Aug 5, 2019

Peru's "miracle" economy threatened by political tumult

Peruvian President Martín Vizcarra. Photo: Carlos García Granthon/Fotoholica Press/LightRocket via Getty Images

Peruvian President Martín Vizcarra’s call for early general elections could exacerbate the political disarray that has afflicted the country for years.

Why it matters: Peru's government has been wracked by dysfunction, with a series of elected officials resigning or being jailed on corruption charges. The coming elections add to the uncertainty, and moving them up could delay passage of much-needed anti-corruption legislation.

What’s happening: On July 28, President Vizcarra presented a bill to hold general elections next July, one year early, hoping to end an executive-legislative power struggle.

  • Congress is divided, but the majority opposition coalition is seeking to block the bill and push for Vizcarra’s resignation.
  • If Congress does not approve the bill, Vizcarra is likely to call for a no-confidence motion, which could lead to the dissolution of Congress.

Background: Vizcarra assumed the presidency in March 2018, after Pedro Pablo Kuczynski resigned ahead of a second impeachment for alleged corruption and bribery. Vizcarra has announced he will not seek reelection, and his election bill explicitly bars him from running.

  • Vizcarra has worked to stamp out public corruption, including through a referendum in December that won 80% support. It established limits on political party financing and a merit-based system to appoint judges, and it banned members of congress from serving consecutive terms.
  • His call for early elections followed congressional approval of a watered-down version of the referendum proposal that preserved parliamentary immunity for members of congress under indictment.

Between the lines: This political turmoil comes at a fragile time for the national economy, whose progress has been hailed as the “Peruvian miracle.”

  • The IMF revised down Peru’s 2019 GDP growth by 0.2 percentage points, to 3.7%, due in part to a decline in public investment. It had averaged 6.5% annual growth from 2005 to 2013.
  • Lima is struggling with 6.3% unemployment, and across Peru the middle class shows signs of vulnerability. Nearly 1 million people are at risk of returning to poverty.
  • Early elections would delay Vizcarra’s push to implement mining and infrastructure programs, leaving the private sector in wait-and-see mode.

The bottom line: Not only do early elections put meaningful anticorruption efforts on hold, but in the absence of a clear presidential successor or dominant political party, they add to the uncertainty of the country's outlook and jeopardize its recent "miracle."

Beatriz Ariza is an analyst and Latin America specialist at Crumpton Group, a business intelligence firm.

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