Peruvian president Pedro Pablo Kuczynski resigned today, ending months of political turbulence and opening a period of transition closely watched by investors in the country´s natural gas and mining sectors.
Vice president Martin Vizcarra, currently serving as ambassador to Canada, will step in to fill out the remaining 40 months of the president's term.
The departure of Kuczynski is a setback in Latin America´s shift toward electing stable governments that espouse foreign investment and free trade. But the immediate reaction from the investment community was hope that the new Vizcarra presidency will avoid a major economic impact from the transition. Fitch Ratings today affirmed Peru´s BBB+ sovereign credit rating. The previous administration had warned that the political crisis could lead rating agencies to reconsider Peru's investment-grade ranking.
The Kuczynski government forecast 4pc growth this year, recuperating from 2.5pc in 2017. The market consensus is closer to 3.5pc.
A test of the new government´s political acumen is the Summit of the Americas on 13-14 April. The event was already mired in controversy because of Peru´s refusal to allow Venezuela´s autocratic president Nicolas Maduro to attend. Vizcarra is unlikely to change that stance.
In a seven-minute address to the nation today, Kuczynski said he had been the victim of constant attacks by the congressional majority since taking office on 28 July 2016. "I do not want the country and my family to continue suffering the uncertainty" of the past few months, he said, reiterating his innocence.
His resignation came a day before the 130-member unicameral congress was to hold a second impeachment hearing in three months to oust him on allegations of perjury. Opposition lawmakers accused Kuczynski, a 79-year old former investment banker, of lying about his relationship with tainted Brazilian construction firm Odebrecht. He denied any relationship with Odebrecht, despite a long trail of documents that showed otherwise.
He survived the initial 21 December hearing by eight votes. He appeared headed toward another victory tomorrow, but a secretly taped conversation of an ally offering public works projects in exchange for a vote against impeachment doomed his chances.
Vizcarra is the former governor of the mineral-rich southern Moquegua region, home to the Cuajone copper mine operated by Mexican-owned Southern Copper. Southern also operates a copper smelter at Ilo port. It is considering an expansion of the 1.2mn t/yr plant, with a decision possible in April.
Mining giant Anglo American is scheduled to make a decision in June on the estimated $5.5bn Quellaveco copper mine that would produce up to 300,000 t/yr of copper.
Moquegua also hosts thermal generating plants operated by France's Engie, and Italy's Enel Green Power on 20 March inaugurated the country's largest solar plant in the region. The company invested $165mn in the 180MW solar complex.
Vizcarra faces a number of challenges that could creep up quickly, including a decision on the $7.4bn southern gas pipeline that was held by Odebrecht. It won the 30-year concession in 2014, but the contract was annulled by the state in Janaury 2017. It is a project his home region has demanded for years.
Also controversial is the $5.4bn upgrade of the Talara oil refinery run by state-owned PetroPeru. PetroPeru's chief executive Luis Garcia announced his resignation earlier today, the same day the refinery came off line for one month of repairs.
It is uncertain what Kuczynski-era ministers will remain in their posts. Fernando Tuesta, a political science professor and former head of the national election agency, said Vizcarra would be wise to make a clean break. "The political crisis will continue if the population does not sense that there is a break with the administration, which they see as corrupt," he said.
Latin American governments were taking stock of the transition this afternoon. "We are following with concern the situation that is going on over there. We had a common view on a large number of bilateral issues and the regional environment in general," an official with Argentina´s foreign ministry told Argus.
"The instability Peru is living through troubles us, particularly with the approach of the Summit of the Americas," the official said.
The US State Department called Peru a "strong democracy…we are confident the Peruvian people and institutions will continue to address this situation consistent with the constitution of Peru."
