- Peru's economy has performed well over the last decade, but its political system remains dysfunctional, with individuals rather than institutions dominating politics. - The possibility of First Lady Nadine Heredia running for president in 2016 is a major focus of media attention and controversy, with polls showing most Peruvians opposed to the idea. - Support for President Humala has dropped partly due to perceptions that he aims to perpetuate power for himself and his wife, as well as recent economic slowing, adding to the political intrigue.

1. EXECUTIVE SUMMARY
Peru’s economic performance over the last decade has been
the best in the region, yet the political backdrop continues to
provide investors with some surprises.
• Dominating local media headlines of late is the possibility
that First Lady Nadine Heredia could be a candidate for the
Presidency in 2016
• Due in part to a slowing economy, and perception that the
First Couple wishes to perpetuate itself in power, support
for President Ollanta Humala has slipped
• Meanwhile Humala announced he would not pardon
former President Alberto Fujimori, adding to the intrigue
surrounding the jailed ex-leader of Peru
• Candidates are already trying to position themselves for the
next elections, even though they are three years away
POPULATION: 29.8 million
2012TOTAL GDP:
$200 billion
(global ranking: 49)
GDP PER CAPITA:
$10,719
(based on purchasing power
parity, global ranking: 83)
2012 GDP GROWTH RATE:
6.3%
2012 UNEMPLOYMENT:
5.6%
2012 INFLATION: 2.7%
PEN / USD: 2.78
COUNTRY SNAPSHOT
Peru’s Politics: Always Entertaining – June 2013
TRENDS + VIEWS
JAMESTOWN LATIN AMERICA
Real Estate Private Equity
www.jamestown-latam.com
Contact:
Bret Rosen – Managing Director, Research
+1 212-652-2141
brosen@jamestown-latam.com
Rio de Janeiro • Bogotá • Atlanta • New York

2. Peru’s Politics: Always Entertaining but Economy Should
Stay the Course
Open up the leading newspaper on a Monday morning
in Lima, and one could mistakenly assume that Peru is
a country in the midst of a crisis.The political headlines
could indeed create cause for alarm. The two prior
Presidents are fending off corruption charges. Another
ex-President is trying to secure his release from prison,
where he has been situated for four years due to
widespread corruption in his government and grave
human rights violations. The current President is the
targetofvariouscriticismsfromthebusinesscommunity,
as he is accused of perhaps moving in the direction of
more state intervention in the economy. Meanwhile, the
First Lady is expected by many to run for President in
2016, even though currently the Constitution (according
to most observers) prevents this from occurring. Many
Peruvians are wary that the President and First Lady
may want to arrange a political dynasty in the country
not unlike the alternation of power that has occurred
with the Kirchners in Argentina. Is this the same country
that has been Latin America’s economic star over the
last decade? Is this the same Peru whose economy is
growing over 6 percent, whose poverty rate has halved
in the last decade, whose levels of investment have
reached record highs?
Indeed the political backdrop in Peru has always
been described as somewhat dysfunctional. This may
seem to be inconsistent with the excellent economic
performance over the last decade and indeed the
local economy seems to grow in spite of its political
backdrop. Unfortunately political institutions have not
matured in the same way that the economy has and
Congress is regularly criticized for its malfunctions. In
fact, a recent poll from Peruvian research firm CPI shows
that approval for Congress’ performance stands at 17
percent.1
Meanwhile, political parties are weak if not
non-existent. The major political actors are constantly
positioning themselves for the next election rather than
focusing on developing parties, political frameworks
for governing and so on. Indeed, the Peruvian political
system revolves around individuals – not institutions –
which creates an inherent weakness to the system.
Some of this dysfunction is to be expected of a
country whose history of democracy is quite short.
Civilian government was only restored in 1979, and
the government of Alberto Fujimori, from 1990-
2000, did little to
advance democratic
institutions. Indeed,
in 2000 Fujimori
resigned from office,
shortly after winning
a third term in office;
he faxed in his
resignation from his self-imposed exile in Japan, to
avoid bribery charges that surrounded his reelection.
