Index trend
Previous Quarterly Editions
Expropriation Risk: 54 54 53 56 ▲Political Violence Risk:57 48 48 57 ▲Terrorism Risk:28 28 28 28 ►Exchange Transfer and Trade Sanction Risk: 55 63 55 55 ►Sovereign Default Risk:55 47 47 47 ►
Overall Risk Temperature: 54 (Medium 3) TREND ▲
Special topic: Political polarization
The second round of elections in 2021 saw sharp ideological polarization between the left-wing presidential candidate Pedro Castillo and the standard bearer of the right, Keiko Fujimori, daughter of former President Alberto Fujimori. Castillo’s removal as president in 2022 triggered widespread protests among his supporters, especially in the south of the country. Since then, the dividing lines of polarization have shifted. In Congress, Castillo’s erstwhile supporters have joined forces with the far-right majority against a centrist and center-left bloc that opposes what they see as political capture by a corrupt and self-seeking majority intent on re-election in 2026. They accuse President Dina Boluarte of authoritarianism and human rights crimes.
Affective polarization has increased significantly since Boluarte took office. Politicians on the right routinely refer to the centrist and center-left opposition as “caviar,” a disrespectful term that signifies elite-leftism. Battles in Congress have become increasingly acrimonious, with the centrists and center-left consistently outvoted by a coalition of right-wing parties. These battles have also been played out both within the judiciary (with the majority in Congress seeking to control judicial appointments) and on the streets.
Polarization has increased following three presidential elections (2011, 2021 and 2021) in which Keiko Fujimori narrowly failed to win the presidency. She claimed her victory in the 2021 election was stolen by fraud, thereby heightening polarization. Intimidation and violence have been increasingly used to threaten electoral officials. Tarnished by accusations of corruption and illicit activities, both Congress and the Boluarte government have very low popularity ratings.
Presidential and congressional elections next year — the first round is scheduled for April 2026 — will increase political confrontation. Party fragmentation makes the eventual outcome unclear; there are more than 30 registered parties, and a second round is likely. As in previous elections, there will be a regional divide between Lima and the rest of the country. This could lead to the emergence, as in 2021, of a radical outsider candidate challenging the political elite. Elections are also due next year for regional and local governments, further heightening uncertainties.
Polarization is likely to persist beyond 2026, particularly if a new president lacks a majority in parliament. The use by Congress of impeachment proceedings to remove presidents has become common practice.
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Any expropriation of foreign investment is most unlikely.
The appointment in January of Jose Salardi as the new minister of economy and finance does not indicate any major change in policy. His predecessor, Jose Arista, had created antagonisms in Congress. Salardi has a proven administrative track record, particularly with private-public partnerships. He may use these to reduce the fiscal cost of public investment, which significantly increased in 2024.
Similarly, mining and energy policy is unlikely to change substantially. In November 2024, Boluarte appointed Jorge Luis Montero as mines and energy minister, replacing Romulo Mucho. Mucho had also faced strong criticism in Congress.
Since becoming president in 2022, Boluarte — with the support of the domestic private sector and the majority in Congress — has sought to encourage foreign investment, particularly in the all-important mining sector. She reversed the more left-wing policies of her predecessor, Pedro Castillo, who had promised (but did not deliver) widespread nationalization. Boluarte has switched toward a much more business-friendly stance. She made clear that she would be guided by orthodox principles aimed at maximizing foreign investment, especially in the all-important mining sector. Her ministerial appointments have sought to reassure market sentiment. Most economy ministers have been well-regarded technocrats. She reappointed Julio Velarde, a liberal economist, as president of the central bank.
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 similar policies to those initially mooted by Castillo in 2021.
Boluarte’s takeover as president resulted in strong protests from supporters of the ousted Castillo, especially in southern Peru where he had received strong support in 2021. Although such pressures have diminished, the risk remains of anti-government protest erupting. The Boluarte government has made clear that it is prepared to meet such challenges with force, notwithstanding human rights violations.
Specific groups are active in taking to the streets. Informal miners have emerged as a strong force, determined to defend legislation that seeks to protect their right to become formal workers and thus achieve significant benefits. Violent demonstrations are also in prospect if Southern Copper Corporation presses ahead with its Tia Maria mine in the Tambo valley in the Arequipa region. Several deaths have been recorded as local farmers have 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 who are often involved in illegal activities such as timber extraction, gold mining and coca cultivation.
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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 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 a lack of state presence continues to make progress difficult.
There is no real risk of exchange controls being introduced.
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 imports from China. The government is negotiating free trade agreements with several Asian trading partners, including India. Peru now faces the threat of U.S. tariffs on its exports.
Increased world prices for fertilizer and oil increased Peru’s import bill, but exports in 2024 reached a new record of $75.9 billion, up by $2 billion on 2023. The exchange rate fell abruptly with Castillo’s election but has stabilized at around 3.75 Peruvian soles to the U.S. dollar.
Buoyant exports, coupled with high reserves, signify little chance of balance of payments difficulties in what remains of 2025. Growth in 2025 is likely to be around 3% compared with 3.3% in 2024. Fiscal difficulties, exacerbated in 2020 and early 2021 by the effects of the COVID-19 pandemic, have since dissipated. However, the fiscal deficit increased in 2024 and will remain above target between now and the 2026 elections. The outlook for mineral exports, a key source of both foreign exchange and tax income, remains positive.
