Last month Peru’s President Pedro Paulo Kuczynski — often referred to as PPK — tendered his resignation to the country’s Congress after 20 months in power.
This came after the opposing party in the country’s congress, Popular Force — led by the daughter of former Peruvian dictator Alberto Fujimori, Keiko Fujimori — released videos allegedly proving PPK’s administration tried to rig his December impeachment vote.
Go deeper with GlobalData
John Polga-Hecimovich, a political scientist at the United States Naval Academy, described the release of these videos as “the straw that broke the camel’s back” for PPK.
Late last year it emerged that Odebrecht, the Brazilian construction conglomerate at the heart of Latin America’s biggest corruption scandal, had made payments of nearly $800,000 to PPK’s investment banking firm, Westfield Capital.
PPK denied any ties with the construction firm and managed to survive an impeachment vote by forging an alliance with Keiko Fujimori’s brother Kenji, a member of Popular Force.
In return for Kenji persuading some of his fellow senators to abstain in the vote, PPK pardoned Alberto Fujimori, who was serving a 25-year jail sentence for human rights violations.
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By GlobalDataIn his resignation speech, PPK said:
“Faced with this difficult situation . . . I think it is best for the country if I resign from the presidency of the republic.”
“I don’t want the country or my family to continue to suffer the uncertainty of recent times.”
PPK blamed his resignation on the opposition party and its blocking of his attempts to get policy passed through congress. Congress accepted his resignation by 105 votes to 12.
Capital Economics Latin America economist Edward Glossop described vice president Martín Vizcarra take over from PKK as a “swift and smooth transition of power”.
What to expect from the newly inaugurated Vizcarra
Peru’s economy has performed well since the 2008 global financial crisis.
Chatham House associate fellow of US and the Americas Richard Lapper told Verdict:
Peru’s economy has grown relatively quickly compared to other countries in the region.
It expanded by approximately 2.2% last year and is expected to grow by more than 3% this year as commodity prices continue to rise.
PPK had a Wall Street background and his electoral promises included boosting investment. As a result international markets cheered his victory in 2016.
Glossop said PPK was viewed as “investor friendly”.
However, Peru’s economy has suffered from political instability since PPK’s connection with Odebrecht was revealed in December.
Peru’s sol has lagged behind all major Latin American currencies, except the Argentine peso, since the December vote. It dropped by 1.4% immediately after the revelations.
Peru’s central bank governor said:
We are in a cyclical recovery. I believe the uncertainty is perhaps weakening growth.
PKK’s resignation and Vizcarra’s inauguration has spurred a resurgence in the stock market and the sol — which rose 0.8% after his resignation.
Glossop told Verdict:
With PPK’s resignation political upheaval has been overcome and uncertainty has been lifted.
Lima-based Andino asset management founder Carlos Rojas told Bloomberg that PPK’s departure would bring “some peace” to the markets.
This growth has been aided by the assumption that Vizcarra will continue PPK’s economic policies since they were elected together on the same pro-business slate in 2016.
Oxford economics Latin American economist James Watson told the Financial Times:
“Vizcarra has a similarly technocratic background to Kuczynski and should offer continuity in investor-friendly economic policies.”
Glossop agreed, telling Verdict:
“We do not see the change in Presidency affecting Peru’s economic recovery.”
Lapper told Verdict:
“Investors are reasonably optimistic [because] Vizcarra has been making the right noises from the start.”
Bulltick’s Kathryn Rooney Vera told Bloomberg that Vizcarra’s takeover of the reins of power would mean a “relief rally” for investors.
However, experts are unsure if Vizcarra will be able to implement pro-business policies that PPK failed to introduce.
This failure stemmed from PPK’s party, Peruvians for Change, having such a small minority in Congress – 18 of a total of 130.
However, PPK further suffered from a personal enmity from Keiko Fujimori, the leader of the largest party in Congress, Popular Force, because he narrowly defeated her in the 2016 election.
Polgo-Hecimovich sees Keiko’s party blocking PPK’s actions as crucial to understanding his downfall. He told Verdict:
His fall from power was as much a product of institutional factors as anything else.
Peru’s party system is one of the weakest and most fragmented in Latin America, and PPK’s Peruvians for Change…won only 18 of 130 congressional seats in the 2016 elections.
Michael Shifter of the US think tank Inter-American Dialogue told the Financial Times:
The Fujimoris…have the power and have had so from the beginning [of Kuczynski’s presidency].
Lapper said:
Investors have been disappointed by progress under PPK. His election created high expectations that were not achieved.
Popular Force has the majority in Congress and so they have sabotaged everything he tried to do.
Vizcarra will suffer from the same small minority in Congress since PPK stepping down did not trigger an election and whether he can work better with his opposition will be key.
Although the opposition party has promised it will work with the new President, many are unconvinced that Vizcarra’s rivals will not try to derail the current administration in order to force elections.
Popular Force member of congress Luz Salgado told reporters:
If [Vizcarra] does his job well… he’ll have our corresponding support.
We’re thinking about what’s best for the country. We’re not trying to find fault in anyone.
Watson told the Financial Times that the impeachment votes show “the right-wing opposition is willing to go to any lengths to achieve near-term political aims, damaging Peru’s governability”.
Lapper told Verdict:
Vizcarra has been making the right noises from the start…but he too could be a prisoner to political forces.
The Fujimoristas have the next election in their sights and they want to work to shipwreck this government and win the next election in 2021. But they are divided because of Keiko vs Kenji over PPK. I don’t know how that will play out.
Verisk Maplecroft, senior Latin American analyst at Eileen Gavin, described the opposition as “wilfully obstructive”. She told the FT:
“We believe Vizcarra is more likely to be a transition figure than to serve out the rest of the current term to 2021.”
It is also unclear if Vizcarra will be able to keep his promises to combat corruption because of potential Congressional blockages. He pledged he would fight corruption at “any cost” in his inauguration speech.
Corruption is a major concern of the Peruvian public. A LatinoBarometro poll published in March showed 91% of Peruvians thought at least half of their politicians were corrupt.
According to an Ipsos Mori poll published in Peruvian newspaper El Comercio, 58% of Peruvians supported PPK being impeached and 56% wanted him to resign. Other polls showed his approval rating fell from 26% in November to 19% in March.
However, Vizcarra’s appointment of a cross-party cabinet shows his commitment to repairing relations with his opposition.
He replaced PPK’s Prime Minister Mercedes Araoz — one of PPK’s most staunch supporters — with Cesar Villanueva, an opposition law maker who led efforts to impeach PPK and has a reputation as a bridge builder.
Eduardo Dargent, a political scientist at the Catholic University in Lima, told the Economist these new cabinet choices were important.
“[Vizcarra] will fail quickly if he keeps the same kind of cabinet, with bland ministers who seem more interested in their business deals than governing.”
There is disagreement about whether Vizcarra’s outsider status will help or hinder him in his ability to smooth relations in Congress.
Before serving as PPK’s vice president and Peru’s ambassador to Canada, the only other political position he held was governor of a small mining province in the south of the country.
Most Peruvians were unable to name Vizcarra in a poll two weeks ago.
While he is not tainted by the corruption scandal surrounding his former boss, this may mean he will struggle to broker deals within the corridors of power.
Vizcarra’s first major test will be the Summit of the Americas later this month, the main theme of which is the fight against corruption in the continent.
