he will press outgoing congressmen to approve the commercial accord.

In his address to the nation, President Toledo justified the need to secure the FTA's coming into force rapidly as being indispensable for the future president, whoever that will be, in order to comply with electoral promises of employment generation. At the same time, Toledo is trying to convince Peru's second-round contenders of the social and economic necessity of the scheme. Indeed, the only contender currently confirmed for the run-off, radical nationalist Ollanta Humala (Union for Peru - UPP), is vehemently against the FTA. He has formally demanded that Toledo suspend its ratification. If he assumes office in July 2006, he will ask for its revision in the new Congress. Humala's campaign has involved overwhelming anti-free-trade and market policy rhetoric, and the FTA was logically part of his criticism. In the wake of Wednesday's signing, he has once again stressed that he would use all legal means to have the current FTA annulled. In a move to assuage existing tensions with the private sector, Humala has insisted that he is not against a free-trade arrangement with the United States per se, but that the way this deal was negotiated and its current provisions are detrimental to the country. Humala deems the entire agreement illegitimate because of the Toledo administration's current low approval levels, which are barely in the double digits, and because Peru hastily broke away from wider negotiations on an Andean-U.S. FTA to comply with Toledo's wishes and agenda (see Latin America Regional: 24 November 2005: Andean Trade Deal Ruptures at the Eleventh Hour). From his viewpoint, the agreement should be submitted to the people through a referendum. Another major presidential hopeful, Alan Garcia (APRA), is also doubtful about the deal. However, contrary to his rival Humala, he does not see a referendum on the issue as necessary (see Profile: Election 2006: Candidate Profiles - Alan Garcia, Returning from the 1985-1990 Debacle). By contrast, Lourdes Flores (National Unity - UN) will go forward with it as it is (see Profile: Election 2006: Candidate Profiles - Lourdes Flores and the Challenge of Shedding the Pro-Business Label).

Toledo directly attacked Humala's aggressive antagonistic position on the deal when he addressed Peruvians, affirming that 'being a nationalist is to create jobs, being a nationalist is to open markets, being a nationalist is taking care of the poor, being a nationalist is understanding the global dynamics, ... being a nationalist is to think of Peru's future beyond electoral promises ... and to be elected and govern democratically'. In doing so, Toledo directly attacked Humala's extreme nationalist platform. However, this is unlikely to undermine his support base.

In an attempt to defend his trade ambitions, President Toledo suggested hosting a meeting with the three contenders to explain the terms and conditions of the deal and its associated benefits for Peru. Both Alan Garcia and Ollanta Humala rejected his offer. According to La Republica, Garcia stated that he did not like doing something and justifying it later and that the democratic way of doing things is to inform prior to undertaking final steps, adding that they are not his 'lackeys'. Humala's comments mirrored Garcia's. Flores, on the other hand, enthusiastically accepted the invitation.

Outlook and Implications

The legitimacy and future of the FTA will depend in part on who wins the final round of the presidential election in May or June 2006. At this stage, Humala has secured a place in the run-off, standing well above his chief challengers. A win in the second round will certainly jeopardise the trade pact in its current form.

It is as yet unclear whether Garcia and Lourdes will face Humala as both fight vote by vote to participate in the run-off. Since the beginning of the week, Garcia led over Lourdes (see Peru: 13 April 2006: Election 2006: Former President Poised for Peruvian Second Round). With 90% of the vote counted, Garcia enjoys a mere 1.07-percentage-point advantage over Flores. Uncertainty over the political fate of the two contenders hinges on complaints concerning around 1 million ballots, which need to be reviewed, may be counted as valid or invalid, and therefore have major implications for the outcome of the first round. This explains the announced delay in its formal promulgation.

Humala is already preparing for the campaigning to come in the final round. He has announced that he will not seek political 'marriages' to ensure victory unless parties agree to his platform, a strategy set to maintain his outsider credentials and anti-political-establishment stance, which have seduced many disillusioned Peruvians (see Profile: Election 2006: Candidate Profiles - Ollanta Humala, 'Love for Peru' or Populist Nationalism Revisited).

Garcia has been more cautious on the FTA, avoiding Humala's hard-line stance and Flores's full embrace. In his middle ground position, Garcia would represent much more of a threat than Flores for Humala in a second round. Pressed by his own personal agenda and deadlines, the unpopular Toledo has created yet another chief point of debate for the looming final month or months of campaigning.

Contact: Raul Dary

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raul.dary@globalinsight.com

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