ECONOMY

Peru’s President Puts Himself On a Path To Nowhere

Peru’s new president, the country’s fifth in five years, has had a rough start. Unfortunately for this Covid-battered economy, it looks unlikely to get better.

A leftist political novice who ran as candidate for a Marxist party and swept to power on a wave of pandemic anger, former teacher Pedro Castillo had to wait six weeks to be announced as the official winner of the presidential runoff, as his rival piled in with accusations of fraud and challenges to the vote count. An opponent has been elected leader of a split legislature in which Castillo’s Free Peru does not have a majority. Tensions in his own camp between moderates and extremists have been so fraught that he was sworn in on Wednesday without a cabinet.

His inauguration speech — a first glimpse of concrete plans, after weeks of uncertainty — was an opportunity to set concerns to rest among investors and centrist Peruvians, building out his base by pinning his colors to a moderate mast. It was a moment for the pragmatism he had appeared to demonstrate over recent weeks, vital to a badly divided country scarred by the pandemic, corruption and political fragility.

And there was some of that. Wearing his trademark traditional wide-brimmed hat, he read out a speech that put health first, no surprise given the world’s worst per capita Covid-19 death rate and a vaccination drive that has far to go. He pledged “responsible change,” said he wanted order and predictability for the economy.

But he also called for a new constitution, promised the world’s second-largest copper producer would seek greater state participation in mining ventures, hinted at plans to curb monopolies in financial services and utilities and announced the presidential palace would become a museum. All sprinkled with plenty of budgetary wishful thinking and promises to build “from the bottom up.”

He isn’t — despite dark warnings from rival presidential candidate Keiko Fujimori — a local version of Venezuela’s Hugo Chavez, who nationalized and expropriated with abandon. Even if he wanted to, he lacks the political clout to pull that off. Unfortunately, he’s also not shown that he is, as many had hoped, another Ollanta Humala —  the Peruvian president who was initially a Chavez sympathizer but ultimately proved a savvy, business-friendly leader, running the country from the center. 

His push for “a new way to mine,” for example, will not have reassured investors. Accounting for a substantial 11% of copper supply — and more, once Anglo American Plc’s Quellaveco mine gets up to full capacity — Peru makes up much of future capacity in a metal key for the green economy. But taxes can be negotiated, and that was perhaps inevitable, given Castillo has huge support in mining regions where communities demand a better deal.

More troubling even than the president’s mixed bag of promises has been his difficulty in pulling together a core team of ministers — never mind the broad coalition he needs to administer the country. It suggests hardliners, notably Free Peru leader Vladimir Cerron, still have a tight grip, and that not enough of the establishment have been willing to throw their lot in with Castillo. Little wonder that the nation’s dollar bonds dropped as he spoke.

As Nikhil Sanghani of Capital Economics pointed out to me, the lack of a clear and coherent plan is particularly alarming when we know that the countries which have fared best over these tumultuous past 18 months are those with effective leadership, able to deliver on vaccine promises and to spend on employment and other initiatives, but then to rein in the splurge.

Peru badly needs to improve its threadbare public-sector education, to tackle pensions, internet connectivity and even curbing violence against women, all proposals put forward by Castillo. Boosting the existing policy for indigenous languages is laudable to promote the inclusion of marginalized populations, as are job creation efforts. He won’t even be the first in the region to prefer a humbler alternative to the presidential residence — Uruguay’s Jose Mujica, known as Pepe, managed to live on a farm.

But by mixing contentious and less immediate issues like the constitution with vital ones like getting jabs into arms, Castillo is demonstrating a worrying lack of focus. A legislature that has impeached with abandon can do so again. In 2020, Peru managed three presidents in a week. For years, the country has managed to combine political volatility with relatively strong economic performance. For that to continue, with institutions weaker than ever, Castillo needs to provide few shocks when he announces ministers later this week. And he should move swiftly to confirm that the well-regarded, veteran head of the central bank, Julio Velarde, will stay on.

As former leader Humala said in an interview last month, Castillo is full of worthy aspirations. But in Latin America as elsewhere, the road to hell is paved with good intentions.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.

James Gibney is an editor for Bloomberg Opinion. Previously an editor at the Atlantic, the New York Times, Smithsonian, Foreign Policy and the New Republic, he was also in the U.S. Foreign Service from 1989 to 1997 in India, Japan and Washington.

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