What Next for a Troubled Peru?

Event Card: Costa; McClintock; Oganes

On November 13, 2020, the Inter-American Dialogue hosted the event “What Next for a Troubled Peru?” to discuss the impeachment of Peruvian president Martín Vizcarra. The event featured speakers Gino Costa, Member of the Congress of the Republic of Peru; Cynthia McClintock, Professor at George Washington University; and Luis Oganes, Global Head of Emerging Markets Research at J.P. Morgan. Michael Shifter, president of the Inter-American Dialogue moderated the conversation. The event addressed Peru’s political crisis in the context of the economic and public health crises the country has already been facing. 

Costa began the discussion by commenting on the general political instability in Peru and how this type of impeachment has occurred, “four times in the past four years.” Costa questioned the legitimacy of the impeachment citing widespread consensus among politicians and civil unrest. He noted that “the polls show that the majority of Peruvians wanted Vizcarra to complete his term in office while the corruption investigations continued.” He then critiqued incoming president Manuel Merino’s choice of “older and very conservative” cabinet members, calling the choices “revenge for Vizcarra’s dissolution of congress more than a year ago.” Costa named four issues that are in danger under a Merino presidency: the upcoming elections, university reform, anti-corruption measures, and the balance of power. Costa ended his remarks by saying that that the international community has been ”abnormally slow” in their response to Peru’s political crisis.

McClintock put the new political crisis into the context of the existing economic and public health crises. She commented that the Covid-19 death toll in Peru is now at 35,000 which has made, “everybody more upset, frustrated, and on edge.” She then went on to note that impeaching such a popular president is unprecedented in Latin America, being that “Vizcarra’s approval rating at 50% may not sound high but in Peruvian terms is significant.” She went on to make the comparison with the 2009 coup in Honduras, saying that it was the event that most resembles what is happening in Peru today. However, she added, Peru’s case is slightly different because, “people across social classes are against this impeachment” and the “proximity to the next election.” McClintock raised the point that Merino’s Acción Popular may use this opportunity to tilt the election in their favor by packing the electoral commission. With no popular presidential candidate on the horizon, she argued, there is nobody to unite the country. She wrapped up by stating that she fears a Honduras situation, where the country, “endures a long crisis that marks the country politically.”

Oganes mentioned the fact that investors take an apolitical view of the crisis. He then focused on the economic crisis saying that, “Peru is projected to have the worst growth performance of Latin American countries with a 31.5% decline.” He stated that this will have lasting generational impacts and that investors are focused on the actions of the new finance minister, which they view positively, and the approval of the budget for 2021. With global markets looking up, market prospects in Peru are more attractive. Oganes also noted that foreign investors are already quite invested in Peru, so it is crucial, “that investor confidence remains high.” He went on to note that the private and public pension withdrawals that are being discussed would contribute to further deficit. On the topic of the public deficit, Oganes commented that this is the first time the public deficit has gone above 30% of GDP due to Covid-19. The projection for the coming years, he commented, is a public debt that is 45% of GDP. He mentioned that due to Covid-19 Peru has used up a lot of its public sector cushions and therefore, “whatever the next president does is going to be much more important in driving investor confidence.” He touched on Peru’s flexible credit line with the IMF of US$11 billion that has yet to be tapped into, which he considers a positive thing for investor confidence. The pressure on the currency and on rates has been contained, but that could change in the next eight months. Furthermore, Oganes concluded by saying that J.P. Morgan “[is] not predicting an economic crisis and the market is not reacting that way.”

The event ended with a Q&A section. In response to the question about if the armed forces may become involved, Costa responded that he does not believe they will and that they should be, “loyal to Merino until the constitutional tribune intervenes.” Shifter then noted that the name Valentín Paniagua came up in a variety of questions and Costa stated that Paniagua is “the kind of person I was looking for to fill this role being that he was the only president of Peru in the past 30 years who has not been indicted.” The session then shifted over to a more economically-focused discussion. Oganes commented that, “a pension reform is needed but it should be left to the next administration and not done in this charged environment.” When asked about corruption charges, McClintock said that the new government comes from a political class that accommodates corruption and therefore they are not incentivized to pursue anti-corruption reform. Costa closed by saying that Vizcarra’s credibility during the upcoming election depends on the results of the corruption charges against him.

WATCH THE FULL RECORDING OF THE EVENT HERE

Note: President Sagasti’s commentary was featured on the November 19, 2019 edition of the Latin America Advisor and can be found below, under the title “Will Vizcarra’s Reforms Win Approval in Peru?”, in the Related Links section.



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