One can thus argue that Peru has truly advanced in a
democratic fashion only since 2001, when Alejandro
Toledo was elected to the Presidency. Consequently, it
may take years for Peru’s democracy to ‘catch-up’ with
its other Latin American peers, such as Chile, in terms of
development of political parties, formation of a deeper
political class, and greater transparency in general
within the political system.
Nonetheless, the key point on which to focus is that
while politics will make headlines, real estate investors
should understand that there is little risk of a move away
from market friendly economic policies. The current
administration of President Ollanta Humala assumed
office in 2011, under much concern that he would
advance a more radical, leftist economic plan. Indeed,
Peru’s Politics: Always Entertaining – June 2013
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1 CPI, “Ultima encuesta de opinion publica a nivel Peru urbano.” May 2013.
PAGE 2TRENDS + VIEWS JUNE 17, 2013
Despite the best
growth in the region
in recent years,
political institutions
have yet to mature

3. the first day after Humala edged out Keiko Fujimori in
the second round of the 2011 elections, thus securing the
Presidency, the local stock index collapsed, falling over
12 percent as investors feared that Humala could move
forward with a heterodox agenda.2
While his campaign
advocated relatively pragmatic policies, investors
recalled his earlier pronouncements in this campaign
and in the 2006 contest, when he tended to veer toward
a more socialist-leaning speech. Yet, President Humala
has surprised many investors with an approach that
has been more orthodox than expected. He appointed
responsible technocrats to head the Ministry of
Economy and the Central Bank. Fiscal policy remains
relatively disciplined and in fact the country posted a
2 percent/GDP surplus
last year. Social
programs have been
increased but not in a
fiscally irresponsible
fashion. The Central
Bank remains
independent. State intervention in the economy is less
than in many other emerging markets. As a result, after
an initial hiccup, once Humala assumed office, business
confidence recovered, investment spending rebounded,
and the economy has continued to post the best growth
rates in the region.
In our view there is a consensus among most of the
major political actors in favor of policies that encourage
investment, economic growth, free flow of capital
and free trade. Humala realized that to successfully
govern, he could not move in the direction of the
“Gran Transformacion (the Great Transformation)” that
many had feared.3
To implement the social reforms his
administration sought requires tax revenues to increase,
which can only occur with economic growth and an
acceptable investment climate. More radical solutions
are still advocated by some, but such candidates tend
to fail to attract a national consensus and even Humala
was a viable candidate for office only when he seemed
to move more in the direction of a Lula rather than a
Hugo Chavez.
The Main Topics In Peruvian Politics: Already an Eye on
2016 Elections
Politics will indeed continue to make headlines, and
can illicit volatility in financial markets. Investor and
business confidence, in the short-term, can still be
impacted by political developments. There are several
swirling issues at the moment, which dominated our
discussions with analysts in our most recent visit to
the country.The main topic on everyone’s mind in Lima
currently is the possibility of the ‘reeleccion conyugal,’
which refers to the possibility that First Lady Nadine
Heredia may seek election for the Presidency in 2016.4
This would require a Constitutional reform (though some
dispute this notion), but with Humala’s popularity in the
40-50 percent range, considered high for a Peruvian
President, and Heredia’s even higher, many observers
believe there is a grand plan to allow the First Lady to
gain eligibility for the 2016 vote.5
For Nadine Heredia to
be eligible to run for the presidential office in 2016, most
observers suggest that some combination of Congress,
the electoral board and a Constitutional Court will have
to amend the Constitution.There is some disagreement
regarding this topic, as the head of Peru’s National
Elections Board recently stated that the Constitution
does not bar Heredia from running.6
The prohibition
PAGE 3TRENDS + VIEWS JUNE 17, 2013
2 Bloomberg.
3 The GranTransformacion refers to Humala’s initial communications which suggested that he intended to move Peru away from a market-oriented economy and toward a more redistributive system.
