MS Risk Blog

What Does the Future Look Like for Pedro Castillo’s Government?

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Prime Minister of Peru Héctor Valer Pinto resigned on 5 February, after it emerged that police complaints had been lodged against him in 2016 for domestic violence. He denies having assaulted his wife and child. With Valer’s resignation, President Pedro Castillo’s administration has now seen the departure of three prime ministers within six months.

It is just the latest issue facing Castillo since he won the presidency in July 2021, symptomatic of wider problems. So far in his tenure, Castillo’s administration appears to be paralysed. He does not say or do much, and has not attempted to implement any significant policy changes. Castillo is an inexperienced politician, an almost completely unknown former teacher before his surprise election last summer. Castillo has been plagued by various accusations of corruption that he claims are part of a right-wing plot against him. There was an attempt by Congress to impeach Castillo in December, which he survived since votes fell short of the number required.  He faces problems both with the right who are trying to impeach him, and with the left who are dissatisfied with his cabinet appointments. In spite of appearances that the odds are stacked against Castillo remaining president much longer, according to the Financial Times, analysts predict the most likely short-term outcome is stalemate. The opposition in Congress still likely lacks the necessary votes for impeachment.

The uncertainty around the government’s future appears unlikely to have a large effect on Peru’s economy. The Peruvian sol fluctuated in response to Castillo’s cabinet reshuffles the past few months, but not significantly. Precedent shows that Peru’s economy has remained stable even in periods of political crises. Since 2017, there have been repeated impeachment motions filed against successive presidents. In 2020, the country had three presidents in five days. Yet throughout, Peru’s economy has remained relatively stable. This economic stability masks the social problems around unequal wealth distribution, that Castillo was elected for promising to change. As indicators of this, in 2020, informal employment in Peru was around 68%. Just under 48% of the population faced moderate or severe food insecurity (13% higher than Argentina, 23% higher than Brazil). Certain regions are disproportionately affected, with child malnutrition peaking at 33.4% in remote rural areas in the Sierra and Amazon regions where indigenous populations reside.

One such social problem Castillo had pledged to address is the conflict around mining projects, and the inequality around who these bring greatest economic benefit to. The government does not appear to be well equipped to handle this issue. Mining protests have increased since Castillo came to office, according to the non-profit Observatory of Mining Conflicts. Reuters claim that Castillo’s election has emboldened Andean communities in Chumbivilcas province, since he had promised to distribute profits from the mining sector more fairly. Communities in the area have blocked access roads to Las Bambas mine in protests on multiple occasions, and mine operator MMG said it would have to halt production again by 20 February if an agreement is not reached. Copper output has dipped at Las Bambas, which is responsible for 2% of the world’s copper. Other mines in Peru such as Constancia, Antapaccay and Antamina have also seen protests. If these conflicts are not resolved, there is a risk of higher prices or shortages of these resources.