Amid unrest over controversial mining projects, President Humala has appointed a new Prime Minister, Juan Jimenez, the former minister of Justice, and five new ministers. The cabinet appointments show continuity in market-friendly policies as, for instance, the Finance minister remains in his post. The main challenge of the new cabinet will be to regain trust from local communities and provincial governments. Indeed, the former Prime Minister, Oscar Valdes, a retired army officer, adopted a hard line against mining protests and declared states of emergency following violent protests against Conga mining projects - a USD 4.8bn gold and copper mining project which is highly contested by the local community amid water supply concerns. Another important challenge for the government would be to deliver concrete results in terms of social inclusion policies as expectations among low-income and indigenous community are high and as many Peruvians complain that the government has not done enough to share wealth from mining activities.

Impact on country risk

Recent cabinet appointments and President Humala’s annual address to Congress highlight that the government is committed to increase social spending and to maintain its current business-friendly economic policies. Nevertheless, social unrest surrounding the mining project remains a major challenge for Mr Humala, who was elected thanks to the support of the rural poor and has promised better social and investment standards in the mining industry which represented the main source of exports revenues. Despite political turbulence, the Peruvian economy is expected to grow by more than 5% in 2012, among the fastest in Latin America.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com