Elections in Peru and Columbia -- Good for U.S. large cap

June 10, 2006

On June 4th, Peruvians elected Alan García as President, defeating Ollanta Humala, a nationalist former army officer and ally of Venezuelan President Hugo Chavez. Columbia reelected Alvaro Uribe on May 28th, sanctioning his U.S. supported policies of “democratic security,” which has successfully reduced violence from FARC, the paramilitary resistance movement financed by drug trafficking.

Mr. García was President of Peru between 1985 and 1990, a time of terrorist violence from the Maoist Shining Path, hyper inflation, economic collapse and a failed attempt to nationalize the banks. He spent the ‘90s in exile, during the authoritarian rule of Alberto Fujimori, fighting corruption charges that were dropped. He returned in 2001, nearly winning a presidential election against Alejandro Toledo.

Voters elected Mr. Garcia this year, based on his promises to continue the free-market policies that have delivered four years of strong economic growth under Mr. Toledo. Specifically, Garcia said he would:

• Set up a government development bank,
• Spend more foreign-currency reserves on infrastructure projects,
• Exempt local governments from VAT so that they can expand their payrolls,
• Provide 500,000 poor households in Lima with drinking water in his first six months,
• Create 350,000 jobs a year,
• Cut the salaries of senior state officials,
• Support a free-trade agreement with the United States.

Mr. Uribe promises to continue the policies which have reduced murders and kidnaps to the lowest level in 20 years. These include:

• Plan Columbia, which has provided $4.5 billion in military aid since 2000 from the U.S.,
• Negotiations with the smaller paramilitary groups which result in their dissolution,
• Increased police protection in every town,
• Better managed health and education programs,
• U.S. sponsored cocaine eradication programs, which have met with dubious success.

What It Means:
Back in April, it looked like Peru and Columbia were going to succumb to President Chavez’s “Bolivarism” movement of anti-U.S. nationalism. Instead, these countries favored their own brand of nationalism --- economic growth and support from the U.S. In fact, Chavez’s open support of Garcia’s opponent Ollanta Humala backfired - to the extent that Peru withdrew its Ambassador from Venezuela in protest of Chavez’s meddling in the election.

The U.S. has bilateral trade agreements with Chile, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The success of these elections probably means the successful completion of ongoing negotiations with Peru and Columbia.

Action Steps:
These elections mean continued stability and growth in Peru, and to a lesser extent, Columbia, as well as support for the U.S. friendly policies of Brazil, Chile and Argentina. Focus on these countries in the Latin American portion of your portfolio. Focus also on the large cap U.S. multinationals that do business with these countries, and will benefit from continuation of the status quo in the region.

Source:

State Dept. Press Release, June 1, 2006

CIA website