The Lima Stock Exchange dropped 7% and the dollar hit a record level with the imminent victory of leftist Pedro Castillo; like in Chile, the challenge is to throw away the dirty water without the baby together
No Peru, the economy was severely affected by the coronavirus. It dropped 11.1% in 2020, largely because of the failure to contain the pandemic. Last week, the government increased the number of deaths by covid-19 from 68,000 to more than 180,000, making it the country with the highest average mortality in the world. There are more than 500 victims per 100,000 inhabitants. But also due to the lack of support for the poorest population, who lost their income in the pandemic. Even though a good part of the losses will be recovered this year (the government’s forecast is for a 10% increase in the Gross Domestic Product), part of the population blamed the economic model. Measures that are much more favorable to the market than the average for the region coexist in Peru. The country has free trade agreements with the China, USA, European Union e Japan. It has grown an average of 6% every 12 months since 2000.
But the crisis revealed social unrest. Something similar to what has been seen in Chile and Colombia, two other cases of liberal economy in South America where the unequal division of earnings has led to questioning by left of the economic model. The Peruvian case is also affected by the corruption of recent governments, which collapsed amid scandals. Peru has had four presidents since 2018. The fifth, barring any change in the validity of votes, is Pedro Castillo, winner of an election disputed to the last vote with the rightist Keiko Fujimori, daughter of dictator Alberto Fujimori . Professor, with no experience in government and with extremist left-wing proposals, such as intervention in economy, it scares the market. The Lima Stock Exchange dropped 7% and the dollar hit a record high when the Free Peru candidate took the lead in the vote count on Monday.
For the JP Morgan bank, the future leftist government could pressure the Peruvian Central Bank to change policies, and the country would face the risk of capital flight. But there are also predictions that see little room for twists and turns. Despite the wear and tear of recent years, the Peruvian model is an economic success. There is a general perception that it is necessary to change, but without risking achievements. Even market swings are not new. Ten years ago, when another leftist, Ollanta Humala, came to power, the Bag Peruvian fell 12%. Pedro Castillo sought to moderate positions at the end of the campaign and also during the week, trying to calm the market. If he is indeed confirmed as president by the electoral authorities, the coming weeks and months will serve to show how he intends to actually manage the economy. The frustration in some countries is real. And it is normal for it to lead to reforms. But in Peru, as in the Chile, the challenge will be, as the saying goes, to avoid throwing the dirty water away with the baby together.