Index trend
Previous quarterly editions
Expropriation Risk: 54 54 54 54 ►Political Violence Risk:57 57 57 48 ▼Terrorism Risk:28 28 28 28 ►Exchange Transfer and Trade Sanction Risk: 45 45 55 63 ▲Sovereign Default Risk:55 55 55 47 ▼
Overall Risk Temperature: 53 (Medium -2) TREND ▼
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
1
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
2
Peru has in recent years neither experienced gray zone aggression in any major way nor been a victim of it. The country maintains reasonable relations with its immediate neighbors — Ecuador, Colombia, Brazil, Bolivia and Chile — although there have been political differences that have soured relations with Bolivia and latterly Colombia, but not such as to provoke acts of aggression.
Both Colombia and Mexico protested at the way in which Dina Boluarte replaced Pedro Castillo as president of Peru in December 2022, leading to the interruption of full diplomatic relations in both cases. In March 2023, Peru recalled its ambassador to Colombia. Likewise, Peru recalled its ambassador to Mexico in February 2023 over what it called Mexican President Andres Manuel Lopez Obrador’s “unacceptable” support for Castillo.
Peru’s relations with other Latin American states have been strengthened by its membership of a variety of integration schemes — including the Andean Pact and the Pacific Alliance — as well as within the Organization of American States. However, tensions have arisen with the Inter-American Court on Human Rights over Peru’s human rights record and moves that flout the court’s rules (notably the pardoning and freeing of former President Alberto Fujimori from prison). Supporters of Fujimori in Congress and some of their allies have suggested that Peru abandon the jurisdiction of the court. On balance, such a move seems unlikely.
The country with which Peru has had most contentious relations in recent years is Venezuela. Peru was one of the architects of the Lima Declaration in 2017, which sought to pressure the Maduro regime in Caracas toward holding democratic elections. In 2019, Peru banned Maduro and supporters from entering the country and formally recognized Juan Guaido as interim president of Venezuela.
Peru has been one of the recipients of the largest number (around 1.5 million) of Venezuelan refugees. While diplomatic relations were restored under Castillo, they were interrupted once again following Peru’s refusal to recognize President Nicolas Maduro’s proclaimed victory in the 2024 election, recognizing his opponent Edmundo Gonzalez instead.
Beyond Latin America, Peru has come in for criticism over its handling of human rights, both in the U.S. and European Union. However, this has not led to specific sanctions. Despite its close ties to China — Peru’s most important trade partner and largest source of foreign investment — conflict has arisen over the infringement of Peruvian waters in the Pacific by Chinese fishing trawlers.
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The election of Castillo as president in 2021 sharply increased the risk of expropriation. He had advocated the expropriation of extractive industries in his election program. However, he found himself unable to pursue that agenda. His removal from office in December 2022 following his impeachment and subsequent imprisonment greatly reduced the risk of expropriation by the state.
Although elected as Castillo’s vice president, Dina Boluarte made clear on assuming office that she would be guided by orthodox principles aimed at maximizing foreign investment. Her appointments as ministers of economy and finance have sought to reassure market sentiment. Most have been well-regarded technocrats. The reappointment of Julio Velarde, a liberal economist who has occupied the post of president of the central bank since 2006, was also designed to reassure business opinion.
Boluarte’s appointment of Jose Arista as minister of economy and finance in February 2024 sought to restore confidence following 2023’s shallow recession and did not constitute a change in policy. Arista has made clear the government’s overriding priority is to attract foreign investment, especially in the mining sector. Boluarte also appointed Romulo Mucho as minister of energy and mines. He has committed himself to seeking much-needed mining investment, promising to reinitiate some large, mothballed concessions owned by foreign companies.
The immediate risk for macroeconomic stability lies with the more populist tendencies within Congress that advocate irresponsible fiscal policies. Among these are renewed attempts to allow savers to draw down their pension plans, further undermining the stability of the pension system. Further ahead, the main risk lies in the uncertain outcome of the 2026 general election. This could presage the return to a more radical leftward-leaning government espousing policies similar to those initially mooted by Castillo in 2021.
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Boluarte’s takeover as president resulted in strong protests from supporters of the ousted Castillo, especially in southern Peru, which had voted massively for him as president in 2021. Although such pressures have diminished over the past 12 months, the risk remains of anti-government protests erupting. The Boluarte government has made clear that, notwithstanding human rights violations, it is prepared to meet such challenges with force.
Specific groups are active in taking to the streets. Informal miners are poised to protest if, as seems likely, Congress rejects a government bill to protect their right to become formal workers and thus achieve significant benefits. Violent demonstrations are also in prospect if Southern Peru Copper Corporation presses ahead with development of its Tia Maria mine in the Tambo valley in Arequipa region. Several deaths have been recorded in the past as local farmers sought to prevent the project going ahead. Further violence has also been reported at the Poderosa gold mining company’s installations in La Libertad region, allegedly caused by informal miners encroaching on the company’s concession.
Protests remain common in the Amazon region, where indigenous organizations seek to protect themselves, often by force, from inroads made by migrants often involved in illegal activities such as timber extraction, gold mining and coca cultivation.
The remnants of the Sendero Luminoso insurgency remain active in an area known as the Vraem, where the majority of Peru’s coca is produced. The group is now primarily involved in drug trafficking. There have been periodic attacks on police and army patrols.
Though coca cultivation is not as widespread in Peru as it is in Colombia, it has been on the rise in recent years. The government is trying to encourage a switch from coca to legal crops, but the lack of state presence on the ground continues to make progress difficult.
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Peru remains committed to free trade principles and, despite its unpopularity, the Boluarte government has resisted pressures to introduce anti-dumping measures to protect local industries from the surge in textile and clothing imports from China. The government is negotiating free trade agreements with several Asian trading partners, including India.
Increased world prices for fertilizer and oil increased Peru’s import bill, but exports in 2023 reached a new record of $67.2 billion, up by $1 billion in 2022. The exchange rate fell abruptly with Castillo’s election but has stabilized at around 3.75 Peruvian soles to the U.S. dollar. There is no real risk of exchange controls being introduced.
Buoyant exports, coupled with high reserves, signify little chance of balance of payments difficulties in what remains of 2024 and into 2025. Growth in 2024 is likely to be around 2.5% compared with a contraction of 0.6% in 2023.
Fiscal difficulties, exacerbated in 2020 and early 2021 by the effects of the COVID-19 pandemic, have dissipated. However, between now and the 2026 elections, government spending is expected to rise. The government has raised its deficit target for 2024 from 2% to 2.8%. The outlook for mineral exports, a key source of both foreign exchange and tax income, is for a likely tapering off in growth in 2024 and 2025.
