How the Panama Papers Could Shake Up the Peruvian Election

Originally published at CEPR’s The Americas Blog.

From Iceland’s Prime Minister Sigmundur Davíð Gunnlaugsson to FIFA ethics lawyer Juan Pedro Damiani, the Panama Papers have already claimed their first few casualties despite having only been public knowledge for five days. In Peru, the revelations add yet another twist to an already tumultuous presidential election scheduled for this Sunday that has seen two candidates disqualified from running. Four of the remaining candidates now find themselves implicated in the same global financial scandal, including frontrunner Keiko Fujimori and her rival Pedro Pablo Kuczynski, who is tied with Verónika Mendoza for second place.

The Peruvian elections were first thrown into turmoil on March 4, a month before the leak, when the country’s electoral board disqualified both Julio Guzmán and César Acuña from the elections. Guzmán, an economist from the liberal party Todos por el Perú (All for Peru), had been regarded as Fujimori’s main challenger at the time, polling between 16 and 18 percent compared to Fujimori’s roughly 30 percent. Acuña, on the other hand, was a marginal candidate with single-digit support. The electoral board voted to exclude Guzmán on a technicality, as his party had completed their paperwork incorrectly, as well as Acuña for illegally purchasing support. But the board then courted more controversy three weeks later, when it allowed Fujimori to continue running despite similar accusations of vote-buying against her.

With Guzmán out of the running, the race for second place is now a dead heat between former Prime Minister Kuczynski and left-wing lawmaker Mendoza, whose support has surged dramatically in recent weeks partly by picking up vast numbers of undecided voters, who still make up an estimated 40 percent of the electorate. Kuczynski is widely supported by the elites, with an agenda focused on promoting private investment by lowering taxes and cutting bureaucratic red tape, while Mendoza has opposed these policies in favor of increasing public spending to promote growth and to diversify the Peruvian economy away from its dependence on mining and other extractive industries. One of the two candidates is likely to face Fujimori in a runoff election in June.

Recent polls show Fujimori with a slightly greater share of the vote since Guzmán was excluded a month ago, with her support having grown to 37 percent. But in a highly polarized election, she also faces immense public opposition for the same reason that her support stands strong: her father’s legacy. Jailed ex-president Alberto Fujimori dissolved Congress to grant himself unlimited powers in a “self-coup” in 1992, unleashed military death squads that massacred civilians on the pretext of anti-terrorism, and was eventually removed from office following a major corruption scandal in 2000. He was handed a 25-year prison sentence in 2009 for multiple human rights abuses, bribery and several other charges. Keiko served as first lady under her father from 1994 until his ousting in 2000 and, despite pledging to avoid his autocratic tendencies, remains openly loyal to his political legacy.

Little surprise, then, that some 30,000 demonstrators took to the streets of Lima on Tuesday to commemorate the 24th anniversary of the elder Fujimori’s self-coup and to march against his daughter’s candidacy. The electoral board’s incongruous decision to exclude Guzmán and Acuña but to keep Fujimori has not helped her association with her father’s corrupt and anti-democratic practices – especially given that there was as much evidence against her as there had been against Acuña.

The Panama Papers have dealt the latest potential blow to Fujimori’s campaign efforts. Although Fujimori herself has not been named in the papers, the appearance of two of her major campaign contributors in the leaked documents has called the legitimacy of her campaign funding into question. Sil Yok Lee, a major Peruvian financier of Fujimori’s Fuerza Popular (Popular Force) party, has been revealed as the representative of two offshore entities in the British Virgin Islands, appointed through Mossack Fonseca by another shell company based in Niue in the South Pacific.

The leaks also implicate Jorge Javier Yoshiyama Sasaki, the nephew of Jaime Yoshiyama Tanaka, who served as a minister under the elder Fujimori. Together with his wife Joon Lim Lee Park, Yoshiyama contributed $111,000 to Keiko Fujimori’s 2011 and 2016 campaigns. According to the documents from Mossack Fonseca, a shell company in Seychelles had appointed him in 2010 as the legal representative of another entity based in the British Virgin Islands but with operations in Peru. Mossack Fonseca granted the Seychellois company, and hence Yoshiyama himself, near total control over operations in Peru.

But whether the Panama Papers will ultimately hurt Fujimori more than her opponents remains to be seen, particularly as Kuczynski is also not only implicated but appears in the leaks in his own name. Among the leaked documents is a letter of recommendation written by Kuczynski in 2006, when he served as Prime Minister, on behalf of Francisco Pardo Mesones, a former director of the Peruvian central bank. Pardo used the letter to open bank accounts in Panama for an offshore firm that served as an intermediary on behalf of a private German firm. The arrangement, worth some 60 million euros in contracts, was designed to obscure the fact that Pardo’s German client was producing passports for the Cuban and Venezuelan governments, which it feared would negatively affect its reputation.

Both Fujimori and Kuczynski have downplayed the leaks. Fujimori has declined to comment, while Kuczynski has distanced himself from Pardo, arguing that he was unaware that his letter of recommendation would be used for commercial purposes, before making another press statement questioning the authenticity of the leaked letter. But after the controversy around the electoral board’s dubious rulings, the Panama Papers only serve to reinforce a growing public perception of the leading candidates as dishonest and corrupt and of the Peruvian elections as heavily rigged. With nearly half the electorate still undecided and a runoff vote almost guaranteed, the revelations could yet prove decisive in determining who Fujimori faces in June and, by extension, whether either Kuczynski or Mendoza can beat her to the presidency.

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