General

Is Peru becoming an ungovernable country? – Financial Times

When Félix Chero knelt before Peru’s president Pedro Castillo last Sunday and swore to serve as the country’s justice minister he became the 46th minister in the Castillo government in just eight months.

Since taking office last July, the president has rattled through four cabinets, four prime ministers, three foreign ministers and two finance ministers. Chero is his third justice minister. No Peruvian president has made so many cabinet changes in their first year in office — and there are still four months to go.

“The word ‘chaos’ no longer seems strong enough to describe the country’s political situation,” says John Youle, executive president of ConsultAndes, a local political risk advisory group. “Peru is politically dysfunctional, with Castillo unable or unwilling to select an adequate cabinet, and with congress focused almost exclusively on forcing him from office.”

The merry-go-round of appointments, resignations and sackings has spread well beyond the cabinet. Aides, senior police chiefs, army officers and magistrates have all been caught up in the churn, suggesting the country is becoming ungovernable.

Some of Castillo’s ministers have lasted just days. Héctor Valer, his third prime minister, was sworn in on a Tuesday and resigned that Saturday when it emerged he once beat his daughter so badly she reported him to the police. The president’s first foreign minister quit after 19 days after claiming that Shining Path, the Maoist group that terrorised Peru in the 1980s, was “largely a product of the services of the CIA”. An environment minister lasted just a week after the state ombudsman pointed out he was unqualified for the job.

On average, Castillo has changed a minister every nine days.

Protests led to the resignation of prime minister Héctor Valer after four days in the job when it emerged that his daughter had reported him to police after he beat her © Fotoholica Press/LightRocket/Getty Images

The tumult has been greeted with dismay by millions of poorer voters who backed Castillo last year, inspired by his campaign message: “no more poor people in a rich country”. The leftwing president’s approval ratings have dropped. His supporters had hoped for profound change in a nation where many have missed out on the economic growth of recent decades. Instead, the country — the second biggest copper producer in the world — seems stuck in a relentless battle between the president and his opponents.

With so many changes government policy has been erratic. When Castillo’s first prime minister vowed to nationalise the gas industry, the president denied any such plan existed, but then, weeks later, proposed the same thing himself. He was forced to backtrack and his finance minister tweeted that when the president said “nationalise” he did not mean “nationalise”.

Castillo’s second prime minister, Mirtha Vásquez, abruptly announced the government would seek to close four privately owned gold and silver mines “as soon as possible”, unnerving many in the sector who feared it might herald a broader assault on the industry. Mining is the lifeblood of the Peruvian economy, accounting for about 10 per cent of gross domestic product and 60 per cent of export revenue. Within days of the announcement, the government had made a U-turn and allowed the mines to stay open.

Line chart of Peruvian Sol per Dollar showing Peruvian Sol rallies despite political turbulence

Castillo’s first health minister, Hernando Cevallos, lasted longer than most — six months — before being sacked in February. “The turnover in personnel was so swift that I sometimes found myself working alongside ministers I’d never met before,” he says. “When I was finally dismissed, at least the president had the decency to call me and tell me. Most other ministers just got a WhatsApp message.”

‘Moral incapacity’

Cevallos blames his sacking on party politics and the debt he says the president owes to Free Perú, the Marxist party that adopted Castillo, who has no party of his own, as its candidate last year. Free Perú is the biggest party in congress. Now, Cevallos says, it is payback time.

“Pedro Castillo told me he didn’t want to get rid of me but he also told me that Free Perú wanted to put their own person in the health ministry,” says Cevallos, who is not a member of Free Perú. His replacement is.

Some Peruvians have a simpler explanation: Castillo is incompetent or at best out of his depth. Before last year, he had never held elected office. A rural primary school teacher, peasant farmer and one-time trade union activist, he has always looked woefully unqualified for the job, say critics.

Yet the current turmoil did not start with Castillo. Peru has cycled through five presidents in as many years, with successive leaders becoming ensnared in an intensifying feud between the executive and legislative branches of government. Nearly all Peru’s presidents of the past 30 years have become enmeshed in separate corruption scandals.

Others argue that he has been poorly advised or allege that he is part of a corrupt clique that is governing solely for its own benefit. When Carlos Jaico, a chief presidential aide, quit in February, he said Castillo was being manipulated by “a cabinet in the shadows” that was “undermining national stability”. In January, the attorney-general opened a preliminary investigation into Castillo over allegations of collusion and influence peddling. The president denies all corruption allegations.

