Peru paralysed

Lima’s political crisis worsens amid rioting and attacks on police.

Peru, under the leadership – a word we use loosely – of president Pedro Castillo (“Castillo”) has become de facto ungovernable. Legislative gridlock, cabinet reshuffles and two impeachment proceedings, both defeated, has produced a climate of unpredictability and in recent days, violence. Fuel price hikes have not gone down well with Peruvians – looting in the capital and elsewhere led to police clashes which at time of writing has resulted in at least five fatalities. 

A political analyst based in Peru said, “Castillo’s days are numbered for the simple reason that the administration cannot continue to absorb such extreme instability on a day-to-day basis. Members of the ruling Peru Libre party and allies are jumping ship. Even middle-class liberals who were originally supportive of him are now turning against the administration and are becoming increasingly vocal in their calls for him to leave office.” 

“Castillo’s days are numbered for the simple reason that the administration cannot continue to absorb such extreme instability on a day-to-day basis.”

A political analyst, Peru

If Castillo does leave the presidential palace, voluntarily or not, his most obvious successor would be Dina Boluarte (“Boluarte”), the current vice president. More competent than Castillo, still she has been criticised for ideological dogma and policy flip-flopping. Boluarte could call for elections soon and now might be an opportune time given that municipal elections are scheduled for October. Maricarmen Alva, the current president of congress, is another potential candidate to watch. 

An economic analyst based in Lima said, “What we are experiencing is simply the last days of Castillo. The kinds of violent protests and resulting curfews that we have seen recently in Huancayo are rare in Peru – they reflect real anger particularly among Castillo’s traditional support base. Leftists in government peddle a narrative which is not reflected by the reality of higher prices and soaring unemployment. It is likely that things will continue to escalate until congress is forced to act, whether Boluarte succeeds Castillo or not.”

“It is likely that things will continue to escalate until congress is forced to act, whether Boluarte succeeds Castillo or not.”

An economic analyst, Peru

Our sources speak of an administration which has turned the government into an office for handing out gifts, perks and business advantages. It has become a culture of patronage at a time when record numbers of Peruvians are struggling to make ends meet in the informal economy. Education in particular has been poorly handled, ironic given Castillo’s background as a teacher. Superintendencia Nacional de Educación Superior Universitaria has recently renewed teaching rights to business universities without proper licenses. 

“There is no Minister of Health (“MINSA”), vaccinations are in a tailspin, there are no certificates, there is no DNI [National ID Card], there are no passports, there is no minimum administration of anything nowhere. There is no employment, there is no wage growth, there is capital flight, there are no quality services state minimum,” exclaims the political analyst.  

“Castillo has been lucky,” the analyst continued, “… the prices of raw materials that Peru exports are through the roof and that has given him a fiscal slack that neither he nor his people had foreseen nor for which they are responsible, but he has allowed them to waste resources without too serious or notorious short-term consequences. Of course, that does not last long.” 

Unsurprisingly, Peru’s investment environment remains a risky bet. A former banking executive explained, “Political unpredictability is exacerbating regulatory uncertainty. New outsourcing laws, whilst playing to his political constituent base, will worry business. Having to insource core activities in certain industries is seen as a major drawback for current and new projects, especially for mining, oil & gas and construction. The threat of changes in the constitution, although still not a likely scenario, is also a major concern for long term investment. Mining, agribusiness, energy and infrastructure are the sectors that will suffer the most.” 

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