• The political crisis finally broke the engine of economic growth

Finance Minister Alex Contreras announced that Peru’s forecast for GDP growth in 2023 is 1.1%, down from their previous forecast of 2.5%. That is bad. Slow growth is better than a recession, but for Peru, slow growth means the country’s political crisis has finally caught up with its economy. The “Peruvian miracle” over the past decade has been the fact the country could grow its economy (ignoring the COVID recession and inequality during the boom years) in spite of whatever political controversies and scandals hit (and there were a lot). That is no longer true.

The August polls from IPSOS and IEP show the approval rating for President Dina Boluarte remains well under 15%, and the approval rating for Congress and its leaders continues to be even worse. Nearly every government institution is underwater in terms of public opinion, including the police, even as most urban residents of Peru say they need better security measures to combat crime. Meanwhile, hundreds of thousands of Peruvians have left the country without returning over the past three years, according to official entry and exit data.

Yet, to scan Peruvian media over the last week, the political system is not addressing the economic malaise, the political legitimacy crisis, the country’s security situation, or the reason that so many Peruvians feel they can no longer live in the country. Instead, the politicians are in a circular firing squad, with accusations and counter-accusations flying and multiple investigations into corruption opening. The president faces a new scandal related to bad COVID vaccine contracts and what she knew. The head of Congress faces multiple credible corruption allegations and only remains in place because a pact of corrupt Congress members from the fujicerronista alliance (I love that term) of the far right and far left is allowing him to remain in place. There is a push in Congress to remove the members of the Junta Nacional de Justicia, the country’s independent constitutional institution. I feel like every time I read a Peruvian news outlet I learn about some new scandal that wasn’t on anyone’s radar a week before.

Peru’s economy won’t improve until the political system gets its act together. A similar point was made in a recent Atlantic Council blog post. But simple solutions aren’t likely in the near term. The chances that the current political elite will suddenly implement better policies and stop squabbling are low given their current behavior.

The polls and the public’s political anger demonstrate that the potential for a new crisis remains quite relevant. Boluarte made a 15 minute visit to Tacna earlier this week and was received by large protests and calls for her resignation. Most of the country still thinks that she and most or all of Congress should resign and that early elections should be held. And the political system keeps reinforcing the legitimacy crisis through the rotating set of scandals and attacks on each other. Analysts should expect the situation to get worse before it gets better.

Boz Hale
Latin America Risk Report 08 31 2023