To date, the impact of high levels of political uncertainty has been seen on the sol, while economic recovery unfolds at an accelerated pace. In 2022, firms should continue to anticipate downward pressure on the sol, as political risk will remain high amid tense political dynamics. Additionally, it is likely that investment will decline if political uncertainty persists, particularly if a Castillo impeachment leads to questions on who should succeed him (legally, it would be Vice-President Dina Boluarte, who has an equally contentious relationship with Congress, but the opposition could try to push her out as well). In the short term, firms should closely monitor any statements by the Castillo administration on its policy priorities, as recent developments may push Castillo back to the far left, raising risks for MNCs operating in Peru.
On December 7, President Pedro Castillo survived an impeachment attempt pushed by an opposition congresswoman and led by accusations of corruption and government mismanagement. The motion failed to gain traction in Congress, with the opposition falling short of the 52 votes required to begin impeachment proceedings.
Ahead of the vote, Castillo succeeded in gaining support from the center-left parties—including Acción Popular and Alianza por el Progreso—in addition to key factions within his far-left Perú Libre party, which had recently distanced itself from the president following his efforts to moderate his policy agenda.
Still, Castillo’s approval ratings continue to decline, falling to 35% in November according to IPSOS Peru. Additionally, his recent Cabinet shake-up and shift away from far-left policies weakened him politically, leaving him vulnerable to other political challenges, which are likely to arise in coming months.
We believe that President Castillo is unlikely to complete his five-year term, with an impeachment likely on the horizon in 2022. Not only is Castillo bleeding popular support, but he also lacks political allies within Peru’s Congress. Additionally, his administration has been embroiled in a series of scandals to date, including allegations of government interference in the military and reports of corruption after his chief of staff was found hiding US$ 20,000 in the presidential palace bathroom. Given that Peru’s political system enables the unicameral Congress to impeach a president on the grounds of “moral incapacity” with 82 out of 130 votes, we are confident that the opposition, which remains adversarial regardless of Castillo’s efforts to moderate, will continue to pursue strategies to topple the president, likely succeeding next year.
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