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.  

 
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

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