One week after the inauguration of the new president of Peru, the socialist Pedro Castillo, Doubts persist about the possible radical course that his government can take, which has generated concern in the private sector, according to reports from analysts and sources in the banking sector.
The most recent report from the risk analysis firm Eurasia Group explains that “there are no guarantees that Castillo will distance himself from the most radical arm of his party [Perú Libre] and will opt for a more moderate policy agenda “, not even with the appointment of Pedro Francke as Minister of Finance.
Francke, a 60-year-old economist perceived as on the moderate left, asserted upon his appointment to office that private property will be respected, and the proper functioning of markets and private investment will be promoted.
However Eurasia considers that “There is no clarity on the degree of autonomy that Francke will have”, due to two factors: that Castillo appointed Guido Bellido as Chief of Staff, a pro-government legislator investigated for “apology for terrorism” and identified as misogynist and homophobic, and for “the influence exercised in decision-making” by the radical Marxist Vladimir Cerrón, founder and general secretary of Peru Libre.
The new Minister of Economy of Peru, Pedro Francke Ballvé. Photo EFE
For the economist and master’s degree in Public Policy from the University of Chicago, Diego Macera, “Castillo elected as ministers highly questioned, radical, and inexperienced people” whose “The only common link was adherence to the political process of Peru Libre.”
“And that made it more real the main fears that they had on Pedro Castillo as president and distance him from the moderation that some had anticipated, “he told AFP.
Short-term doubts can mean “the postponement of investments” and an economic result in the third quarter of 2021 not as encouraging as expected, considers the economic analyst Jacinta Hamann, consulted by the AFP.
The new government is challenged to reactivate an economy that sank 11.12% in 2020, strongly hit by the pandemic, with an increase in poverty and informality.
According to Hamann, “the cabinet’s definition surprised everyone, economically and politically. The strength of the chips moved to the side of Vladimir Cerrón they have increased mistrust regarding the line that the president could take. “
From the IPAE business association, its president Elena Conterno emphasized to AFP that “it is regrettable that President Castillo has appointed as President of the Council of Ministers [jefe de Gabinete] to a defendant for apology to terrorism, which considers there is no dictatorship in Cuba and registers misogynistic and homophobic comments. “
The president of Peru, Pedro Castillo, and the new Minister of Economy, Pedro Francke. Photo DPA
“Without a doubt this is affecting the economy of the country, but above all it brings a lot of uncertainty on whether Peruvians can live with peace and freedom, “he added.
Hamann emphasizes that “in the markets the uncertainty is very marked. Although part of the effect of Castillo’s arrival had already been discounted, investment is going to stop, andThe outlook is negative for risk rating agencies. “
For example, the delay in the appointment of Francke as finance minister, one day after the majority of the ministerial cabinet, caused a fall of almost 6% in the Lima Stock Exchange and the exchange rate has since surpassed the barrier of four soles per dollar.
The uneasiness continued despite gestures such as that of Minister Francke, who met this Monday with the respected president of the Central Bank, Julio Velarde, to coordinate the joint work that “give tranquility to the market and investors”.
In a statement about the meeting, Francke assured that Velarde is favorably considering staying with the issuing entity, as Castillo would have asked.
All this uncertainty is causing “concern” among the private sector, according to sources linked to the bank consulted by the AFP, who also underline that there is skepticism about Francke’s room for maneuver in the face of a possible radical left government agenda.
“The third quarter of 2021 should be of greater economic activity, with expectations of recovering growth. But now it is likely that it will be less marked and that all economic agents prefer a conservative attitude until the political space clears, “says Hamann.
He explains that the stock market has been shrinking, with fewer operations, and with a financial system that, although solid, has “the challenge of generating healthy credit portfolios in an economy that does not finish recovering “from the blow that the covid-19 pandemic has meant.
The government must pass its first litmus test in a month when the cabinet goes to the opposition-controlled Congress to ask for a vote of confidence, without which Castillo you will have to reorganize your team.