PPK Presidency Off to a Good Start

The Oxford and Princeton-educated PPK, is probably the ideal candidate for most international investors. In a distinguished career the 77-year-old has held posts at the World Bank, several US investment banks, and served in his country’s Ministry of Economy and Finance and the Central Bank, so there is no doubt that he has the technical ability for the role. His early personnel decisions, such as Alfredo Thorne as Minister of Economy and Finance, and keeping Julio Velarde as Central Bank Governor, will also reassure investors.

Political challenges

His one weakness would appear to be political. He scraped his victory by a margin of just 0.1%, while his Peruanos por el Kambio party has just 15% of the seats in Peru’s unicameral legislature. In contrast the Fuerza Popular party of his defeated rival, Keiko Fujimori, holds 60% of chamber, giving her the power to block new legislation. An easy way to appease Keiko Fujimori would be to grant a pardon to her imprisoned father, the controversial ex president who splits opinion between those who regard him as the saviour of Peru and those who see him as a corrupt autocrat. So far PPK, who owes his election success to the Fujimori-hating left, has appeared unwilling to grant the pardon, although a compromise may be in the offing.

“PPK has inherited one of the best-performing economies in Latin America…”

Ironically, the thorny issue of the pardon aside, PPK actually shares many policy views with the centre-right Keiko Fujimori, which suggests that legislation should get passed. Indeed, as a country, Peru appears to have settled on a market-friendly, pro-growth approach that means in reality Kuczynski’s policies will follow on from his predecessor, the supposedly leftist Ollanta Humala.

Economic goals

PPK has inherited one of the best-performing economies in Latin America, which has shown its resilience in the face of the commodity price fall. So far he has indicated that the country will borrow more money to boost investment in social infrastructure, with four key themes:  safe drinking water for all homes; high-quality public education; universal health care; and improved transport infrastructure. That is likely to see the fiscal deficit rise but, unlike many of its regional peers, Peru can afford it. Speaking exclusively to LatAm INVESTOR on his campaign, Kuczynski explained why these types of social investments are so important for international investors. “We are very strong in mining indeed we are the most competitive copper producer in the world. But of course there are still lots of improvements that could be made. We need to change the distribution of royalties. Under the present scheme the areas surrounding the mine get a cannon, which is like a severance tax, but they must wait a long time to receive the money. First the mine must be built and then it must make a profit before the local areas start to benefit. However, we know where the big mines will be over the next ten to 20 years so we should make the social investment in those areas now. We should improve electrification, schools, hospitals and roads in those areas. We should make the social investment before we start a project so that the people who live there are interested in what the mine can bring.” Some of Peru’s largest mining and infrastructure projects have been held up by community protests, investors will be hoping that PPK has found the solution.