4 Reuters: ”Peru’s dynamic First Lady has presidential aura,” February 20, 2013. http://www.reuters.com/article/2013/02/20/us-peru-heredia-idUSBRE91J19J20130220
5 After 21 months in office, Humala’s popularity according to CPI’s nationwide survey stands at 49 percent. At similar points during their terms, prior Presidents AlejandroToledo and Alan Garcia had support levels
of 16 and 32 percent respectively. In fact at one point duringToledo’s term, Peru’s GDP growth was higher than his popularity rating. Hence, support in the 40-50 percent range for Humala is uncharacteristically
high for a Peruvian President, especially in a backdrop where the population generally has a high level of rejection for politicians.
6 http://www.peruviantimes.com/23/national-elections-board-constitution-doesnt-bar-first-lady-from-running-for-president-in-2016/17532/
President Humala’s
economy policy mix
has been generally a
responsible one
Peru’s Politics: Always Entertaining – June 2013
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4. on the First Lady’s potential candidacy is based on a
law that apparently prevents a family member of the
President from succeeding him in office, but the legal
framework is confusing to some political observers.
The potential candidacy of Nadine Heredia is a very
controversial topic within the country. According to
a poll from local firm Datum, by a margin of 55-39
percent, the population is against her candidacy.7
Many believe it is distracting the administration from
focusing on the economy, reducing poverty and income
inequality, etc. Additionally, Peruvians tend to be wary
of political dynasties, especially after Alberto Fujimori
used constitutionally questionable means to perpetuate
his stay in office. According to the same Datum survey,
69 percent of respondents believe that if Nadine Heredia
is a candidate that it would represent a ‘sensation of
reelection’ for Humala. Six months prior this response
rate stood at 52 percent, which shows an elevated
concern about this topic. Furthermore, 55 percent say the
political aspirations of Nadine Heredia harm Humala’s
image. Clearly, should the Presidential couple advance
with this idea of making Nadine Heredia eligible for the
nation’s highest office, political capital will have to be
spent, and the country will be quite divided on the topic.
Regardless of whether Heredia is a candidate or not,
many political analysts suggest that her role in the
current government has been outsized relative to the
supposed responsibilities of a President’s wife. A recent
poll by Datum reveals that 40 percent of respondents
believe it is her that
‘governs the country,’
versus 32 percent
for Humala, while
24 percent said they
govern jointly. The
aforementioned CPI
survey tabbed her
support at 59 percent,
down from 68
percent in November
2012, with the
population more critical of her perceived role within the
administration. Anecdotally numerous observers refer
to her as involved in important political decisions and
appointments, even though she does not hold elected
office. There have also been accusations that public
funds have been used to further her image, and that the
unofficial campaign has already begun, as Heredia criss-
crosses the country. The same Datum polls shows that
over 2/3 of respondents believe that public resources
are being utilized to further her potential candidacy.
Meanwhile the recent declines in Humala’s popularity
are partially a function of perceptions that he is using
the Presidency to further his wife’s political aspirations.
