Political chaos in Peru does not discourage Chilean investment, although there is concern

By Maolis Castro

Political turmoil in Peru triggered uncertainty after the removal from the Presidency and arrest of Pedro Castillo for alleged rebellion after his attempt to dissolve Congress.

“We know that 2023 will be a complex year economically for Latin America, with a significant slowdown and where levels of political uncertainty remain high. Consequently, this turmoil in Peru is a sign of concern for the business climate. Not only in Chile and Peru, but also for Latin America in general,” Jorge Sahd, director of the Center for International Studies at the Pontificia Universidad Católica of Chile, told Bloomberg Línea.

Peru is considered one of the main emerging markets in the region. The country has been an important internationalization destination for Chilean companies Cencosud, Falabella, Copec, among others, make up the group of companies with capital in that country.

According to data released in October at the Invest Day Peru-Chile 2022 forum, Chilean private investment in Peru rose to US$6 billion in the last 20 years, especially in the real estate, retail trade and food sectors.

Meanwhile, the commercial exchange between both countries accounted for US$3.368 billion last year, which meant an increase of 29% compared to 2020, according to the Undersecretary of International Economic Relations of Chile.

ON “SEPARATE STRINGS”: POLITICAL CHAOS AND ECONOMIC GROWTH

Juan Carlos Fisher, president of the Peruvian-Chilean Chamber of Commerce, admits that there is uncertainty, although he indicates that he does not know of companies that want to withdraw from the country or stop investing, nor are projects paralyzed due to the political situation. “The handbrake has been put on a bit, it is natural for that to happen; but I don’t think there will be a greater repercussion,” he said in a telephone interview with Bloomberg.

For Sahd, the most dangerous thing about the episode with Castillo was that a Latin American president was willing to remain in power through a self-coup. “That, beyond the short duration and the fact that it did not have support even from its own political forces, is a precedent that must be looked at with concern and great care in the face of other attempts that could be made in Latin America,” he explains.

The internationalist believes that this country has operated in a system of “separate strings,” where the economy continues to grow -even with an economic projection above the region’s average for 2023-, which goes in a parallel lane to the “institutional chaos and the enormous political instability” in the nation.

“If one even looks at the statement by former President Castillo (on December 7), and in the face of a moment of political and social tension in Peru, full respect for the social market economy was always made clear,” recalls Sahd.

Peru has had six presidents and three Congresses for six years, but despite these ups and downs its economy continues to grow. The International Monetary Fund (IMF) projects an increase of 2.7% of GDP by the end of 2022 and 2.6% by 2023, well above the estimate for Chile.

“The big question is how long is this model of separate strings sustainable,” said the expert.

Fisher’s opinion is that “Peru will continue to be one of the countries with the greatest opportunities for successful investment due to its tremendous need, not only for investment, but for infrastructure.”

WAITING FOR SIGNS

Dina Boluarte, who took office as president of Peru after Castillo was ousted a week ago, must face an immediate challenge: calm the political waters and show signs of calm and continuity in that country.

The president proposed this week that the general elections be held in December 2023, four months before her initial proposal. And on Wednesday she declared a state of emergency throughout the country for 30 days due to the demonstrations that have left at least 17 people dead and dozens injured.

“It is not clear what will be the ability to remain in power for a long time, considering that Peru faces a serious political problem of political fragmentation, crisis of political parties and lack of governability in the relationship of the Executive branch with Congress,” Sahd added.

With information from Bloomberg Línea