A sudden undertow of political instability in Peru is threatening to submerge economic growth and investment
Business-minded president Pedro Pablo Kuczynski faces likely impeachment on 21 December, and there are growing calls for his vice presidents to step aside if he is ousted, a scenario that would lead to new elections just 18 months into his five-year term.
Banks in Peru and abroad, as well as the country's business associations, fear that political volatility would slow investment and keep the country from reaching a forecast 4pc GDP growth in 2018.
Kuczynki?s 2016 election victory was widely celebrated by the business community as a sign of Latin America?s broader shift away from populism in favor of pragmatic, investment-oriented economic policy.
Peru's Banco de Credito warned yesterday that instability could limit recuperation of public and private-sector investment, while the Lima chamber of commerce said investors could walk away. Japan's Nomura bank said Peru needs to swiftly resolve the crisis in order to minimize market impact. The Eurasia Group, a political risk consultancy, changed its outlook to negative from neutral.
Peru's congress will hold an impeachment hearing based on grounds that the president is "morally unfit" to govern. The process stems from allegations that a company Kuczynski previously owned had business dealings with corrupt Brazilian contractor Odebrecht. Odebrecht has been at the heart of huge regional scandal since the company admitted last December to having bribed its way into multiple public works contracts in more than 10 countries, including Peru where it admitted to paying $28mn in bribes.
Kuczynski is not accused of taking bribes, but of having lied about his relationship with Odebrecht.
The president has repeatedly denied any professional dealings with Odebrecht. The alleged income from the contractor would have been earned when he was finance minister and later cabinet chief during former president Alejandro Toledo's government (2001-2006), violating conflict of interest laws.
The motion to remove Kuczynski, approved in a 93-17 vote on 15 December, states that the president "repeatedly lied to more than 30mn Peruvians, which is an indisputable cause for impeachment."
Odebrecht reported on 16 December that while it had paid more than $780,000 to the president's firm, the money was paid to his Chilean associate Gerardo Sepulveda. The president admitted that he earned dividends from the company, which he maintains is not illegal.
Legislators from three parties assert that it is not the payments per se, but that fact that Kuczynski apparently lied that is cause for his removal.
If the president is impeached – 87 votes are needed – he would be replaced by first vice president Mart?n Vizcarra, a former governor and transportation minister currently serving as ambassador to Canada. If Vizcarra were to decline, the baton would pass to second vice president and cabinet chief Mercedes Araoz.
Legislators, including some from the president's party, want the vice presidents to step aside to facilitate new elections as early as April 2018.
But new elections would offer no guarantee of stability. The president's nemesis, Keiko Fujimori, whom he narrowly defeated in June 2016, and former president Alan Garc?a (2006-2011) are also under investigation for ties to Odebrecht. They lead two of the three parties behind the impeachment drive.
Kuczynski?s predecessor Ollanta Humala (2011-2016) was arrested in July for allegedly receiving $3mn in unreported campaign contributions from Odebrecht. And an arrest warrant was issued last February for former president Alejandro Toledo (2001-2006) for allegedly receiving $20mn from Odebrecht for a highway project.
The turmoil risks undermining forecasts of a 3.5pc increase in private investment and a 17.5pc increase in public investment in 2018. The government anticipates a big jump in investment. Mining investment totaled $4.3bn in 2016, and the energy and mines ministry estimates close to $20bn by end-2021. Hydrocarbons investment totaled $352mn last year, with the ministry forecasting another $5bn through 2021.
Peru is the world?s second largest copper producer and in the top six in production of gold, lead, silver and zinc. While it does not have the largest gas reserves in the region – approximately 14 trillion ft3 – it is South America?s sole LNG exporter.