Tough and Thrilling Times

PERU - Report 25 Nov 2015 by Roberto Abusada

More than 20 political parties have jumped into the April 10th presidential race, though only about 10 candidates are likely to emerge, after parties forge alliances. We expect the final slate to be unveiled by mid-January, when some alliances might also be revealed.

All polls show Keiko Fujimori in the lead, with 30% to 35% of the voter intention, and ex-Prime Minister Pedro Pablo Kuczynski running a distant second, with about 18%. Now Cesar Acuña, ex-mayor of Trujillo and until recently governor of La Libertad region, has abruptly risen to 10%, and is tied with ex-President Alan Garcia for third place. President Ollanta Humala’s Partido Nacionalista is in total disarray; its break with leftists led it to triumph in 2011, but now its adversaries are retaliating. The main party leaders are defecting, and First Lady Nadine Heredia, who also leads the party, is besieged by serious corruption accusations. The party has offered the nomination to Housing Minister Milton von Hesse, who resigned from his post to accept.

We expect a runoff, on June 5th. Fujimori seems likely to be one candidate, but it’s still unclear who might be the other. Though Acuña’s rise was surprising, he must contend both with Kuczynski and the formidable Alan Garcia.

The next Congress is likely to be fragmented, meaning that the new president will have to skillfully negotiate deals, if Peru is to pass much-needed structural reforms. Unfortunately, Congress has started to consider populist initiatives, aimed at winning points with voters in the runup to the elections.

GDP was up 3% y/y in September (just under our 3.1% forecast), driven by strong 6.2% performance of primary sectors, especially mining and copper. But other sectors linked to domestic demand and non-commodity exports were still growing at just 2.2%. We expect similarly strong primary sector dynamism for Q4. We now see 2015 GDP growth at 2.7% to 2.8%, slightly above our 2.6% forecast.

The government tapped the international bond market at the end of October, issuing a 10-year €1.1 billion Eurobond. Demand was better than expected (with a yield to return of about 2.75%). The government has now raised $3 billion, enough to cover all 2016 external, and most internal, debt service.

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