Datum puts his approval rate at 47 percent, down from
60 percent in April. CPI put his support at 49 percent
(from 54 percent in May), while Ipsos/Apoyo divulged
on June 16 that Humala’s favorability rating is just 41
percent, down 10 percent in two months.8
Some weaker
economic activity in the early part of 2013 certainly
7 Encuesta Nacional de Datum, appears in June 6th edition of Peruvian daily, “Gestion.”
8 http://www.cronicaviva.com.pe/index.php/politica/2-politica/69905--ipsos-apoyo-aprobacion-de-humala-cae-5-puntos-en-junio
PAGE 4TRENDS + VIEWS JUNE 17, 2013
Yes No Don’t Know
0
10
20
30
40
50
60
70
80
CHART 1: WOULD A CANDIDACY OF NADINE HEREDIA
REPRESENT A SENSE OF RE-ELECTION IN PERU? (%)
Source: Datum
December 2012
February 2013
April 2013
June 2013
Peru’s Politics: Always Entertaining – June 2013
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While the next
election is three
years away, the mere
possibility that the
First Lady could
position herself to
run is a major focus
of the national
media

5. contributed to this decline. But in the eyes of many
observers, the perception that the Presidential couple
is working behind the scenes to stain potential political
opponents while also positioning Nadine for a run in
2016 also is hurting his popularity. With the vote still a
full three years away, this talk about succession serves
as fodder for local press but also represents a distraction
both for the government and local investors. Time will
tell if Nadine Heredia can run for office but we wouldn’t
expect any clarity on this issue for at least 18 months,
which will cast a further cloud on the overall backdrop.
The‘reeleccionconyugal’isnottheonlysubjectweighing
on Humala’s Presidency. There is also substantial
dissatisfaction within the private sector about the
direction of his term in office, and these feelings have
been escalating. In particular, businessmen believe that
the government has been particularly clumsy in terms of
promoting large investment and infrastructure projects,
which would theoretically increase the country’s
potential GDP. Firms that are trying to execute large
investments in the country face increased bottlenecks,
ranging from zoning approvals, environmental licenses
and overall bureaucratic inefficiencies that obstruct
projects from advancing. The government hopes to
improve accountability in these areas but time will tell if
it can deliver; this topic is especially crucial in a country
where numerous large capital-intensive investments are
facing delays, in areas such as transportation, energy
and mining.
A number of separate measures and announcements
also strained relations with the private sector, and this
trend came to a head with the government’s supposed
interest in pushing PetroPeru, the state energy company,
to purchase the Spanish energy giant Repsol’s assets
in the country.9
In late April, Humala and others in the
government expressed that the government would
evaluate this possibility, which incited a sharp reaction
from business leaders and a sell-off in the Peruvian sol.
The apparent intentions led to fears that Humala could
be returning to his more socialist roots, and might opt
to pursue a more statist agenda in terms of economic
policy. Business confidence indicators immediately took
a sharp fall but after Humala met with the Repsol CEO,
any potential plans to move forward with the acquisition
of these assets were shelved.10
From the perspective of
many observers, the damage was done: the Humala
administration had once again planted the seed that it
could veer to the left
and given the roots
of his movement,
it takes very little
from this President
to send a shiver
through the minds of
business leaders in
the country. However,
investor confidence
is gradually recovering after this episode, April GDP
was an impressive 7.7 percent year on year, and most
observers agree that the government may have realized
9 FinancialTimes, Beyond Brics. “Beefing up PetroPeru…with Repsol?” April 30, 2013. http://blogs.ft.com/beyond-brics/2013/04/30/beefing-up-petroperu-with-repsol/#axzz2WUJLgWvh
10 Note that in 2012, the Argentine government nationalized Repsol’s assets in that country.The Humala government was not evaluating a hostile seizure of Repsol assets in Peru, in contrast to what occurred last
year in Argentina. By stepping away from a deal involving Repsol, Humala further distanced himself from the economic policies of the more left-leaning governments in the region.
PAGE 5TRENDS + VIEWS JUNE 17, 2013
April May June
30
35
40
45
50
55
60
65
70
CHART 2: PRESIDENT HUMALA’S APPROVAL RATINGS (%)
Source: CPI, Ipsos-Apoyo, Datum. June information from CPI not yet available.
