Peru's President Dina Bolwarte is among the most unpopular heads of state in the world – her approval is only ten percent. They accuse her of illegal personal enrichment and accepting luxury watches – although she categorically denies the accusations.
Impressive growth
Despite the political instability in the country, however, the economy is developing excellently. In mid-September, Economy and Finance Minister Jose Arista said, citing official statistics, that the gross domestic product grew in July by 4.5 percent. Market forecasts were exceeded, and growth was recorded for the fourth consecutive month.
It is mainly due to the following industries: fishing, processing industry, as well as the increased production of liquefied and natural gas. All this gives reasons for optimism for companies: more than a third (37 percent) of employers are considering opening new jobs, according to a poll.
A positive trend despite the unrest
Experts from the Spanish bank BBVA predict a growth of 2.9 percent for the Peruvian economy this year and note the existence of an “upward trend”. The expectations of the Ministry of Economy and Finance (3.2 percent) and the Central Bank of Peru (3.1 percent) are slightly higher.
In recent years, Peru has experienced many political crises. Several former presidents have been investigated for corruption, Bolhuarte's predecessor – Pedro Castillo – was ousted after accusations that he tried to stage a coup d'état. Vice President Boluarte rose to head of state. After which there were riots again – and there are constant protests against Boluarte. Despite this, the economic situation remains relatively stable and even produces surprisingly positive results.
Stability is the result of reforms
„These successes are the result of a series of reforms from the 1990s, which gave independence to the Central Bank and established fiscal rules and institutions to protect the state treasury”, economist Niome Hueneke-Brown from the office of the Foundation told DV. Friedrich Naumann” in Lima.
Despite its strong macroeconomic positions, however, the country is currently in the process of institutional erosion, which may threaten economic stability in the medium term. “Particularly political instability and rising crime, combined with a sense of lack of leadership, have led to stagnation in private investment in recent years,”, notes Hueneke-Brown. According to her, the current growth is largely due to a revival in consumption as the economy begins to recover from the political and climate shocks of 2023.
The Importance of Foreign Exchange Reserves
Marco Ortiz, professor of economics in Lima, told DV his opinion that one of the reasons for the relatively stable economic situation in politically uncertain times is the “large foreign exchange reserves, amounting to over 30 percent of GDP”. They enable the Central Bank to intervene in the foreign exchange markets and limit exchange rate fluctuations that occur as a result of capital withdrawals.
For example, during the last presidential election in 2021, Peru experienced the largest outflow of capital in 50 years, after political unrest caused about 17 billion dollars to be withdrawn from the country, Ortiz points out. And this corresponds to seven percent of GDP. "The central bank intervened actively, selling about 11 billion dollars, and this helped to reduce the volatility of the exchange rate,", the expert explained to DV.
Expectations are huge
Peruvian people are now looking forward to the planned opening of the new Chancay port in November. The hope is that the largely Chinese-funded megaproject could change the balance of power in the region. "The Chancay-Cayao port hub aims to take the lead in maritime trade and rank among the world's 20 largest ports," wrote the Peruvian website Portal Infomercado. So the expectations are really huge.