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Twelve days as president and
crisis swamps Peru's leftist Castillo

Ernesto Benavides/AFP

Marxist PM, Guido Bellido (L) and president Pedro Castillo at Pampa de la Quinua in Ayacucho, Peru.

- Castillo's controversial cabinet picks alarm analysts
- Opposition figures who had backed him become alarmed

By Maria Cervantes and Matthew Bristow/Bloomberg

LIMA
Petroleumworld 08 09 2021

Peru's new president is off to a rocky start, selecting contentious ministers, alienating allies and setting the stage for a brutal face-off with congress, all within days of taking office.

A rural teacher and union activist, Pedro Castillo won the election after reassurances that he's his own man, not beholden to his party's Marxist ideology or chief.

But when he named his cabinet -- including a prime minister who's under investigation for being an alleged apologist for terrorists -- analysts, opposition figures and even some who'd backed him expressed alarm, so much so that the word “impeachment” was heard more than once.

“His political capital went up in smoke in 24 hours,” said Rodolfo Rojas, a partner of the Lima-based Sequoia political advisory group. “If he doesn't change course, there's no future for him.”

Impeachment isn't imminent, Rojas said, but a clash with congress looks likely. And while Peru has made a habit of ousting presidents, it's rare for such a discussion to take place within days of inauguration.

Investors are also deeply concerned. Stocks crashed 6% in just one day, bonds are faltering and the Peruvian sol is the worst-performing currency in the world since Castillo was sworn in. Barclays estimates that investors have pulled some $3 billion every month from the country since the April election.

Several key backers have split with Castillo, including Partido Morado, a centrist party, La Republica, a major national newspaper that supported him, as well as a teacher's union.

Impeaching presidents in Peru is easier than almost anywhere on earth. Castillo's opponents would just need 87 out of 130 votes in the single-chamber congress, and he could be ousted under the loosely defined “moral incapacity” clause. Former president Martin Vizcarra was impeached last year under it and nearly every Peruvian president elected since 1985 has been impeached, imprisoned or sought in criminal investigations.

Castillo's party has only 37 seats; including allies it's still fewer than 50. His opponents, in other words, dominate congress.

Confrontation

Some suspect Castillo named Bellido in order to set up a confrontation with congress. Under the country's unusual constitutional rules, if congress twice rejects his cabinet, the president can dissolve the chamber and call for new elections.

“If they don't like the Bellido cabinet, they'll give it a vote of no-confidence and we'll immediately present another cabinet,” said Guillermo Bermejo, a congressman for Castillo's Free Peru party. “And if they don't like that one, it's goodbye congress!”

That could set the stage for what Castillo has said he wants -- a constitutional assembly to rewrite the nation's charter, something done by other Latin American radicals, such as Hugo Chavez in Venezuela. Castillo is also being watched as a harbinger of what may be a leftward regional shift in investor standouts, with elections due in the coming 14 months in Chile, Colombia and Brazil.

Praise for Cuba

Castillo was a virtual unknown before the presidential race when he ended at the head of a group of candidates, setting up a runoff with Keiko Fujimori, from the nation's most powerful political clan. He squeaked past her by 40,000 votes and had to endure weeks of recounts and legal challenges before being declared the victor.

Bellido is a Marxist who has never held high office, and who considers the communist government of Cuba to be a democracy. Other controversial cabinet picks include the foreign minister, Hector Bejar, who was a guerrilla leader in the 1960s.

Many of the new ministers lack experience or qualifications for their new responsibilities which will include trying to restore some normalcy after one of the worst Covid-19 outbreaks anywhere.

Even members of the new government appeared to have reservations about some of their colleagues. Shortly before the cabinet was sworn in on July 30, Castillo's picks for economy minister and the justice minister walked out, and were sworn in the following day, apparently after receiving reassurances from Castillo.

Investor Reaction

Investors' initial reaction was near-panic. The sell-off in the nation's assets was briefly reversed when Pedro Francke, a former World Bank economist popular with investors, agreed to take the role of economy minister.

Castillo had toned down his radical discourse ahead of the runoff vote, as he tried to broaden his appeal beyond his heartland in poor rural areas. But he “returned to his roots” when he took power, Rojas said.

Impeaching presidents in Peru is easier than almost anywhere on earth. Castillo's opponents would just need 87 out of 130 votes in the single-chamber congress, and he could be ousted under the loosely defined “moral incapacity” clause. Former president Martin Vizcarra was impeached last year under it and nearly every Peruvian president elected since 1985 has been impeached, imprisoned or sought in criminal investigations.

Castillo's party has only 37 seats; including allies it's still fewer than 50. His opponents, in other words, dominate congress.

Confrontation

Some suspect Castillo named Bellido in order to set up a confrontation with congress. Under the country's unusual constitutional rules, if congress twice rejects his cabinet, the president can dissolve the chamber and call for new elections.

“If they don't like the Bellido cabinet, they'll give it a vote of no-confidence and we'll immediately present another cabinet,” said Guillermo Bermejo, a congressman for Castillo's Free Peru party. “And if they don't like that one, it's goodbye congress!”

That could set the stage for what Castillo has said he wants -- a constitutional assembly to rewrite the nation's charter, something done by other Latin American radicals, such as Hugo Chavez in Venezuela. Castillo is also being watched as a harbinger of what may be a leftward regional shift in investor standouts, with elections due in the coming 14 months in Chile, Colombia and Brazil.

Praise for Cuba

Castillo was a virtual unknown before the presidential race when he ended at the head of a group of candidates, setting up a runoff with Keiko Fujimori, from the nation's most powerful political clan. He squeaked past her by 40,000 votes and had to endure weeks of recounts and legal challenges before being declared the victor.

Bellido is a Marxist who has never held high office, and who considers the communist government of Cuba to be a democracy. Other controversial cabinet picks include the foreign minister, Hector Bejar, who was a guerrilla leader in the 1960s.

Many of the new ministers lack experience or qualifications for their new responsibilities which will include trying to restore some normalcy after one of the worst Covid-19 outbreaks anywhere.

Even members of the new government appeared to have reservations about some of their colleagues. Shortly before the cabinet was sworn in on July 30, Castillo's picks for economy minister and the justice minister walked out, and were sworn in the following day, apparently after receiving reassurances from Castillo.

Investor Reaction

Investors' initial reaction was near-panic. The sell-off in the nation's assets was briefly reversed when Pedro Francke, a former World Bank economist popular with investors, agreed to take the role of economy minister.

Castillo had toned down his radical discourse ahead of the runoff vote, as he tried to broaden his appeal beyond his heartland in poor rural areas. But he “returned to his roots” when he took power, Rojas said.

Although Castillo has “shot himself in the foot” in his first few days, his government isn't on the verge of collapse, said Jo-Marie Burt, a Peru specialist at the Washington Office on Latin America, which promotes human rights and democracy. And just as congress has the ability to impeach him, Castillo can dissolve congress if it rejects two of his cabinets.

She added: “It seems that coming out of the gate, Pedro Castillo barely has that presidential sash on, and both the president and the congress seem to be reaching for those nuclear options at the outset.”

_____________

By Maria Cervantes and Matthew Bristow from Bloomberg.

bloomberg.com
08 09 2021

TOP

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