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Viewing cable 06LIMA728, FLIRTING WITH DISASTER? OLLANTA HUMALA'S ECONOMIC

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Reference ID Created Released Classification Origin
06LIMA728 2006-02-23 22:15 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Lima
VZCZCXYZ0003
RR RUEHWEB

DE RUEHPE #0728/01 0542215
ZNR UUUUU ZZH
R 232215Z FEB 06 ZDK
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8861
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEHBO/AMEMBASSY BOGOTA 3023
RUEHCV/AMEMBASSY CARACAS 9111
RUEHLP/AMEMBASSY LA PAZ FEB QUITO 0054
RUEHSG/AMEMBASSY SANTIAGO 0224
RUEHBU/AMEMBASSY BUENOS AIRES 2281
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
RUMIAAA/USCINCSO MIAMI FL
UNCLAS LIMA 000728 
 
SIPDIS 
 
STATE FOR WHA/AND, WHA/EPSC AND EB/IFD/OMA 
STATE PASS USTR (BHARMAN) 
STATE PASS AID (LAC/SA) 
TREASURY FOR G. SIGNORELLI 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
DEPT OF ENERGY FOR DPUMPHREY/GARY WARD/SARAH 
LADISLAW/MANOLIS PRINIOTAKIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD ENRG SOCI PGOV PE
SUBJECT: FLIRTING WITH DISASTER? OLLANTA HUMALA'S ECONOMIC 
POLICIES 
 
REF: A) LIMA 494 
     B) LIMA 382 
 
1. (SBU) Summary:  The rise in the polls of the ultra- 
nationalist, anti-system presidential candidate Ollanta 
Humala has created considerable interest and concern about 
the kinds of economic policies he would implement as 
President.  He has not yet offered an economic platform, and 
it is not clear that he has given economic policy much 
thought.  However, what he has said in speeches and press 
interviews tracks with a Chavez/Morales economic model.  He 
opposes the free trade agreement with the U.S.  He supports 
government control of natural resources.  He openly admires 
the presidency of General Velasco, who oversaw large-scale 
expropriations and nationalizations.  Although Humala and 
his economic team talk about maintaining low inflation, 
small budget deficits and honoring foreign debt commitments, 
the core of his beliefs are protectionist and statist.  End 
Summary 
 
Humala Effect 
------------- 
 
2. (SBU) Ollanta Humala's emergence as a serious contender 
for the presidency of Peru created brief but not 
insignificant economic turmoil in Peru.  The stock market 
dropped 6.5 percent on December 19, its biggest one-day drop 
since 2000, reacting to both the first round victory of 
Bolivian President Evo Morales and the release of a poll 
showing Humala running second in the presidential campaign. 
The manager of Peru's largest shopping mall told Embassy 
Econoffs that his mall suffered significant sales declines 
in the days following the release of the poll numbers. 
Peruvian bonds temporarily lost value as Humala's popularity 
rose. 
 
3. (SBU) Humala has not yet offered a comprehensive economic 
plan.  What is known about his positions comes from a couple 
of news interviews and comments made by his economic 
advisors.  Humala's statements tend to be broad, and when 
pressed for details, he says that experts will work out the 
details.  It is quite likely that Humala has not given much 
thought to economic issues beyond a rudimentary level.  Post 
has culled available sources for an analysis of Humala's 
economic beliefs; Embassy personnel did not meet directly 
with Humala's campaign staff. 
 
Nationalist Economics 
--------------------- 
 
4. (U) The central thread in Humala's economic 
pronouncements is a fervent nationalism.  This core belief 
appears to have been embedded by the two most prominent 
influences in his life; the military and his family. 
Ollanta Humala spent 20-years in the military, taking part 
in the wars against the Shining Path and Ecuador and leading 
a coup attempt in 2000.  He was raised in an ultra- 
nationalist family that stressed a politics based on racial 
purity.  Humala's father is a former communist and founder 
of a race-based movement called Ethnocacerism. 
 
5. (U) Ethnocacerists are anti-globalization, anti- 
democratic and anti-Chile (Ref A).  Ollanta Humala was a 
leader of the Ethnocacerist party until December 2005 when 
he had a very public split with his father and the party. 
There is some question whether the split was real or staged 
to distance himself from the party's more extravagant 
beliefs and from his brother Antauro, who led a bloody but 
unsuccessful uprising in Andahuaylas in January 2005. 
Whatever the circumstances, Humala's proposed economic 
policies reflect his strong nationalist beliefs. 
 
 
Channeling Hugo 
--------------- 
 
6. (U) Most of Humala's economic positions appear to fit 
squarely in the Chavez/Morales model of increased state 
control of national resources and anti-U.S./pro-Latin 
America trade policies.  He is also a strong admirer of Juan 
Velasco Alvarado, an army General who led a successful coup 
in Peru in October 1968 and served as President until he 
himself was overthrown in August 1975.  Velasco's 
administration nationalized entire industries, expropriated 
power, telecommunication and mining companies, tightened 
import controls and seized and redistributed farms across 
the country.  While voicing admiration for Velasco, Humala 
has said that his policies would be different since times 
and circumstances have changed. 
 
