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JPMorgan On Current Political Situation/Castillo Impeachment

PERU
  • Congress approved to debate the vacancy motion against President Castillo due to permanent moral incapacity, with 76 votes in favor, 41 against and 1 in abstention. This is the second attempt to remove Pedro Castillo from the first office. So far the opposition seems to lack the needed super majority and the Congress vote has been set for Monday, March 28.
  • The presidential vacancy motion is based on 20 points that, according to its promoters, are based on a series of "objective facts" that are public knowledge including the recent revelations linking Castillo to an alleged corruption scheme.
  • The Congress confidence vote for the new Cabinet did not secure political stability nor reduced political tensions. Yet, different from 2021, financial variables have showed less sensitivity to political risks, in particular the exchange rate.
  • Thus, inflationary pressures due to higher commodity prices have not been exacerbated by exchange rate weakness. That said, political and regulatory risks have explained a weaker performance of private sector capex and growth than what is suggested by commodity prices. The coming days could define the political fate of President Castillo, and whether the country remains stuck in a political gridlock.
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