The regional ambitions of Venezuelan president Hugo Chavez appear to have suffered a setback in Peru with the defeat of a presidential candidate backed by the leftist Venezuelan leader. Still, the past record of election winner Alan Garcia is cause for concern for Peru's economic partners like the United States and China. 

Alan Garcia

Peruvian president-elect Alan Garcia says his election is a clear defeat for President Hugo Chavez of Venezuela who had openly backed Mr. Garcia's opponent. “The majority of the country has defeated the efforts by Hugo Chavez to integrate us into his militaristic and backwards expansionist project he intends to impose over South America," Garcia said.

Garcia's rival, Ollanta Humala, called for a social revolution and campaigned against what he considered to be the exploitation of Peru by free market policies. 

Humala was supported by Chavez who openly backed a presidential election victory by Evo Morales in neighboring Bolivia last December. Appearing in Bolivia with Morales recently, the Venezuelan leader disparaged Alan Garcia and promised economic support for Peru if Ollanta Humala won the election. 

Michael Shifter (file photo)

By doing this he may have overreached according to Michael Shifter of the private Inter-American Dialogue organization in Washington, DC.  "Peruvians don't like people meddling in their politics, and they don't like it whether it is Venezuelans, or Americans or anybody else," he said.

Chavez has steered his country leftward since taking office in 1999. He has used its vast oil wealth to expand his influence while denouncing the United States.  Peru's election results may signal the beginning of a Latin American backlash against the Venezuelan leader

"What we're seeing now is that he has reached his limit, perhaps.  I think there is a reaction in the rest of Latin America,” Shifter said. “Clearly he's a leader with a lot of resources, and governments want his resources, but they are not prepared to defer leadership to him."

Garcia's populist policies as president from 1985 to 1990 led to economic stagnation and runaway inflation.

That is why countries with trade and investment in Peru, such as the United States and China, are expected to watch Garcia closely to see if he goes back on his campaign promises not to make the same mistakes again.

Peru's vast tropical forests, its booming mining industry and rich fisheries have attracted trade and investment from China. Beijing is increasingly looking to Latin America for raw materials to fuel its manufacturing industries. Last year, China imported $50 billion worth of commodities from Latin America, a six-fold increase since 1999.

In his presidential campaign, Garcia, a moderate leftist, promised to preserve Peru's free trade economy. Michael Shifter believes the incoming president will not follow Bolivia's example of nationalizating industries. "I think Garcia has given all the signals that he is not going to make significant changes in the current investment environment in Peru,” Shifter said. “There may be some re-negotiations on the edges, but he has made it clear that what has happened in other countries, like Bolivia, is not a model that he wants to follow."

Peru's rampant poverty and underdevelopment will pose a challenge to Garcia as he tries to respond to the country's social demands while maintaining fiscal responsibility.