CPI
Ipsos-Apoyo
Datum
Peru’s Politics: Always Entertaining – June 2013
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Business confidence
improving after
fears in April
about a move
toward greater state
involvement in
economy

6. that any signs it could be shifting the policy agenda
will be met with harsh reactions from the so-called
“Lima Consensus,” a group of business leaders, media,
economists and analysts that advocate the benefits of a
more free-market approach.11
The Fujimori Soap Opera
Another hot political topic in the country revolves
around the former President Alberto Fujimori, who
remains locked up in a Lima jail, for corruption and
human rights abuses that occurred during his time in
office. Recently, Humala denied an appeal for a pardon
for the ailing Fujimori, who suffers from mouth cancer
but the Fujimori camp, led by the runner-up in the 2011
Presidential election, and Alberto’s daughter, Keiko
Fujimori, continues to pressure the government to give
in on this subject.12
Indeed, 60 percent of the population
according to the aforementioned CPI poll is supportive
of a pardon for Fujimori and the press maintains an
obsession with this topic, perhaps a reflection of the
impact, both positive and negative that the former
President had on Peru. Fujimori was most responsible
for eradicating inflation in Peru which helped put the
country on the path to economic stability while his
hardline against the Shining Path movement was vital
to ridding the country of an ongoing terrorist campaign.
However he is a polarizing figure, due to the various
crimes that occurred during his government and his
dictatorial tendencies.
Meanwhile, Keiko Fujimori remains a leading political
figure in Peru, and is a likely candidate for the Presidential
office again in 2016. Her campaign clearly advocates
a pardon for her
father and those
that vote for her are
almost unanimously
admirers of
Alberto Fujimori’s
government. Some
observers believe that
if Humala were to eventually release Alberto Fujimori
this could clip the wings of any Keiko candidacy, as her
main reason for seeking the country’s highest office
could perhaps disappear. However other observers
believe that if Alberto Fujimori was freed, he could,
should his health recover, once again become a major
player in Peruvian politics, and hence it would not
benefit Humala to pardon him. Regardless, this topic is
bound to be one that does not disappear any time soon.
The Lineup for 2016
Perhaps Peruvians are obsessed with elections, and
polls, as we are already seeing research firms asking
the population who they would support in the 2016
Presidential campaign, even though Humala is not even
40 percent through his five year term. The other likely
main players are familiar names. Aside from Keiko
Fujimori and potentially Nadine Heredia, ex-Presidents
Alejandro Toledo and Alan Garcia are mentioned as
likely candidates. Both however have seen their images
take a beating in local press, for various corruption
11 http://www.larepublica.pe/columnistas/aproximaciones/el-consenso-de-lima-11-05-2013
12 http://www.bbc.co.uk/news/world-latin-america-22823488
PAGE 6TRENDS + VIEWS JUNE 17, 2013
The fate of former
President Alberto
Fujimori continues
to captivate the
population
ECONOMIC STABILITY 21%
SOCIAL PROGRAMS 19%
FOCUS ON SOCIAL INCLUSION 16%
DOESN’T FULFILL PROMISES 41%
SECURITY ISSUES IN PERU 21%
POOR ADMINISTRATION 14%
TABLE 1: MAIN REASONS FOR APPROVAL OFTHE HUMALA GOVERNMENT…
TABLE 2: AND FOR DISAPPROVAL…
Source: CPI
Source: CPI
Peru’s Politics: Always Entertaining – June 2013
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7. allegations that have come to light. Also hurting
Garcia’s image are press reports stating that in his just
completed administration, from 2006-2011, he pardoned
over 5,000 individuals, hundreds of whom were alleged
drug traffickers. Garcia and his supporters deny the
allegations.13
Toledo’s rejection rate is even higher than
Garcia based on some real estate deals that the former
President supposedly benefited from. But in Peruvian
politics, the leading names tend to have ‘nine lives,’
and many observers believe that Garcia can be very
competitive again in 2016, as he seeks the Presidency
for the third time. Others believe that these stories have
all hit the national media as the government tries to
discredit potential rivals for Nadine Heredia.
