Macchu Picchu Peru

Peru Politics December 2020

Peru: Country engulfed by political chaos following surprise impeachment of President Vizcarra

On 9 November, Peru was plunged into political chaos following the removal of President Martín Vizcarra from office after Congress unexpectedly and overwhelmingly voted to impeach him. Manuel Merino, the head of Congress, was then sworn in on 10 November as the new president. The move was seen by many as a further indication of a Congress acting to protect itself against corruption investigations—around half of its 130 members are facing criminal investigations ranging from graft to homicide and are protected by prosecutorial immunity granted to lawmakers—and was met with widespread protests by a population that has for years become numbed to the country’s infamously erratic politics. Then, on 15 November following the death of two protesters during clashes with an increasingly heavy-handed police force, Merino himself resigned less than a week into his new administration. Capping a bruising week of upheaval, centrist Francisco Sagasti was approved as the new head of Congress on 17 November, paving the way for him to become the country’s third president in the space of only seven days. All told, the political turbulence has the potential to disrupt an economy that thus far has continued to recover in recent months from the pandemic-provoked downturn recorded in Q2.

Sagasti’s appointment was met with approval from protestors, given that he was one of only 19 members of Congress who voted against the removal of Martín Vizcarra on 9 November. As president, he will be tasked with calming domestic tensions ahead of April 2021’s general elections and managing the continued fight against the Covid-19 pandemic, with Peru having suffered one of the longest and most damaging outbreaks in the region. Moreover, he will need to allay the fears of international investors who have once again been reminded of the capricious nature of Peruvian political machinations.

Going forward, the economy is projected to rebound strongly in 2021 from this year’s sharp pandemic-induced contraction. However, the impact of this most recent eruption of political unrest could well inhibit the recovery somewhat, as uncertainty remains high in the run-up to April’s elections. Moreover, the recently approved expansionary budget for 2021 will put further pressure on public finances, amid a spiking fiscal deficit following unprecedented government spending initiatives this year to counter the harsh economic effects of the pandemic.

Regarding the outlook, the macro research team at Credicorp Capital see a strong recovery in 2021, commenting:

“After the strongest period of political uncertainty in 20 years, Peru’s scenario has improved. On the external front, the price of copper has reached a 7-year peak, and capital flows to emerging markets have recovered. On the local front, street protests have eased, and the rebound of economic activity is faster than initially expected […]. In this context, it is likely that the economy contracts at a lower rate than our initial 12.5% estimate for this year, and rebounds faster than our 9% forecast in 2021, especially if local politics does not bring major negative surprises.”

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