Peru's new leader faces huge challenges

Alan Garcia, who won Peru's presidency at the weekend, pledges to do what few Latin American leaders have achieved: seduce Wall Street with prudent policies and simultaneously lift millions out of poverty.

In a sign of the optimism surrounding ex-President Garcia, who aims to atone for the dire record of his 1980s term, stocks in Lima surged three per cent yesterday, thrilled by his pledges of strong economic growth and a low budget deficit. Peru's foreign bonds also climbed.

Hundreds of thousands of people danced in the streets on Sunday night shouting: "He's going to give us a better life," ecstatic at the prospect of Mr Garcia's promises of loans, schools, drinking water and cheap gasoline.

But making good on ambitious promises of seven per cent annual economic growth, a fiscal deficit of one per cent of gross domestic product and cutting both illiteracy rates and soaring domestic fuel prices could be too much for Mr Garcia.

"The country is a time bomb," wrote Augusto Alvarez, editor of respected daily Peru.21, in an editorial. "The benefits of (economic) progress don't reach the half of Peruvians who live in poverty, many of them in the southern Andes and who did not vote for Mr Garcia."

Mr Garcia's left-of-centre American Popular Revolutionary Alliance will have a minority share of Peru's fractured Congress, outweighed by the nationalist movement of ex-army commander Ollanta Humala, whom Garcia beat with 55 per cent of the votes to 45 per cent with 84 per cent of votes counted.

Humala vows to be a fierce opposition leader and garners huge support from rural areas where he won 70 per cent of the vote in some southern provinces, underscoring Peru's polarisation between the impoverished Andes and a coastal society that is home to foreign-owned megamarkets, banks and beauty salons.