Event

Peruvian Economy and Finance Minister Alfredo Thorne, one of the President’s closest confidants, resigned on 21 June. The resignation comes after Thorne lost a vote of no confidence in the opposition-controlled Congress. The vote in Congress was called by Thorne after an audio recording surfaced of a meeting where he seemingly peddled influence to get a major infrastructure contract approved. Thorne, who had been in the post since President Pedro Pablo Kuczynski came to power last year, denies any wrongdoing. A few days after the resignation Prime Minister Fernando Zavala was sworn in as the new Economy and Finance Minister, while continuing to hold his current post.  

Impact on country risk

As Kuczynski’s PPK holds only 18 of the 130 seats in Congress, it was expected that effective policy making would be difficult. It is the third time in the President’s first year that the opposition has sought to oust government ministers. In December 2016 congress censored Jaime Saavedra, the Education Minister, and in May 2017 it used the threat of censure to force Transport Minister Martín Vizcarra to resign. The strategy of censuring ministers for relatively minor misbehaviour risks thwarting the President’s attempt to build institutional stability within government. Moves to censure other government ministers can be expected in the future. Furthermore, policies, especially on social inclusion and reforms of the judiciary, are likely to continue to be affected while the pro-business agenda, shared with the opposition, is expected to advance. The climate of suspicion in Congress comes at a bad time. The world’s second-biggest copper producer has been hit with a double dose of bad luck. An admission of corruption by Odebrecht, a Brazilian contractor, forced the suspension of several big infrastructure projects in Peru. In addition, the worst floods in 20 years killed 147 people, washed away roads and reduced annual economic growth to 2.7% in 2017 (from 3.9% in 2016). Reconstruction is estimated to take two years and cost USD 6.5bn. Therefore, easing the growing political tensions and reviving slumping investments to reboot the economy will be priorities in the coming months.

Analyst: Jolyn Debuysscher, j.debuysscher@credendo.com