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UPDATE 1-In surprise development, angry Peruvians propel socialist in presidential race

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Marco Aquino
·2 min read
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(Adds graphic)

By Marco Aquino

LIMA, April 12 (Reuters) - Peru's presidential election took a surprise turn when a socialist candidate who had slipped under the radar prior to polling day took the lead in the first-round ballot as angry voters looked for change.

Pedro Castillo, a 51-year-old union leader and primary school teacher, was on course to take first spot after Sunday's voting, which would see him face off against a conservative or liberal rival in a second-round head-to-head in June.

Castillo, whose Free Peru party terms itself "socialist left", has emerged from relative obscurity. In pre-election polls just a month ago he had been trending at under 4% of the vote - outside the leading six runners most had focused on.

In the past four weeks his rise had been rapid, with exit polls showing support for his policies, which include rewriting Peru's constitution, strong in poor areas of the country hit hard by the coronavirus pandemic.

The surprise could give investors a jolt in the South American country, which while long politically turbulent has been one of the more steadfast and reliable markets in the region, attracting inflows into its bonds and sol currency.

"Investors may be alarmed by the outcome of Peru's election," said Nikhil Sanghani, Latin America Economist at Capital Economics in a report after the vote.

The result underscored the political discontent in the country, he said.

"This outcome is a surprise and may put Peruvian financial markets on the backfoot...For now, one clear trend is the deep fragmentation in Peruvian politics," he added.

Amid a crowded pack of candidates, Castillo had tapped into public anger which has been fired up in Peru over the last year. A fast count of the vote suggested he could face conservative Keiko Fujimori in a second round.

The economy crashed its hardest in three decades in 2020 as the pandemic hammered Peru, a major copper producer. Tough lockdowns failed to stem the spread of COVID-19, with Peru one of the hardest hit in the world per capita.

Meanwhile, politicians have come under fire. President Martin Vizcarra, who had been popular, was impeached by Congress last year over allegations of corruption. His successor resigned shortly after following deadly street protests, when many called for an overhaul of the political class.

"Voters want change and many do not feel represented and reject the traditional political structures," Goldman Sachs said ahead of Sunday's vote.

Alejandro Arevalo, emerging market debt manager at Jupiter Asset Management, said investors were used to political volatility in Peru after years of turmoil but some of Castillo's policies were "pretty scary" for the market.

"He's talking about nationalization, about the government taking control of the economy...so it's something that could bring significant volatility to the market."

(Reporting by Marco Aquino in Lima and Tom Arnold in London, Writing by Adam Jourdan, Editing by Angus MacSwan)