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Giant Pencils and Straw Hats: What's Next for Business in Peru?

Castillo´s Election Has Brought Uncertainty to Business in Peru Due to a Palpable Fear of Radical Leftist Reforms

Following a razor-thin voting margin, the Peruvian population elected schoolteacher and left-wing candidate, Pedro Castillo, to the presidency. Castillo’s election has brought uncertainty to businesses in Peru due to a palpable fear of radical leftist reforms that would threaten Peru’s image as a nation welcoming of foreign investment. However, those concerns may be premature and overblown.

We believe that Castillo is likely to step back from implementing the sort of radical change promised during the run-up to the election. Promises made during campaigns are frequently disregarded when governing, and we believe a pragmatism is likely to prevail. Castillo has limited maneuvering room and will focus his attention on fixing the obvious divide within the country and regenerating the heavily COVID-19 hit economy. Even if he is pressured to implement anti-market reforms – possibly as a result of pressure from stalwarts in his party Peru Libre – gathering the necessary legislative support to achieve meaningful changes to the Peruvian economy will be a difficult task for a new, inexperienced president with a very limited mandate and an obstructive Congress.

Castillo’s election looks more like Humala in 2011 (or Lula in 2002) than Chávez in 1998, with the new Peruvian president likely to maintain a market friendly economy coupled with an increased focus on programs to attempt to address social inequality.

Peruvian Political Context

The 2021 presidential elections in Peru occurred in a moment of extreme volatility: a nation disproportionately suffering one of the worst global per capita outbreaks of COVID-19, corruption scandals ranging from Odebrecht to vacunagate, a polarizing conservative opposition directly connected to endemic corruption in Peru and the historical schism between Lima and the rest of the country, most notably in terms of social development and economic opportunity.