Index trend
Previous Quarterly Editions
Expropriation Risk: 54 54 54 54 ►Political Violence Risk:57 57 57 57 ►Terrorism Risk:30 28 28 28 ►Exchange Transfer and Trade Sanction Risk: 45 45 45 45 ►Sovereign Default Risk:55 55 55 55 ►
Overall Risk Temperature: 53 (Medium) TREND ►
Special topic: Relationship with the 'global rules-based order'
Peru has traditionally positioned itself as a supporter of the rules-based order in its foreign and economic policies; however, domestic challenges to democratic norms have grown in recent times. These challenges reflect growing criminality and the tendency of elected politicians to protect their own interests or those of the narrow constituencies they collaborate with. Democratic institutions have come under intense public criticism for their failure to represent majority interests, and the legitimacy of government has been increasingly questioned.
Peru’s foreign policies have tended to follow closely those advocated by the U.S. in seeking to uphold the liberal democratic order. This has been most evident in the country’s support for opposition forces in Venezuela. Peru has also been critical of other perceived “authoritarian” regimes such as Cuba; Nicaragua; and, at times, Bolivia. A widespread consensus on this is shared by the major media outlets. Peru has, however, faced international criticism over its human rights record — particularly the government’s repressive response to anti-government protests in late 2022 and 2023. This has caused politicians from parties on the far right (which dominate Congress) to seek to remove Peru from the Inter-American System of Human Rights.
Since the 1990s, economic policies have followed closely the guidelines set by multilateral financial institutions, upholding a pro-business stance that privileges the private sector. The 1993 constitution removed many of the more statist provisions of earlier constitutions. The short-lived left-wing government of Pedro Castillo that was elected in 2021 had threatened interventionist policies, but his impeachment by Congress in December 2022 led to a notably more free-market approach under his successor, Dina Boluarte. Lacking a party to support her in Congress, Boluarte is largely beholden to a right-of-center majority in the legislature. Her government’s overriding economic priority is to attract foreign investment, especially in the mining sector, a stance supported by powerful business elites.
However, Boluarte has failed to win popularity, and her rejection in opinion polls is only exceeded by that of the legislature. Her reliance on far-right parties in a Congress many see as corrupt has added to her disapproval ratings. Her government’s repression of protests has engendered criticisms of creeping authoritarianism, drawing parallels to Alberto Fujimori’s government in the 1990s. Far-right parties have used their parliamentary muscle to tilt power away from the executive and to enhance their control over the judiciary. Recent constitutional changes are designed to prolong the terms of current members of Congress beyond the 2026 elections.
As in neighboring Ecuador, illegal activities, notably drug trafficking, but also illicit mining and uncontrolled deforestation are rising. Coupled with growing public concern over insecurity, these issues encourage a “law and order” discourse that undermines observance of human rights standards and deepens distrust in democratic institutions. Many politicians profess to want to emulate the hard-line policies pursued by President Nayib Bukele in El Salvador. There is also a risk of the emergence of left-wing populism that aims to rally support based on perceptions of business corruption. Politics will likely become increasingly polarized in the buildup to the 2026 elections.
Peru does not yet represent a direct challenge to the global “rules-based” liberal order, although criticisms of that order are likely to fuel political debate in the coming years. In particular, the liberal economy has failed substantially to raise the living standards for most Peruvians, who suffered particularly at the hands of the COVID-19 pandemic. Poverty rates have risen to around 30% of the population, and as much as three-quarters of the working population labor in the informal sector, lacking basic forms of labor protection. Peru is one of the countries on the list to become members of the Organization for Economic Cooperation and Development — a move designed to enhance adherence to the liberal order; however, full membership is unlikely to be approved in the short-to-medium term.
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The removal of Pedro Castillo reduced the risk of expropriation. As a left-wing candidate in the 2021 elections, Castillo had advocated for the expropriation of extractive industries; however, once in office, his government did not pursue such an agenda. Under pressure from Congress and business lobbies, his government shifted to a more pro-business direction. Indeed, Castillo’s reappointment of Julio Velarde as central bank president presaged conservative macroeconomic policies.
Castillo’s removal from office and his replacement by Boluarte further reduced any possibility of expropriation. This was confirmed by her appointment of Alex Contreras, a technocrat, as finance minister. Contreras’s replacement by Jose Arista in February 2024 represents no change in orientation. Arista has clarified that the government’s overriding priority is attracting foreign investment, especially in the mining sector.
The main 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.
Boluarte’s take over as president produced strong protests from supporters of the ousted Castillo, especially in areas of southern Peru, which had voted massively for him as president in 2021. Although such pressures have declined over the past 12 months, anti-government protests are likely to erupt. The 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 in early March 2024 protested against the government's decision to no longer recognize them as “formal sector” workers. The government had sought to respond to pressures from medium and large-scale miners following a lethal attack on the Ponderosa gold mining company in La Libertad region in December — allegedly perpetrated by informal miners. Congress sought to appease the miners by extending the deadline for registration.
Protests are common in the Amazon region. Indigenous organizations try to protect themselves, often by force, from migrants involved in illegal activities such as timber extraction, gold mining and coca cultivation.
The remnants of the Sendero Luminoso insurgency are 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 in Colombia, it is rising. The government is trying to encourage a switch from coca to legal crops, but the lack of state presence continues to make progress difficult.
Peru is committed to free trade principles. Despite its unpopularity, the Boluarte government has resisted pressures to introduce anti-dumping measures to protect local industries from a 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 on 2022. The exchange rate fell abruptly with Castillo’s election and has stabilized at around 3.70 Peruvian soles to the U.S. dollar.
There is no real risk of exchange controls being introduced.
Buoyant exports and high reserves signify little chance of balance-of-payments difficulties in what remains of 2024. Fiscal issues, exacerbated in 2020 and early 2021 by the COVID-19 pandemic, have dissipated, and the deficit for 2023 was a manageable 2.8% of GDP. The outlook for mineral exports, a vital source of both foreign exchange and tax income, is for a likely tapering off in growth in 2024 and 2025.
