April 11, 2006

Garcia leads Peru race for second

By Robin Emmott and Kevin Gray

LIMA, Peru (Reuters) - Left-leaning former President Alan
Garcia, whose rule ended in economic ruin, led his pro-business
rival Lourdes Flores on Tuesday in a battle for the second
runoff spot in Peru's presidential election.

With more than 84 percent of Sunday's vote counted,
nationalist former army commander Ollanta Humala was first with
30.9 percent. He appeared poised to advance to a May or early
June runoff since no candidate won a majority.

Garcia, whose 1985-90 presidency was plagued by food
shortages and 7,000-percent inflation, was second with 24.7
percent. Flores, a conservative pro-business lawyer favored by
international investors and bidding to become Peru's first
female leader, trailed in third with 23.6 percent.

"I'm convinced that as the hours go by, the distance
between myself (and Flores) will increase," Garcia said.

Election officials said it could take up to 20 days to
determine the second-place finisher. The runoff must take place
within 30 days after the final official result is announced.

Peruvians could face choosing between two leftists and
align Peru with a regional leftward shift that has seen leaders
take power challenging Washington on trade and diplomatic

"What's Peru coming to when we've got to choose between two
crazy leftists for president?" asked hairdresser Daniella
Arroyo, who like many middle-class Peruvians was disheartened
with the results.

Pre-election polls showed Humala, 43, would face a tight
runoff against Garcia and was likely to lose against Flores.

Officials worked to tally votes for a third day as ballots
were collected from remote areas and Peruvians living abroad.

"Garcia is very confident and he has every right to be,"
said Ernesto Velit, a political science professor at San Marcos
University in Lima. "There are still votes to be counted from
the rural communities, and those are not votes for Flores."


But Flores, 46, looking tired, said she hoped a strong
showing among expatriate voters, mainly Peruvians living in the
United States, would lift her into the second round.

"I'm very optimistic. Peru needs a democrat," she said.

Garcia, 56, has recast himself as a moderate who says he
has dropped his fiery anti-imperialist rhetoric that made him
one of Latin America's most flamboyant leaders in the 1980s.

But a Garcia-Humala runoff has alarmed investors. Both have
promised to rewrite contracts with foreign companies and levy
new taxes on Peru's key mining industry.

On the campaign trail in his stronghold in northern Peru,
Garcia said he would force Spain's Telefonica to renegotiate
its contract to cut telephone prices.

Lima's stock market fell nearly 2 percent in afternoon
trade on Tuesday and the sol currency slipped 1 percent to 3.36
soles a dollar on the election concerns.

Peru's bond spreads, a reflection of country risk, widened
7 basis points over U.S. Treasuries to 196 points on the JP
Morgan Emerging Markets Bond Index Plus (EMBI+). Total returns
fell 0.31 percent.

But investors took comfort in Humala's lower-than-expected
lead, saying it lessened his chances of winning a runoff vote.

"Garcia would have a very strong chance of defeating Humala
in the second round, where he would likely get the vast
majority of Flores's votes," said Franco Uccelli, an analyst at
Bear Stearns. "We believe that Garcia will not mess with
(Peru's) economic model that is apparently working."

A defeat for Flores would be particularly bitter because
she also narrowly lost to Garcia in the race for a runoff place
in the 2001 elections. Then, polls showed Flores set to make it
to a second round behind eventual winner President Alejandro

(Additional reporting by Manuela Badawy in New York)