The next president of Peru, Pedro Castillo, will have to deal not only with the pandemic and political instability, but also with a severe economic crisis, so it will be key to win the confidence of the markets.
On July 28, the day of the bicentennial of Peru’s independence, this left-wing rural school teacher will take the reins of a country whose economy sank 11.12% in 2020 due to the pandemic and lost two million jobs.
Hardly Castillo was outlined as the winner, the day after the June 6 ballot, markets were shaken out of fear to a sharp turn after three decades of liberal economic policies.
Thus, its main challenge on the economic plane, in the opinion of analysts and risk consulting firms, is the credibility that I get before Peruvian and foreign investors.
The president-elect of Peru, the leftist Pedro Castillo. Photo EFE
“Clear signals must be given that the objective management of the economy will be professional, that solid technicians will be summoned “, the economist Hugo Ñopo, researcher of the Grade (Group of Analysis for Development) tells AFP.
Risk consultancy Eurasia, in a recent report for its clients, warned that “the Castillo administration will likely follow a leftist trajectory even if it moderates somewhat at first. However, economic policy is likely to be erratic and could be radicalized as his presidential term progresses “which runs from 2021 to 2026.
Ñopo points out that there are negative expectations in the private sector, and Castillo’s ability to impose his program before a fragmented Congress, where his Peru Libre party has only 37 of 130 seats, should be noted.
“One of the emergencies is pay attention to expectations and calm them so that the dollar does not continue to rise, so that prices do not move upward and so that private capital does not leave the country “, asserts the economist.
The celebration of Pedro Castillo. Reuters photo
In dollars, it has been close to four soles for a month and a half, compared to 3.62 last December, while the Lima Stock Exchange sank 7.7% the day after the ballot.
The uncertainty persisted for the six week delay of the electoral jury to proclaim the president-elect, which he just did on Monday.
Ñopo believes that the new president should “build bridges to markets, that today they are suspicious of what he could do. “
Seeking to calm fears, on June 26 Castillo announced his intention to keep Julio Velarde as president of the Central Bank, who has been in the position for 15 years and is recognized for his prudent handling of monetary policy.
“It is necessary to give peace of mind not only economically but open the doors for big investments“Castillo said then.
Governance is another challenge, after a polarized electoral campaign and a five-year period marked by political upheavals, which led the Andean country to have three presidents in November 2020.
The markets thought that the right-wing Keiko Fujimori would win, so heThe alarms went off after the vote.
“The threats to political and social stability will be significant, with the consequent protest risks and efforts to remove (from Congress) Castillo, “estimates Eurasia.
Ñopo warns that “you have to see how many [promesas electorales] can be fulfilled, because with the expectations of the population during the campaign, there may be a big problem. “
On the other hand, according to the consultant, there may be Castillo clashes with “key sectors of the population, politicians and business leaders”, who fear a radical turn to socialism similar to Venezuela.
Castillo’s team has sought to calm these fears and his main economic advisor, Pedro Francke, highlighted that the program it has “nothing to do with the Venezuelan proposal.”
“We will not make expropriations, we will not make nationalizations, we will not carry out generalized price controls, we will not do a change control“Francke said in an interview with AFP on June 11.
It is difficult for Eurasia to see a radical reform agenda materialize, given the “institutional restrictions” existing, including the lack of a legislative majority.
However, the firm believes that economic policy it will be very different from the last decades.
Not PO highlights the importance of designations the new Chief of Cabinet, ministers of the economic area, as well as heads of state agencies and companies.
“There are hundreds of people who must be appointed,” he says, what is going to delineate where is the government going that it takes on in seven days.