Peru is one of the countries expected to undergo little change in its relationship with the US. As its FTA (Free Trade Agreement) has already been signed, it has the support of Barack Obama and the Democrats. However, the more interventionist policies of the new American government may cause a few trade barriers. 

The Cabinet of Ministers chaired by Yehude Simon will be concluded by April 2009 after overcoming political issues, said the secretary general of the APRA party, Mauricio Mulder. According to him, the experience gained in this period will be fundamental to face the challenges ahead.

 

Mulder highlighted that Simon has already begun a negotiation process with all political and social leaders in Peru. According to him, the new government set-up will receive a vote of confidence from Congress. The secretary general also said that the APRA party as a whole will provide support in Congress. Despite Mulder’s optimism, local sources say that some wings of the APRA party are dissatisfied. They believe that the party lost political power in the current government, given a more technical set-up in the upper tier.

 

However, there will hardly be any short-term change. Alan García’s new government now aims at achieving independence from the political system, which ends up in a paradox. The government must have a more independent attitude, but at the same time needs party backing to support García’s unpopular administration.

Despite the adverse international scenario, Peruvian president Alan García has affirmed that the economy will grow by 9% this year, and 7% in 2009. Besides, public investment in roads, water treatment and electricity will increase by 34% in comparison to 2007. According to the local press, García is confident in the nation’s potential. While talking to business people, he said that Peru is well positioned and that investments should be maintained. However, the Peruvian Chief of State asked for prudence in public expenses.

 

Behind García’s optimistic rhetoric there is worry with the political and economic situation. The political crisis has altered all his cabinet, and now financial market turbulences will serve the opposition well to challenge the efficacy of his government’s orthodox economic policies. 

 

Faced with this scenario, the government will need plenty of political skills to sew up an effective support base. Being in the government will carry an increasingly bigger burden, since there is a tendency for opposition criticism to connect more easily with public opinion wishes. Conversely, being in the opposition becomes more profitable. The main beneficiaries are García’s top opponents: the Workers’ General Centre (CGT) and nationalist leader Ollanta Humala. 

The Peruvian opposition is expected to benefit from the political crisis. Not only unfavorable market conditions affecting the nation’s poor, but also the political predicaments of persons having close ties with Alan García have given ammunition for the General Labors Confederation of Peru (CGTP) to call for changes in economic policy.

 

The government has demonstrated its inability to conciliate economic growth and wealth distribution, say the oppositionists. According to the local media, popular manifestations against the president are a consequence of the Peruvians people’s frustration with the government, added to fears related to the international financial crisis.

 

In light of these circumstances, the lobby demanding Alan García to change economic policy, already strong in the past, will now increase in intensity. The first reaction by the Peruvian leader has been positive, however. He has adopted a fierce speech against corruption, thus avoiding that the implicated persons are linked to the president’s image.

 

Significant changes in his administration are virtually inevitable, however. The first sign of change has come from Jorge del Castillo. Prior to attending a meeting, he said that all ministers had resigned from office, and that Alan Garcia had accepted such resignations. The substitutes have yet to be appointed, however.

 

The government will have to form an “assault squad” in Congress upon forming the new ministerial line-up because an inquiry has been launched to investigate oil concession agreements. 

A major political scandal hit president Alan García’s administration beginning last week.

 

A footage broadcasted by América Televisión’s program “Cuarto Poder” shows Rómulo León and Alberto Quimper discussing kickbacks to be paid for aiding Norwegian oil company Discover Petroleum in a bidding for oil exploration blocks. León is a former minister linked to the Aprista Party’s, while Quimper is a high-ranking officer of Petroperú, the country’s agency for promoting and negotiation hydrocarbon contracts.

 

The oil company, which eventually won the bidding, denies any form of illicit facilitation. However, another recording was disclosed in which León discusses a purported benefit for Jorge del Castillo, head of the Council of Ministers, with a representative of Discover Petroleum.

 

Since disclosure of the scandal the Minister of Energy, Juan Valdivia, and the president of Petroperu, César Gutierrez, have been removed from their offices. This is undoubtedly the biggest political crisis in Alan García’s administration so far. This situation is likely to develop further into a predicament for president García because of his close ties with the persons involved in the scandal.

 

The population’s confidence in his administration is very low as of now. According to the latest surveys, only 19% of Peruvians approve his administration. The crisis is likely also to have negative effects on the Peruvian Aprista Party (Apra) on account of the involvement of persons having close ties with the president’s party.  

