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JPMorgan - Do Not Rule Out New Attempts To Impeach Castillo

PERU
  • A new episode of the Government vs Congress disarray finalized yesterday, with the opposition failing to gather enough votes to oust President Castillo from the main office on ‘permanent moral incapacity’ accusation.
  • While the result came in line with expectations, the fact that the opposition only managed to put 55 votes in favor showed that the centrist parties, which voted in favor of allowing the debate on the impeachment motion weeks ago, changed their mind and decided to avoid ousting the President and risking a snap election down the road.
  • While some read the low number of positives as a signal of the opposition weakness, we tend to believe other developments explain this behavior, and thus we do not rule out new attempts to impeach Castillo in the coming months.
  • In fact, JPM believe political risk is to linger, with Congress coming again against the president either via a Constitutional accusation (longer process but only requires 66 votes) or another vacancy attempt in 2H22.
  • Lingering risks would mean the pressure on institutions is likely to continue growing amid the evident deterioration of public management , declining popularity of both the government and Congress and the combo of high inflation and low growth.
  • That said, a usual way for the system to let off steam is via populist flavored measures. Thus, in this environment JPM highlight heightened regulatory risk ahead with risk of renovated political pressures for household liquidity accommodation ahead, including a new pension fund withdrawal.
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