Political system at a crossroads
In this report, we offer our quarterly forecasts. We first discuss the unstable political situation, and explore the different scenarios that could play out following the ousting of former president Pedro Castillo. Then we discuss our macroeconomic forecasts. Since the risks are high, we introduce three possible scenarios: a base, a low and a high case. Finally, we discuss our forecasts for external accounts and government finances.
On December 7th, Castillo attempted a coup against Congress and the judiciary. Within the hour, Congress had impeached the former president by a vote to 101 to six (far exceeding the 87 votes required to carry the motion). Two hours later, Castillo had been arrested. The Constitution mandates that the vice president, in this case Dina Boluarte, take over in such circumstances. While the change in government was constitutional, it was carried out amid deep political crisis, and weakens the mandate of Boluarte in the eyes of the electorate. Castillo has damaged the credibility of the ruling party through his efforts to organize resistance to his (widely anticipated) impeachment. For months, he had been meeting with representatives of various organization and unions, offering them budget commitments and enhanced public roles in return for defending him and his government.
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