Extremists and populists – but no majority
As expected, no political party won a majority in the rather insipid January special election to elect a new Congress, after President Martín Vizcarra dramatically dissolved the body last September. Votes were spread across the political spectrum. With over 94% of ballots counted, nine parties had managed to pass the 5% valid-vote threshold required to have any presence in Congress – but none achieved 11%.
Though the publication of final results may take a few weeks, some striking outcomes are already clear. The extremist party Unidos por el Perú (UPP) pulled almost 7%, just shy of one million votes. Strong in the south, UPP is led from prison by Antauro Humala, a retired Army major and the younger brother of ex-president Ollanta Humala. The younger Humala is serving a 19-year sentence for leading an assault on a police station in 2005, during which four police officers were killed. UPP favors a new Constitution, deep mining reform benefiting indigenous communities, the death penalty for corrupt politicians (including former presidents), rapists and others, and militarizing public order.
Other surprising results include the theocratic organization Frepap, with 15 congressmen, and populist Podemos Peru, with 11 representatives. Centrist parties -- Accion Popular (25 seats, ranked first), Alianza para el Progreso (22 seats, ranked second) and Partido Morado (9 seats, ranked last) – won’t be able to muster a majority (56 seats out of a total of 130). Except for Accion Popular, traditional and moderate national parties underperformed. Neither Apra nor Partido Popular Cristiano passed the electoral threshold. Fujimori’s Fuerza Popular, which enjoyed an overwhelming 77-member majority after the 2016 general elections, will get only 15 seats. Some analysts interpret these results as chastisement of the traditional political class – a phenomenon that could set the tone for more radical options in the 2021 general elections.
This Congress will have a hard time passing legislation, though populist bills on subjects such as pensions, health, finances and small business will likely be debated. Alliances will probably be built and dissolved around specific topics. Though we don’t expect significant political threat, neither do we expect the reforms Peru still needs on issues such as labor, infrastructure or health.
Growth in November disappointed again, at 1.9% y/y. Higher growth is expected for Q1 2020, though less than previously thought. We expect growth at close to 3% for both Q1 and the year.
After sol appreciation against the dollar in December (2.4% m/m and 1.8% y/y), the exchange market was relatively stable until last week, when the coronavirus pushed depreciation. The previous level of S/ 3.32 per dollar could prevail this year on average as the economic effects of the virus passed away. Headline inflation in January was very low. With the policy interest rate at zero in real terms, we see the BCR keeping it there, in hopes that reactivation will instead come from fiscal policy.
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