Peruvian president-elect, who takes up office this month is likely to face an uphill battle to enact his political agenda, with a bitterly divided parliament

At the end of July, the 77 year old president-elect Pedro Pablo Kuczynski (head of the centre-right Peruvians for Change Party) will be sworn into office in Peru’s capital, Lima. The country is still recovering from the political polarisation that marked the presidential election and the new government face an uphill challenge as they take power with a marginal representation in Congress and strong opposition from both fellow right-wing parties and the left-wing opposition.

The political polarisation during the bitterly fought campaign was partly fuelled by Keiko Fujimori’s presence, who was leading in the polls and won the first round vote. Keiko is a controversial political presence in Peru, both loved and hated and inextricably linked to the legacy of her father, former-president Alberto Fujimori, who left office in the 1990s and was sentence to prison charged with corruption and human rights abuses during his time in office.

In this context, the eventual election of the uncharismatic, fiscally conservative technocrat Kuczynski, was at heart an anti-Fujimori vote. Members of the left and right wing formed a rare united front to back the president-elect in the second round vote and block Fujimori from becoming president. However, the extremely tight race saw the president-elect win by minuscule margins with the final count declaring his presidency with 40,000 additional votes.

The effects of such a tight margin? Kaczynski is likely to face constant blockages from all sides as he tries to enact his campaign pledges and develop a strong political agenda.

A challenging agenda ahead

Kuczynski’s government will face significant battles in Congress where Fujimori’s Party (Fuerza Popular) hold the majority of the 130 parliamentary seats. However, opposition from fellow-right wing Fuerza Popular is not the only challenge. Leader of the left-wing Frente Amplio, Verónika Mendoza, only supported the president-elect in the second round vote to keep Fujimori from office and has already declared that she will not form a government with the president’s party. Amid the current political uncertainty as to how the minority government will rule, there has been much media speculation around the Executive Committee in Congress and Fujimori’s future position.

The challenges for Kuczynski will be apparent from day 1, as the president attempts to focus on his two key campaign topics: the economy and citizen security. He will focus on increasing economic investment in the country, particularly in the controversial extractives sector and has campaigned to decrease regulation to lessen the burden for investors, though arguably also lessening the guarantees for those protecting environmental, social and cultural rights.

His vision of citizen security focuses on increasing the number of police and their capacity to fight organised crime by giving them more power. This, in a region that is experiencing the effects of the militarisation of police in the fight against organised crime and the subsequent abuses of power, has been viewed as problematic by many, while his supporters highlight the need for a Mano Dura (heavy hand) to protect citizens.

Throughout the election campaign, the role of narco-trafficking was bizarrely rarely mentioned considering Peru is facing an uptick in coca production. Moreover, with rising domestic consumption South America is now a key target for widespread narco-trafficking operations. However, it is likely that the president-elect will incorporate this into his “citizen security” plan, to enhance confidence in the police and develop intelligence capabilities to destroy crops and trafficking operations, particularly in key commercial hotspots.

Security Programmes – more snooping?

The new president has yet to outline his plan to increase prison capacity but has criticised Fujimori’s claims to build prisons above 4000 metres, claiming such measures were insufficient to address the roots of the problem around violent crime.

Kuczynski has voiced his support for former-Colombian president Álvaro Uribe’s security strategies during his time in office. Uribe focused on regionalising security and intelligence capabilities to oversee activities across the country. Peru’s president-elect has outlined his plans to develop relations with local villagers and regional authorities to create security watch dogs to “police” at a local level. What is not clear is whether these types of security programmes will necessitate special presidential powers to effectively allow more snooping. Such special powers are likely to be contested by other groups in parliament who will see this as a breach of citizen rights.

The president-elect’s security programmes include reforms to the National Intelligence Directorate, who are responsible for developing strategic information and running the National Intelligence System, overseeing military and police intelligence. This underlines that there will be transfer of inception communication with the national police forces who are responsible for fighting organised crime. In the same way it’s thought that the Financial Intelligence Unit will increase its powers and open investigations against those people and companies involved in crime and corruption.

What does this mean? The new president is likely to push for increased “snooping” to keep organised criminals at bay, whether this is an effective method or not is highly disputed. Whatever the outcome, he is unlikely to pass such special guarantees without a fight in parliament. For investors, due diligence into local partners will be critical to ensure that companies are compliant with local, state, federal and international regulations.

Who investigates who?

Another polemical discussion taking place is over which party will oversee the Fiscal Commission, responsible for carrying out anti-corruption and fraud investigations against members of parliament and government. This body recently required notoriety following its investigation into the role of drug-trafficking within Peruvian political elites. Members of Fujimora’s Fuerza Popular claim that they should lead the Commission as they have the majority in parliament. However, considering their party is currently under investigation on the grounds of illicit financing for Fujimori’s election campaign in 2011, many members of parliament are suspect about their independence to lead such a body.

Eyes on the road ahead

The political balancing act that Peru is now facing means that in the medium and long term the president elect will have to try and create a cross-party consensus on key issues to develop his political agenda. While at their heart the PPK and the Fuerza Popular, both conservative parties, have relatively similar policy angles when it comes to security and the economy, there are likely to be constant tensions between the majority Fujimoristas and the governing party. This will threaten Kuczynski’s ability to consolidate his political project and will seriously hamper his ability to follow through on his election promises.

While he has not finalised his government, it looks like the new president will bring together a group of experts and technocrats, highlighting that he will pick from those who were not part of his campaign. What is still unknown is whether the Peruvian Congress will pass the rights for the president to carry out reforms in the security and economic sector in the short term.

While investors might greet his plans to cut the red tape and deregulate some key industries to increase competition and investment, he is likely to face significant opposition from some quarters on environmental and social grounds. Investors looking at Peru, particularly in the extractives sector, should pay close attention to the president’s first three months in office to gage how he is likely to move ahead on this campaign pledge. Peru has faced significant challenges in its extractives sector and investors must be aware of the propensity for social activism if they do not develop cohesive operating plans with the local community.

Finally investors should be aware of the links between political elites at both a local, state and federal level and narcotrafficking activities and companies are advised to carry out due diligence to ensure they are aware of the risks within future operating environments.