The President of the Congress, Javer Velázquez Quesquén, has denounced that Venezuelan President Hugo Chávez is trying to intervene in Peru’s domestic issues through his operators. He said that such interference is occurring by means of disguised moves, such as the so-called Bolivarian Alternative to the Americas (ALBA, in the Spanish acronym) houses.

 

Ever since these centres appeared in the south of the country, the government of Alan Garcia has been observing Chávez supporters in Peru. The ALBA houses are located in the Puno region, near the Bolivian border. The government was warned after similar houses started appearing in other localities.

 

Despite such reports, Hugo Chávez denies that he’s been sponsoring these centres. A congressional committee has conducted investigations, but no evidence of any Venezuelan participation has been found. Suspicions of interference in Peru have existed since the latest presidential election, when nationalist leader Ollanta Humala was publicly supported by Chávez.  

Economist Alejandro Indacochea believes that, because of the imminent slowdown in the world’s economy resulting from the current US financial crisis, the Peruvian government should revise next year’s budget, as it was drafted under “other conditions”. To Indacochea, such a change is needed so that decisions can be made backed with caution and prudence.

 

According to the consultant, this crisis will affect the domestic economy on the export side, as the US is one of Peru’s main business partners. Even with the warnings about how the crisis may affect the country, the government is keeping a cool attitude.

 

Up until now, there has been no signal of budgetary changes. According to Jorge del Castillo, who chairs the Council of Ministers, a high GDP growth rate, the international reserves and the diversification of exports (the country no longer relies on mining only) help prepare to face turbulences.

 

However, the inflation rate as measured by the National Institute of Statistics and Informatics (INEI) in September is a reason for concern. It reached 0.57%, below August (0.59%), but above the analysts’ projection (0.40%). Therefore, annual inflation reached 5.29%, compared to official forecasts between 1% and 3%.

 

To prevent international price rises from causing more inflation, the Central Bank has increased interest rates six times. It is currently at 6.50%. Last year, inflation reached 3.93%, and the economy grew by 8.99%. 

Representatives from the Peruvian Ministry of Tourism and Foreign Trade and the Department of Commerce from the United States will meet from today until Friday in Washington aiming to settle the Free Trade Agreement (FTA) between both countries.

 

The FTA with the US is highly expected in Peru. President Alan Garcia sees the agreement as an opportunity to boost his popularity, which is very low in the moment. Economically, the country is doing very well, with a yearly growth of over 6% in the past eight years. Nevertheless, politically, Garcia has not been able to bring the same positive results.

 

He’s got an immense difficulty in dealing with the opposition and negotiating with Congress. Also, Garcia rarely leaves Lima to visit the rest of the country. This is not good for his image, especially since the mayor of Lima, Luis Castaneda, has a very positive image in the city. At the end, Garcia does not explore the possibility of having “safe political zones” and is stuck with good results in economy to maintain his administration functioning.

he negotiations between Peru and China related to a Free Trade Agreement (FTA) will probably extend until 2009, since there are major differences in tariff deductions. The access to the markets is the main obstacle to advance the negotiations. Recently, Peru finalized a FTA with the USA.

The FTA with China will come in handy for Alan Garcia. In economic terms he is doing a good job. The economy is growing in solid, constant rates (over 7%) and visibly we can notice improvements in infra-structure in cities such as Lima and Arequipa. In the other hand, politically Garcia does not seem to have learned the lesson. He is governing for Lima and other industrialised cities. His participation in poorer areas of the country is not satisfactory.  

Inflation will start falling in 2009. The forecast was made by the IMF executive director for Latin America, Javier Silva Ruete.
 
According to him, inflation hikes are not related to domestic issues, but rather to food and oil price increases in the global market. Thus they are uncontrollable phenomena.
 
However, he said that there must be improvements in infrastructure, trade and job creation. Even if García resists on trailing a more socially-minded path, he will have to face a debate on income distribution. If he doesn’t, the opposition will seize the moment to build up a discourse.
 
Not surprisingly, former presidential candidate Lourdes Flores Nano has been saying that the current president governs for the rich and is a conservative.

 
Welcome! Latin America is becoming consistently more important for the world. As the region becomes more stable, the world sees Latin America as a potential business area. In order to understand te potential Latin America has to offer, the world must understand the unique dynamics that the local politics function. This blog already exists in Portuguese since 2005 and is widely read. I believe it can be an important instrument to understand this amazing region. Suggestions, criticisms and opinions are welcome. + learn more

RSS feeds

Podcasts

Popular categories

Keywords

collaborators