Congress’s counter-reforms; a Finance Ministry confidence shock; BCRP likely to cut again in December
In this report, we comment upon three topics. First, we discuss the counter-reform initiated by Congress in 2016, which led to confrontation with the judiciary. Next, following a bit of data-watching, we discuss the government’s new Plan Unidos (“United Plan”), designed to pull the economy out of recession. Finally, we discuss our call on the Banco Central de Reserva del Perú’s rates, and argue that (in contrast to our previous position), the Bank will cut once more in 2023, at its December 14th meeting.
One gradual but consistent development that justifies closer attention is the effect of Congress-led counter-reforms. Since late 2016, Congress has been steadily eroding the rule of law, by passing legislation that undermines the reforms sanctioned in the 1993 Constitution. The Congress elected in 2016 made an initial push, but it was the Congress elected in 2019, and, even more pertinently, the current Congress, elected in 2021, that have approved most counter-reform bills.
As of this writing, Congress is poised to make two more daring bets: the dissolution of the National Justice Committee (JNJ), responsible for appointing and dismissing judges and attorneys; and amending electoral law, by modifying mandates related to open and universal primary elections within political parties ahead of the 2026 elections.
Economic activity, as gauged by high-frequency reports, has continued to surprise on the downside, maintaining the economy in recession through Q2 2023. This has supported our decision last month to revise down our 2023 real GDP growth forecast to -0.5% y/y; for 2024 to 1.7% y/y; and for 2025 to 2.8% y/y. We also have projected that the economy would not exit from recession before mid-2024.
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