The Embattled Finale of Humala’s Term
With the elections just six months away, the most likely candidates have already announced their plans to run. More than 10 candidates are expected to compete, with Keiko Fujimori, Pedro Pablo Kuczynski and Alan Garcia leading the pack.
The Humala regime is ending weak, and with a dire need to produce a strong enough candidate to win a few congressional seats, to fend off likely accusations already surfacing about the president’s conduct. Even more serious are the accusations against First Lady Nadine Heredia, linked to the two previous presidential campaigns, and to illegally usurping official public functions. We can’t rule out Humala’s adopting some populist measures, both to gain public favor and to divert attention from the accusations against his wife.
Two very positive events during the first half of October gave the embattled government some respite: the very successful IMF and World Bank Annual Meetings in Lima, and Peru’s settling, along with other 13 countries, on the TransPacific Partnership Accord (TPP). The TPP is likely to add potency to Peru’s existing free trade agreements with most of the TPP signatories.
We’ve seen some growth rebound, but less than the authorities had anticipated, and it corresponds mostly to the recovery in primary activities. Metals production more than compensated for the lower hydrocarbon output. We estimate Q3 growth at 3%.
Even if El Niño doesn’t intensify, the second fishing season could be cancelled during Q4. We see Q4 growth at 2.8%-2.9%, resulting in 2.6% growth for 2015, as we envisaged in our September 7th Quarterly Outlook.
Domestic currency volatility in August was partly due to the Fed’s postponing of its rate hike. But most of the recently sol revaluation was internally-driven, especially by the indirect intervention by the Central Bank. This included measures to discourage sales of non-delivery forwards, and ceilings on gross sales of forwards. We expect the Bank to continue to use these instruments, now that inflation is above target.
Government tax revenues kept plummeting in September (by 13.4% y/y in real terms), but spending is increasing less than anticipated and the fiscal deficit will likely be below projection (at only about 2% of GDP). The central government will need more financing than it projected earlier this and next year, and the current roadshow of the authorities in Europe bear out the government’s intentions.
Now read on...
Register to sample a report