Pedro Pablo Kucyznski (PPK) is another important
player. PPK finished third behind Humala and Keiko
Fujimori in the first round of the 2011 election, after
posting an impressive rally in voter support in the
final weeks of the campaign. He could battle it out
for support of the center-right and urban middle class
with Garcia, Toledo and others. Political analysts also
mention the threat of an anti-establishment candidate
perhaps gaining support, especially after the Humala
government has been a disappointment to many in
his political base, the impoverished class primarily in
the rural areas who expected greater benefits from his
administration. Gregorio Santos, regional president of
Cajamarca province, and an active leader of protests
against large mining projects in his area, is mentioned
as one potential candidate.14
Very preliminary polls, according to CPI, showed that
Keiko Fujimori leads in intentions to vote, with 26
percent, followed by Nadine Heredia at 21 percent and
PPK with 14 percent. If Heredia is removed from the list,
Keiko Fujimori tops the list with 32 percent. However
we would refrain from
viewingKeikoFujimori
as a front-runner
as the Fujimoristas
have a hard core
support based of
25-30 percent but a
very high rejection
rating that likely prevents her from soaring much higher
in the polls. More relevant figures are the approval
ratings of the leading names, as published by the
previously cited Datum poll, which shows that Heredia
has a higher approval rating than any major politician
in Peru. AlejandroToledo has an approval rating of just
19 percent, versus 74 percent disapproval, respectively,
with Keiko Fujimori at 38-52%, Alan Garcia 23-68% and
PPK 32-45%. In our view, if the elections were to be
held tomorrow, Heredia would have to be considered
a favorite against any of the aforementioned, especially
as she would be the sole candidate to occupy the left-
center segment of the spectrum.
Concluding thoughts
Peruvian politics never fail to entertain, but the economy
seems to advance nonetheless. Going forward the
13 http://www.insightcrime.org/news-briefs/ex-peru-president-pardoned-400-drug-traffickers
14 Santos and his supporters were able to halt further advances at Minas Conga, the largest foreign direct investment project in the history of Peru. They focused on the environmental impact to the rural
communities in the area of where the mine is supposed to be developed.
PAGE 7TRENDS + VIEWS JUNE 17, 2013
Nadine
Heredia
0
5
10
15
20
25
30
Keiko
Fujimori
Pedro Pablo
Kuczynski
Lourdes
Flores
Alejandro
Toledo
Alan
Garcia
CHART 3: INITIAL INTENTIONSTO VOTE FOR PRESIDENTIAL ELECTION (%)
Source: CPI
Voting Intentions
Peru’s Politics: Always Entertaining – June 2013
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At this early stage,
Keiko Fujimori and
Nadine Heredia
lead in voting
intentions

8. Humala government faces many challenges, though
of late, it appears to be ‘saying the right things.’
Specifically, the administration must strike the proper
balance between large natural resources projects,
especially related to mining, and their impacts on
local communities. While a host of large copper and
gold mines are moving forward with their capital
expenditures, others have been halted, due to protests
from primarily indigenous communities. These groups
fear the environmental impact of these investments,
but perhaps more importantly feel they are not sharing
in the wealth generated from large-scale mines. The
government has at times treaded awkwardly on this
subject. Efficiency of public investment must improve.
Business confidence after the events of the last
couple months will hopefully rise again. Perceptions
of dysfunction within the administration should be
reversed. Many analysts expect to see Cabinet changes
in the months ahead.
The Datum poll revealed a number of interesting
statistics about public perceptions of Humala. Only 5
percent of those questioned believe that the business
community has ‘total confidence’ in the President. 58
percent of respondents do not believe the President
when he stated that he is in favor of private investment.
Clearly there remain important doubts in the eyes of
some about Humala’s stance vis-à-vis market economics,
even after two years in office, and the Repsol episode
did little to help these perceptions.Yet, when one looks
at the economic performance of Peru: growth of over 6
percent per year, inflation of 2.5 percent, a fiscal surplus,
an independent central bank and record inflows of
foreign direct investment, it is hard to argue that this
government is looking to undermine the private sector,
words that should comfort institutional real estate
investors in the country.
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Peru’s Politics: Always Entertaining – June 2013
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