Plenty of blame to go around
Ex-Odebrecht chief Jorge Barata has testified before Peruvian prosecutors, under a plea bargaining agreement that is to exonerate him of all criminal charges in Peru. Last year Barata confirmed bribing several public officials in exchange for facilitating awards of government contracts. Now he’s acknowledged making undisclosed contributions to the political campaigns of all major parties, during the 2006 and especially 2011 elections – though, with one exception, all accused party members deny receiving Odebrecht funds.
While Barata’s revelations must be corroborated, the damage to Peru’s entire political class is clear. It’s also apparent that the information that both Barata and ex-Odebrecht CEO Marcelo Odebrecht (now under house arrest in Brazil) have given to Peruvian prosecutors has had a secondary objective: to prod Peru into letting Odebrecht sell over $2 billion of its Peruvian assets.
The idea of impeaching President Pedro Pablo Kuczynski has resurfaced, now under the auspices of the left in Congress. Two thirds of the congressional vote, or 87 votes, would be needed, but whether this number can be achieved is uncertain. First, the opposition Fuerza Popular has lost its absolute majority, after Keiko Fujimori’s brother and 10 other members left the party, and the remaining members are unsure of whether they’ll vote for impeachment. We think any impeachment attempt will be delayed until after Summit of the Americas, to be hosted in Lima on April 13th-14th, with most Western Hemisphere heads of state attending.
On a positive note, the government successfully awarded a major mining project, Michiquillay, to Southern Peru Copper Corporation, in a contest in which many major mining firms participated. The $2.5 billion copper project is to start production in 2025.
December GDP growth was disappointingly low, at 1.3%. We were expecting a low number, due to the poor performance of public investment, the delayed start of the fishing season and the persistence of political noise. But the outcome suggests that non-primary activities are not rebounding as vigorously as expected – particularly, a negative manufacturing growth was a surprise.
GDP growth data for 2017 has been revised upward, raising 2017 growth to 2.5%. That’s still below the latest official targets (3.7%). Peruvian economic analysts and research outfits at financial institutions have lowered their growth prospects for 2018, to a median of 3.5%. We foresee a probable cut in the Central Bank’s policy rate by 25 bp, to 2.75% on March, for a cumulative 150 bp cut since April 2017.
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