LIMA: Peruvian President Alan Garcia is scrambling to limit the fallout from an economic downturn that could spoil the rest of his term and cloud campaigning for the next election in 2011.

When he was elected in 2006, 15 years after he fled the country as a pariah for sowing chaos in his first term, Garcia vowed to restore his legacy by managing the economy prudently and fighting poverty.

A former socialist who has moved right as he aged, he said a deeper commitment to free markets would create millions of new jobs in Peru.

For two years, his plan largely worked. Helped by lofty prices for mineral exports, a domestic credit boom, and reforms carried out by Garcia’s predecessors, Alejandro Toledo and Alberto Fujimori, Peru’s economy surged nine per cent a year – one of the fastest rates in the world.Poverty tumbled five percentage points to 39 per cent in 2007, and it looked like Garcia might just fulfil his promise of cutting poverty to 30 per cent by the end of his term. But Garcia’s approval ratings are already low and now Peru’s seven-year-old boom is starting to fizzle.

Once soaring mining exports are plummeting and a rickety bureaucracy is struggling to implement an ambitious $13 billion stimulus plan to keep the economy ticking this year.

“Garcia has suffered a setback because of the crisis. Nobody thought that this was going to happen, and nobody knows when it will end,” said Ernesto Velit, a political scientist at Ricardo Palma University in Lima.

“What he needs to do is regain prestige by designing a sufficiently effective plan, but it’s flawed,” he said.

Although the stimulus package includes anti-poverty spending, critics say it will rely too heavily on provincial governments with little administrative capacity, and that it will be weakened by corruption.

As the pace of economic growth drops in half this year to about five per cent, as many economists expect, Garcia’s popularity rating may sink from where it hovers now, at around 20 per cent.

Last year, it was dragged down by moderate inflation and a corruption scandal that claimed several ministers.

Job losses are mounting and strikes loom. Already, 5,500 workers in the mining sector, the traditional engine of Peru’s economy, have been laid off since December, unions say.

A chance for the left?

If growth sputters and Garcia fails to cut poverty levels further, a leftist candidate could mount a strong campaign at the next presidential election.

Garcia cannot run in 2011 but at the moment, the left is weak. Prime Minister Yehude Simon, a leftist who was once jailed on terrorism charges, has raised his profile since taking the job in October, though he belongs to the tiny Humanist Party, which lacks campaign funds.

Investors have long feared that Ollanta Humala, an ultranationalist, could tap into frustration among the poor in 2011, but political analysts say his chances have soured since the last election in 2006, when he nearly won.

The Nationalist Party he leads is out of cash, its representatives in Congress have splintered, and it has failed to expand its support base beyond the poor south.

“Humala will lose again,” said Cesar Hildebrandt, a prominent columnist. “He can’t lead beyond his party because he doesn’t have clear ideas about anything.”

The ruling APRA party has a strong presence across Peru and attracts voters from the centre-left, even though it mostly governs from the right. Besides former Prime Minister Jorge del Castillo, who was tainted by a corruption scandal, it lacks a clear successor for Garcia, who may want to run again in 2016.

Former President Toledo could run again but he left office with approval ratings of 10 per cent and has a feeble party, while Lourdes Flores, a dour conservative, has run and lost twice.

Sensing an opportunity, Toledo’s former prime minister, Pedro Paulo Kuczynski, an influential economist with US citizenship, has let it be known that he may run.

There are signs the business community is already lining up behind him. Caretas, an influential weekly magazine, put him on its cover this week in a photo montage, dressing him like royalty and dubbing him “The Next Wise King.”—Reuters