Peru shuts down Congress

On 30 September, President Martin Vizcarra ordered the constitutional closure of Congress, calling for early parliamentary elections. Vizcarra’s action reflected his interpretation that Congress had twice rejected a vote of confidence in the government. Following Vizcarra’s decision, Congressional lawmakers declared the president’s post “temporarily vacant” and appointed Vice-President Mercedes Araos (who withdrew support for Vizcarra) as Interim President. Araos claimed she would elevate the case to the Organization of American States for consultation.

The political impasse started on 27 September when Congress rejected Vizcarra’s proposal (formulated on 28 July) to hold a referendum to decide whether to call a general election ahead of its scheduled date of April 2021. This proposal followed delays by the opposition-controlled Congress in ratifying legislation for his government’s proposed reforms to the judicial system and political and campaign-financing arrangements, previously approved by a national referendum in December 2018.

Significance

Peru’s Constitutional Court is likely to decide on the legality of Vizcarra’s move. Vizcarra’s decision, however, is likely to be supported by the armed forces, the national police and the wider population, amid widespread popular perception that Congressional lawmakers, including those from Popular Force (Fuerza Popular: FP), the main opposition party, are corrupt. PP’s main leader has been jailed since November 2018 over an investigation related to her alleged links with the Brazilian Odebrecht corruption scandal (which she denies).

Lack of clarity over the legitimacy and authority of Peru’s presidential and parliamentary leadership threatens a period of institutional paralysis, which would generate uncertainty for new investments and projects in Peru, indicating the likelihood of delays until the political position is clarified. In turn, this will reduce Peru’s economic growth prospects of 2.9% for 2019 and delay new infrastructure and extractive industries projects in the one-year outlook.

One more-positive indicator for such projects is that regardless of whether Vizcarra or Congressional lawmakers forcibly step down, there are no signs at present that the favorable regulatory environment for the extractive sector, or the treatment of ongoing operational projects will be adversely affected in either scenario.

Posted 11 October 2019 by Diego Moya-Ocampos, LLB, Principal Analyst, Country Risk Americas, IHS Markit