Taking his case to the public
Massive judicial corruption unveiled via a barrage of audio tapes leaked to the press has given President Martín Vizcarra an opportunity to press for political reforms. The president has proposed an overhaul of the judicial system, a ban on reelection of members of Congress, and reinstatement of a bicameral Congress. The corruption acts discovered were linked to negotiations of sentences, and widespread exchanges of favors among judges. It was also discovered that judges and perhaps even members of Congress were trying to influence the election of the members of the Consejo Nacional de la Magistratura (CNM). The revelation that a member of the majority Fuerza Popular party was involved in trying to gain influence in the CNM was particularly damning, as in the 1990s this party sought to politically control the general prosecutor’s office, and the presidency of the judicial branch.
Vizcarra called for an immediate special session of Congress, to discuss the removal of all members of the CNM. His request was granted, and all members of the CNM were dismissed by a unanimous vote. In a surprise move, Vizcarra proposed a referendum for constitutional reforms, and in addition to reforms in the judiciary system include matters of the political system. He proposes the referendum because is faster and puts pressure to Congress to deal with these issues promptly, rather than opting to handle this entirely to Congress, where passage would require a two thirds vote in two legislature periods. Many political analysts interpreted this bold proposal as the president’s wish to side with the public, instead of asking the highly unpopular Congress (with a meager 10% approval rating, and a disapproval rating of 80%) to vote on his reforms. It’s unclear how long it will take to implement judicial reform, and how judicial restructuring will play out. New President of Congress Daniel Salaverry has so far publicly offered to prioritize discussions stemming from the Executive branch’s initiatives.
GDP grew powerfully during April and May (by 7.8% and 6.4%, respectively) with primary activities accelerating by 10%, and non-primary output by 6%. We expect a much lower growth rate for June, of about 3.5%, mainly due to a decline in primary activities. We see the economy growing at near 6% y/y in Q2 and 4.6% in H1, reflecting a good recovery in investment and private consumption.
So far this year, the sol has depreciated only by 1% against the dollar – less than the depreciation seen in peer countries. These changes have happened amid a strong decline in international reserves, down by $4.5 billion (2% of GDP) in H1.
The 12-month headline inflation has been increasing from its very low April level, to 1.6% in July. Core inflation rose moderately over the past three months, to 2.3% in July. We expect the gradual rise in the headline rate to continue, to just above 2% at yearend.
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