Worsening of the political crisis
The social and political climate in Peru deteriorated suddenly last December 7. The dismissal and arrest of Pedro Castillo who has been in power since April 2021 crystallized the social and political tensions that have been existing for almost ten years. In accordance with the constitution, it is the vice-president, Dina Boluarte, who acts as president until the next elections due to take place in 2026. She's the sixth president in six years.
These events have caused a great number of demonstrations and a violent repression by the government. To this day, there is no clear sign of political compromise and violence is still used. To ease tensions, the president has suggested to have anticipated elections. First, in 2024. Then, this October. But both proposals have been rejected by the Congress.
Low visibility in the short term
In the short term, there is no optimistic scenario. Resignation, dismissal, full term, nothing seems to bring a solution. In case of new legislative elections, the Parliament should remain fragmented without clear majority and the distrust of the government would still be strong. This would not help to govern and undertake reforms.
Growth slowdown
So far, low external vulnerability, low government debt and a solid banking sector have allowed the Peruvian economy not to suffer from large imbalances. But the social and political situation has already had an impact on activity. End of January, the Ministry of the Economy said that the losses amounted to 650 million dollars that is to say 0.25% of GDP. It is likely that exports will be affected. The blocking regions in the south represent 60% of the national copper production. Besides, the food shortage linked to the blocking of roads has triggered a new increase in inflation, reaching 9% in January, when it has been reducing for several months.
Beyond the impact on growth in the short term, the political instability adds to the country's structural weaknesses and weighs on mid-term perspectives. A lasting low level of confidence from investors and the inability to implement a credible economic policy will weigh on potential growth.