Supporters counter that the country’s Lima-based elite of business leaders, rightwing politicians and a voracious conservative press have made life impossible for him, refusing to accept his victory, blocking his proposals and scrutinising ministerial appointments in a way they never did with previous administrations.

Controlled explosions at a gold mine
Controlled explosions at a Peruvian gold mine. Mining is the lifeblood of the economy and government plans to close four privately owned mines were soon reversed © Dado Galdieri/Bloomberg

“They’re not letting him govern,” says Rubén Ramírez, the first of Castillo’s three environment ministers. “When a leftwing government comes in, the big economic powers naturally feel threatened, and they’ve used politicians from traditional parties to try to discredit the government.”

Castillo’s opponents have waged a fierce war to oust him from day one. Many members of Popular Force, the second largest party in congress, have never accepted that he beat their candidate, Keiko Fujimori, in the 2021 election. Castillo won by the narrowest of margins, just 72,000 votes in a nation of 33mn people. Fujimori cried fraud but Peru’s electoral authorities dismissed the claims as baseless.

In December, rightwing parties tried to impeach Castillo on the basis of a long list of alleged misdemeanours. They failed but are now trying again and congress is due to vote on Monday on his future.

“People can’t stand any more of this government, not just because they’re incompetent but because they’re corrupt and they’re co-opting state institutions,” says Sara Palasz, one of a group of protesters who had gathered in the upmarket Lima district of Miraflores, calling for Castillo’s dismissal. “The only thing left is for them to close down congress and then we’ll have a totalitarian government, like Venezuela, Cuba and Nicaragua.”

In their crusade to unseat Castillo, his opponents have found a useful weapon in the quirky phraseology in Peru’s constitution, which allows congress to impeach the president for “permanent moral incapacity”. This vague and highly subjective term was inserted into the charter in 1839 but for 150 years no one used it.

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“Even during the most disastrous of governments no one dreamt of impeaching the president for permanent moral incapacity,” says Juan Luis Orrego, a historian at the University of Lima.

That has now changed. Monday’s vote will be the sixth time in just four years, against three different presidents, that Peru’s legislators have tried to play the “moral incapacity” card. Twice they have succeeded, bringing down Pedro Pablo Kuczynski in 2018 — he resigned on the eve of an impeachment vote — and his successor Martín Vizcarra in 2020. What was once an obscure article in a 19th-century constitution has become the weapon of choice for disgruntled parliamentarians seeking to topple presidents.

“The exception has become the norm,” says David Lovatón, a constitutional lawyer at the Pontifical Catholic University in Lima. “So much so that when this presidential term began last year, the executive and congress had their fingers on the trigger from the start.”

Faltering support

The revolving-door chaos of recent months has inevitably hit Castillo’s approval ratings, which have dropped from 38 per cent when he took office to 25 per cent. No president in Peru’s recent history has been so unpopular after such a short period of time.

“When Castillo won, I thought everything would change and things would get better,” says Habraham Vilca, who lives on Lake Titicaca in the Andean highlands, where Castillo enjoyed huge support last year. “But now I see things have got worse. I wouldn’t vote for him again. He hasn’t got what it takes to run the country.”

In southern regions of the country Castillo took over 80 per cent of votes in last year’s run-off against Fujimori. His approval rating in those regions is now 45 per cent.

Peruvian rival presidential candidates Pedro Castillo (L), of the Peru Libre party, and Keiko Fujimori, of the Fuerza Popular party, bump fists ahead of the runoff vote
Pedro Castillo beat Keiko Fujimori by just 72,000 votes in last year’s presidential elections © Ernesto Benavides/AFP/Getty

Half the country now thinks he should resign, according to two recent polls by IPSOS and the Institute of Peruvian Studies (IEP), a social sciences research centre. In Lima the figure is 70 per cent. The polls suggest that between half and three-quarters of Peruvians want fresh elections.

But if Castillo is unpopular, so is congress. The IEP poll suggested only 14 per cent of Peruvians have a positive image of their legislators. Many people blame them for what they call the treachery, jockeying for power and barefaced opportunism that has characterised Peruvian politics for years.

“They’re all rats,” says Jessica Llantoy, a 20-year-old fruit seller in Lima. “I hope they impeach Castillo but the truth is the rest of them are no better.”

Resilient economy takes a hit

For now at least, the Peruvian economy — one of the fastest growing in the region since the turn of the century — is proving relatively resilient in the face of this political instability. In the days after Castillo took office, the currency, the sol, weakened to a historic low of over four to the dollar, but has since recovered to about 3.75, its strongest in almost a year.

