Often perceived as a soap opera-like melodrama in which sex, drugs and bribery scandals have corroded the government, the Peruvian political landscape may be taking a turn with the recent election of Alejandro Toledo, sources said.

As to how this may affect the local financial markets - and more specifically the budding structured finance realm - some observers predict a quicker pace of development, while others say it is too early to tell.

On the heels of Alberto Fujimori's decision to flee the country as a result of the tumultuous scandals, investors were disgusted when Alan Garcia squirmed his way back into Peru with ease, winning the second place spot for the presidential election (see ASR 4/23/01 p.18). Garcia, formerly the president of Peru in the 80s, is said to have destroyed Peru's economy. Investors are now breathing a sigh of relief with Garcia's recent defeat.

Dr. Valentin Paniagua was left to clean up Fujimori's mess and it seems as though he may be a tough act to follow. He cleaned out and demoted many officials linked with former spy chief, Vladimiro Montestinos, and implemented new policies. "If the Toledo government continues [Paniagua's] policies and deepens them, it will be good for Peru," said Roger Scher, sovereign analyst at Fitch.

In addition to improved economic policies, the country is in need of improved fiscal policies. Last year the deficit slipped to 3% and this year, the target is 1.5%. And, uncertainty remains an issue. "[Toledo and his team] haven't announced clearly what the policies are," Scher said.

Additionally, Garcia supporters fill one-fifth of the seats in Congress, although Toledo may try to pursue prudent policies that would improve creditworthiness; he will have to present them to Congress, and it is not yet clear how easy that will be for him.

On the upside, "They do have a good team in place," Scher said. "The guy slated for finance minister, who is one of Toledo's leading economic advisors, looks like he can inspire confidence from investors."

As a result of the uncertainty, many market participants agree that it is a wait-and-see process. The many problems have left a bad taste and a rather whimsical market view in the eyes of foreign investors.

Foreign direct investment has been somewhat stalled in light of the recent events; however, if Toledo and his team are able to restore confidence in the economy and the political process, sources say there may just be an open market for future-flow and existing asset-backed type transactions.

"There's also potential for multilateral or partial credit guarantee-type transactions," Scher said.

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