Since Alejandro Toledo failed to win the absolute majority in the 8 April presidential elections he will face a runoff against former President Alan García, who was at the helm during the catastrophic economic period of 1985-1990.  Whoever wins the presidency will have to quickly enact confidence-building measures to halt the slide of the Peruvian economy. 

Toledo and García in runoff elections.  Alejandro Toledo from Possible Peru (PP, Perú Posible) finished first in the presidential election on 8 April but fell short of a majority and will face a runoff against former President (1985-1990) Alan García in a second round vote in late May or early June.  According to preliminary results with 57.4% of the vote counted, Alejandro Toledo garnered 36.3% of the vote, trailed by García, the candidate of the American Popular Revolutionary Alliance (APRA) party, with 26.2%.  Lourdes Flores, the presidential candidate for the National Unity party (UN, Unidad Nacional) came in third with 23.7%.  The candidate for the Independent Moralising Front (FIM, Frente Independiente Moralizador), Fernando Olivera, obtained 10.5% of the vote.  The remaining 3.3% went to four other candidates.  Independent election monitors described the elections as fair and clean and, in contrast to last year’s elections, independent vote tallies are broadly in line with the official election results reported by the National Electoral Office (ONPE, Oficina Nacional de Procesos Electorales).  Toledo's party also emerged as the leading force in the elections for the 120-seat Congress, with 43 seats, according to pollster Apoyo Opinion y Mercado.  García's APRA gained 28 seats, Flores' UN coalition 14 and FIM 13.  Other parties won 22 seats.

Sell-off in Peruvian assets ahead.  If the presidential count stands, markets are likely to react unfavourably to the election results since the political resurgence of García comes as an ugly surprise.  Lourdes Flores, the preferred candidate by the business community and international investors, had maintained a diminishing but firm second position in election polls during the campaign.  The prospects of García as new President are indeed worrying.  García's first stint in office represented the worst of Latin American populism and was marked by raging rebel violence and economic chaos.  In 1990, when García left office, Peru was at the brink of economic collapse faced with a debt crisis, food shortages, inflation above 7,500% and a fiscal deficit close to 10% of GDP.  While Toledo's 11-percentage point lead should keep investors from panicking, most analysts predict a weakening of the currency, a drop in the stock and bond markets as well as capital flight.

Toledo well poised to win presidency.  Although Peru is notorious for sudden shifts in voter preferences, Toledo’s chances of maintaining his lead and winning the presidency are good.  García claims that he has learned from his mistakes, most of which he dismisses as ``youthful exuberance”.  He was only 35 when he first came to office.  Indeed, García no longer talks about not paying foreign debt as he did in the 1980s.  But even though his rhetoric has toned down, his speeches are littered with radical forays.  His campaign speeches included calls for the government to encourage banks to reduce interest rates, cut electricity and telephone rates and create a state-run bank for agriculture.  While Toledo’s campaign also contained populist elements, he believes in a market-driven economy, restricted government involvement and the need for foreign investment.  Therefore, people that voted for Flores are more likely to support Toledo in a second round election despite the mud-slinging that occurred between the two candidates during the campaign.

Economy awaits new government to inspire confidence.  The new government‘s main task will be to restore investor confidence in the Peruvian economy, which is currently headed for a nosedive.  In February, the Peruvian economy continued to deteriorate with GDP contracting 2.5% over the same month last year after, following the 1.6% contraction registered in January.  The construction industry again took the brunt of the slump, declining a staggering 18.3% over February 2000.  The fiscal cutbacks implemented by the interim Paniagua administration and the deferral of private sector investment until after the elections have halted virtually all construction activity – progress in construction works has dropped 99.3% over February 2000, according to the National Statistical Institute (INEI).

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