And although the central bank counted $18bn in capital flight in the first nine months of last year — blamed by many observers on the uncertainty around the election outcome — the tendency has slowed or even reversed. This is in part due to a realisation that Castillo will simply not be able to enact his more radical proposals, such as taxing miners much more heavily or convening a constituent assembly to write a new constitution.

President Pedro Pablo Kuczynski waves before leaving the Palace of Government in Lima after his resignation
Pedro Pablo Kuczynski resigned as president in 2018 on the eve of an impeachment vote based on the constitution’s ‘moral incapacity’ clause © Luka Gonzales/AFP/Getty

“That whole programme he outlined on July 28 when he took office — he can’t implement because he doesn’t have popular support,” says Alfredo Thorne, a former economy minister and head of Thorne Associates, a local economic consultancy.

Thorne says the mining companies that account for the lion’s share of foreign investment in Peru regard Castillo’s government as a blip that will not disrupt their long-term plans. “They don’t care about Castillo,” he says. “They see a weak government, incapable of expropriating anything, and know it’ll eventually fall.”

Even so, some of the numbers coming out of Peru are worrying. While the economy grew more than 13 per cent in 2021 as it bounced back from the pandemic, it shuddered almost to a halt in the fourth quarter, Castillo’s first in power. Seasonally adjusted fourth-quarter growth was just 0.3 per cent due to a contraction in public spending and a slowdown in private investment.

Column chart of Annual % change in gross domestic product showing Peruvian economy takes a hit after bouncing back from the pandemic

“That gives you some idea of the deceleration we’ve seen since this government came to power,” Thorne says.

Rating agency Fitch highlighted the “continued political instability and policy paralysis in Peru” in a recent note, arguing that with so much political noise and so many cabinet reshuffles, nothing is getting done.

“Tensions among the president, cabinet and congress have undermined policymaking and execution and elevated political uncertainty,” it said. “This, in turn, has dampened the investment outlook.”

Castillo peace deal with

The most immediate threat to Castillo’s rule is Monday’s impeachment vote. Political analysts say his opponents will come close to securing the two-thirds majority they need in the 130-seat congress to topple him but will probably fall just short.

Even if Castillo is impeached, his job would in theory pass to his vice-president, Dina Boluarte, a member of Free Perú until January when she was expelled for criticising the party’s hardline Marxist leader.

There is an outside chance that Castillo quits, but that looks unlikely, not least because of the corruption allegations stacking up against him. Another option, if the situation deteriorates, is a military takeover or a popular uprising, but both seem remote. There have been both pro and anti-Castillo protests but they have been small, and the country’s military has stressed the need to avoid any intervention in politics.

Castillo could try to shut down congress. The quirks of the constitution allow for that. It says that if congress defies the president in two votes of confidence on their choice of cabinet during one five-year term, he or she can dissolve it and rule by decree before calling congressional elections.

That too is unlikely, though. Current members of congress would be barred from re-election and it is therefore not in their interests to reject Castillo’s cabinet choices, however much they disagree with them. Castillo has already put three cabinets to congress and each time legislators have given them the thumbs up.

People with megaphones and placards take part in a demonstration against the Peruvian President Pedro Castillo
Anti-Castillo demonstrators in the capital Lima on March 15. The president’s approval ratings have fallen to 25% from 38% when he took office in July 2021 © Ernesto Benavides/AFP/Getty

The president has told congress that he wants to move on from his bruising first eight months in power after acknowledging his mistakes and saying he was willing “to make amends and corrections”.

“For more than five years, polarisation and unbridled political confrontation have affected our governability and our fragile democratic institutions,” he said.

In some homes in Peru, he still enjoys support. “I still believe in Pedro Castillo,” says Tony Palomino, a community worker in Villa El Salvador, a former shanty town in southern Lima that is now a gritty suburb of breeze block houses, home to a population of about 500,000. “Castillo is trying to do things for the people and this battle between congress and government is doing enormous damage to the country.”

Monday’s vote will determine whether Castillo gets another chance, but even if he does, analysts say, it is difficult to see him lasting a full five-year term such is the toxicity in Peruvian politics at present.

“No country can stand so much instability,” Lovatón says. “Latin American history teaches us that after periods of instability an autocrat comes along — from the left or the right — who brings stability, and the country grabs hold of him.

“That’s the Latin American way,” he adds. “That’s the fear.”

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