Peru’s election is a wrap. Leftist outsider Pedro Castillo has bested the right-wing longtime politician Keiko Fujimori in a polarized and bruising election. It was a nail-biter, and Castillo’s victory has yet to be officially certified. Fujimori has cried foul and is contesting the results. But it’s highly unlikely she can close the remaining vote gap with Castillo.
A Castillo presidency is an outcome no one predicted months ago and has rattled investors and the political establishment alike. Peru’s stock market has turned into a roller coaster that has dipped with the first and second round of presidential elections and Castillo’s economic policy claims. Its currency, the sol, has weakened considerably against the dollar. Former Peruvian presidential candidate and Nobel laureate Mario Vargas Llosa has warned Castillo “represents dictatorship and backwardness.” The question now is: Should they be so rattled? How exactly will Castillo govern?
The panic is overblown. Despite Castillo’s radical rhetoric during the first round of presidential elections and his affiliation with Perú Libre, a political party with a Marxist-Leninist orientation, he has indicated he is prepared to tack much closer to the center while in office.
To be sure, Castillo represents a definitive ideological break from presidents of recent decades. He is an elementary school teacher and regional union leader from the northern department of Cajamarca. The head of his political party is a radical Cuban-trained doctor named Vladimir Cerrón. Castillo flip-flopped on economic issues during the campaign but has, at times, said he would nationalize Peru’s lucrative mining sector and draft a new, more inclusive and progressive constitution.
This is a major departure from recent Peruvian politics. Peru has been a pillar of centrism and fiscal discipline within Latin America since Peruvian President Alberto Fujimori—Keiko Fujimori’s father—adopted neoliberalism in the early 1990s in reforms that became known as “Fuji Shock.” Global financial institutions, international investors, powerful Peruvian business interests, and the Fujimori government forged an alliance that propelled Peru on a path to becoming a middle-income country.
Although this model lifted most boats, there remains an enormous gap between the wealthy and the poor in the country. The pandemic put that gap in high relief: It exposed a weak state, flimsy social safety net, and large informal sector.
Castillo tapped into the simmering discontent of the poor. He hauled in massive waves of votes from outside Peru’s major cities, especially in the center and south of the country and in rural areas. In departments like Cusco and Puno, with large Indigenous populations, he garnered upward of 80 percent of the vote.
This has rattled investors and Peru’s elite, primarily based in the capital of Lima and the northern coast. They fear Castillo may adopt a radical socialist agenda for the country and tear up its current economic model. That includes the state intervening more heavily in private enterprises, especially in the mining sector and broader natural resource extraction, throwing fiscal discipline into the wind and spending heavily on public projects and progressive initiatives, steeply raising taxes, and weakening central bank independence. Vargas Llosa isn’t alone in invoking the bogeymen of Venezuela and Cuba.
But Castillo has signaled he may moderate considerably. He backtracked on nationalizing mining, saying he would only raise taxes on the industry. And he named Pedro Francke, an experienced former World Bank economist, as a key economic advisor. Francke backs fiscal prudence and has mentioned fighting corporate tax avoidance as another way to fill Peru’s coffers for Castillo’s spending priorities, which include increased spending on health and education.
This is a more mainstream agenda focused on a more egalitarian and inclusive society rather than on radical expropriation. And there is a case to be made that in a country as rich as Peru in natural resources and with such extreme inequality, moderate leftism may serve as an antidote to the emergence of more extreme leftism. Just a few decades ago in Peru, for instance, dire poverty fueled the Maoist insurgent group, the Shining Path, which trained one strain of its violence on the more moderate alternative left as a political competitor. Residual elements of the group continue to operate in the country and launched a brutal attack against civilians in a rural area just prior to the election.
One key question is whether Francke obtains a powerful position in the Castillo administration or whether Cerrón’s more radical agenda wins out. Some are already portraying the push and pull of these forces as a horse race whose winner will determine the trajectory of the Castillo administration.
The broader political agenda of Cerrón’s Perú Libre party aims at empowering the marginalized in Peru. Although this is consistent at a high level with Castillo’s stated goals, the party’s professed approach is a rather radical one. The party seeks to give citizens and civic groups greater tools for self-defense, collectively organize the youth, and enhance cultural autonomy and the recognition of Peru’s multiethnic society.
But it is unlikely Castillo will be able to go an entirely radical route. Aside from what seems to be his growing economic pragmatism, any radical agenda is going to hit a brick wall in Peru’s fractionalized Congress. Perú Libre only has 37 seats in the 130-member Congress. Any major reforms are going to require compromise—especially since Congress has the habit of impeaching presidents that rankle it. This gridlock has had a moderating impact in presidential systems—as recent history in Argentina, Brazil, and Peru makes clear.
The radical-turned-moderate president act in Latin America is tried and true. Just a decade ago in Peru, left-wing nationalist and former Peruvian President Ollanta Humala rattled the cages of investors on the campaign trail only to do an about-face in office. He ruled largely as a centrist. Brazil’s two-term president Luiz Inácio Lula da Silva initially spooked investors when he captured the presidency in 2002 as an outsider and union organizer, he but presided over an economic boom in the country. And in Bolivia, despite former Bolivian President Evo Morales’ radical nationalist rhetoric, the country’s economy and fiscal prudence ruled the day.
The biggest political risk is, facing truculent opposition to his agenda, Castillo will force a referendum on a new constitution that could open the door to empowering a broader political project. Executive aggrandizement in Venezuela, Ecuador, and Bolivia through new constitutions should be viewed as cautionary tales. Although a new constitution could also forge a much-needed egalitarian and inclusive social contract in the country, the possibility that one would get hijacked by radicals is no doubt on the minds of skittish investors.