The Brain Trust 
--------------- 
 
7. (SBU) Humala's closest economic advisors are Gonzalo 
Garcia Nunez, candidate for first Vice President and a 
former Central Bank Director, and Felix Jimenez, an 
economics professor and former Ministry of Economy and 
Finance official.  In newspaper interviews, the two have 
described relatively orthodox, if at times vague economic 
policies.   Both mention that an Humala administration would 
maintain some of the current government's policies, such as 
maintaining low inflation and small budget deficits.  A 
visiting group of international investment advisors met with 
Garcia and Jimenez the week of February 6, and told us they 
were surprised and relieved that their proposals were not 
more outlandish.  It is unclear how much influence either 
advisor has on the candidate. 
 
That 70's Show: Government Control of Energy Resources 
--------------------------------------------- --------- 
 
8. (U) Humala and his advisors have been clear that an 
Humala Administration would increase government 
participation in the energy sector.  His advisors talk of 
reviewing the gas and petroleum tax stability contracts, and 
Humala has said that he intends to ".place the resources at 
the service of (Peruvian) nationals."  However, the 
rebalancing of government participation would come through 
negotiations rather than expropriation.  His advisors point 
to Bolivia as an example of how the process could take 
place. 
 
National Capital and Foreign Investment 
--------------------------------------- 
 
9. (SBU) Humala and his advisors say that his government 
would favor "national capital investments," but they do not 
explain what that means or how it would work.  An Humala 
administration would welcome international investors as long 
as they ".pay their taxes, pay royalties, create jobs and 
transfer technology."  At the same time, the candidate has 
stated clearly Chile would not be permitted to invest in 
Peru's ports.  The Chileans are direct maritime competitors 
and not very good at running ports, according to Humala. 
(Note:  Other front-running candidates, reacting to Humala's 
statements, made similar statements about restricting 
Chilean investments in ports.  The success of Humala's 
populism has forced the candidates to veer towards some of 
his positions, such as limiting Chilean investments and 
questioning whether President Toledo and the current 
congress should ratify the U.S. trade accord, see Ref B.) 
Humala has said that the existing investment contracts would 
be reviewed, but he appears to mean that he intends to 
 
ascertain whether the agreements were reached in a legal 
manner. 
 
Against U.S. Trade Accord 
------------------------- 
 
10. (U) Humala is not vague about his opposition to the free 
trade agreement with the U.S.  "I'm against it," he said 
recently.  He warns that it will ".destroy agriculture and 
benefit other very small sectors that are not going to 
advance Peru towards development."  He says that the Toledo 
government does not have the "moral authority" to sign the 
agreement, and the current Congress should not review and 
ratify it.  If the trade deal is ratified before he comes to 
office, he has vowed to revise it.  He has called for more 
public information about the agreement, and possibly a 
national referendum.  He warns that the agreement could 
contain secret side letters, like the kind that ".handed 
Leticia over to Colombia in 1922 or Tiwinza to Ecuador." 
While Humala is anti-free trade with the U.S., he says that 
Peru should focus on building a Latin American trade block. 
 
This Sea Is Our Sea 
------------------- 
 
11. (U) Humala is equally clear regarding the maritime 
dispute with Chile.  Ceding anything to Chile ".would be 
treason to the motherland."  He referred to the Convention 
of the Sea as ".globalization of the sea, for the benefit of 
the big fishing fleets."   Humala has talked about reviving 
Peru's fishing fleet and reinforcing the merchant fleet: 
"It's not acceptable that our graduates from merchant marine 
school get their first jobs in fleets carrying a flag that 
is not ours." 
 
Yet Another New Model: Globalization and Peruvian Identity 
--------------------------------------------- ------------- 
 
12. (U) Although Humala and his advisors say that they are 
not anti-globalization, the candidate has said that 
globalization is ".drilling a hole in the Peruvian economy, 
weakening our identity."  An Humala administration would 
protect Peruvians from the "pernicious effects" of 
globalization by protecting certain sectors, such as 
agriculture.  At the same time, he says that globalization 
is a fact of life, with both good and bad aspects. 
 
13. (U) Humala and his team say that one five-year term is 
not enough to create a whole new economic model; therefore, 
they aspire only to laying the foundation.  One aspect would 
be "consolidating" the domestic markets, by protecting 
important sectors for national development.  Again, the 
example they give is agriculture.  The candidate has hinted 
at restricting food imports to spur demand for domestically 
produced products.  This is one of the Velasco policies that 
failed spectacularly in the 70s.  Humala has said that he 
would shift the balance of power away from "big capital." 
 
Things We Like 
-------------- 
 
14. (SBU) Humala's economic plans are mostly protectionist 
and statist.  He and his advisors, however, do highlight 
certain sound economic policies that have created strong 
economic growth in Peru.  Inflation would be kept low. 
Government budget deficits would be small.  Foreign debt 
obligations would be honored.  His advisors stressed these 
points to the visiting international bankers to good affect. 
 
Comment: A Bad Idea Whose Time Has Come? 
---------------------------------------- 
 
 
15. (SBU) Humala is probably not an economic deep thinker, 
so his policies are likely to adhere to his core nationalist 
principles.  Those appear to be in the Chavez/Morales mold 
of greater state control and tighter trade restrictions. 
That model, however woeful, is in ascendance in this region. 
Morales' decisive victory gives Humala reason to believe it 
could sell in Peru as well.  The halt of Humala's rise in 
the polls, however, may suggest that the constituency for 
these types of failed policies is not large enough to win 
the presidency.  For that reason, Humala may start to veer 
towards more orthodox, free market policies, at least in 
public.  More likely is that he will continue to make vague 
statements on economics and hope to win on other issues. 
 
ARELLANO