The unending political instability in Peru and why Congo is about to overtake the country as copper producer

The trajectory of Peru’s economy, having been resilient for 16 years despite frequent political disruptions, is under threat.

This political turmoil, overseen by Julio Velarde, the head of Peru’s central bank, has been largely due to the country’s constitution facilitating perpetual political crises.

Alberto Fujimori, the former President of Peru, introduced the constitution in the 1990s to salvage the collapsing economy.

This constitution, however, had an unintended consequence—it has birthed a political system that repeatedly puts the country’s leadership into a state of flux.

Between 2016 and the present, Peru has endured six presidencies, attempted removals of six presidents, a Congress dissolution, a coup attempt, and three former presidents jailed on diverse charges, including corruption and rebellion.

The urgency for a change in the political landscape is evident.

In a Bloomberg interview, Velarde emphasized the necessity of amending constitutional laws, although how to achieve that effectively is a contentious topic.

As the instability persists, attracting necessary investments into key sectors like mining becomes challenging.

The ripple effect of the political disorder came to the fore following former President Pedro Castillo’s unlawful attempt to dissolve Congress, leading to his impeachment and arrest.

This resulted in civil unrest, an economic downturn, alleged extrajudicial killings by security forces, and a significant drop in economic growth.

Once an economic powerhouse in the early 21st century, Peru now faces a bleak economic outlook, reflected by the collapse of its healthcare system during the pandemic and the increasing poverty rate.

Notably, this dire situation also serves as a cautionary tale for other Latin American countries, where impeachment attempts have become more prevalent.

Reflecting on the country’s political quagmire, former Congress President Mirtha Vasquez described Peru as “ungovernable.”

With public protests against President Dina Boluarte escalating, it’s unclear how long she will hold office.

Fujimori’s constitution, despite its current detrimental impact, had an initial positive effect on the economy.

The reforms drastically reduced state interference, and privatized many state-owned companies, leading to an annual growth rate of 10% by 1994.

This period of economic growth lasted until the recent political debacle and pandemic hit, causing severe economic repercussions.

Peru’s political system’s troubles emerged during Pedro Pablo Kuczynski’s presidency in 2017.

Despite solid Wall Street experience, Kuczynski grappled with a hostile majority in Congress.

Eventually, he had to resign due to allegations of having extensive undisclosed dealings with Odebrecht, a company notorious for bribing Latin American politicians.

Following Kuczynski, his successor, Martin Vizcarra, also faced a similar fate, serving only a short term before getting ousted.

His replacement had an even shorter stint—six days—as president before resigning amid widespread street protests.

Amid the political volatility, the average tenure of top ministers, including the Prime Minister, Minister of Economy, and Minister of Mining, has been significantly reduced.

As a result, international investment into Peru has dwindled, particularly in the mining sector.

Several potential mining projects worth US$53 billion are at a standstill, indicating an alarming industry stagnation.

Congo is about to overtake the country as the world’s second-largest copper producer.

Peru’s current economic situation and the general political uncertainty pose significant challenges to Boluarte’s administration, which is set to end in 2026.

With the ever-present threat of vacancy and the country’s recent tumultuous history, the prospect of leadership in Peru seems daunting, prompting former president Kuczynski to remark, “You have to be completely nuts to run for the presidency of Peru.”

With information from Bloomberg

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