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JPMorgan on Peruvian Politics

PERU
  • In early June, the Congress Constitutional Affairs Committee approved a bill to reinstate the bicameral system in Congress. If approved, the reform could be used as a catalyst to unclog the prevailing logjam between the legislative and executive branches.
  • In addition, the proposal includes the reinstatement of senators and deputies following re-election for a consecutive period, as well as the power to constitutionally accuse the president of the central bank and the Banking and Insurance Superintendency, as well as electoral agencies.
  • Congress’s discussion is to proceed among wrongdoing accusations against President Castillo. The latest accusation has come in hand with the revelation of an audio that refers to an alleged bribe by a businessman to the former Minister of Transportation Silva, of which a fraction would have been handed over to President Castillo (according to the testimony of an informant). This accusation comes against the backdrop of President Castillo’s disapproval printing at 70%.
  • This new phase of the political tug-of-war transpires amid a material compression of real labour income despite the employment recovery. In fact, (Lima) employment did recover to pre-COVID levels by April 2022, but the percentage of underemployed is substantially above pre-March 2020 levels, at 45% versus 34%. The labour quality erosion is consistent with a decline in labour income, with nominal labour income running -4.4% below April 2019, which translates into an 18% decline in real terms given the inflation acceleration.
  • While JPMorgan expect inflation to ease ahead, there are still relevant risks to the call, particularly associated with food prices and energy. Given the prevailing political vulnerability of both the Executive and Congress, it is possible that sooner or later the Executive insists on the push for a constituent assembly and/or an early call for elections next year. Conflicts affecting production (poster child mining sector) are likely to linger amid lack of government resolution, while social unrest could emerge again in 4Q22.
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  • In early June, the Congress Constitutional Affairs Committee approved a bill to reinstate the bicameral system in Congress. If approved, the reform could be used as a catalyst to unclog the prevailing logjam between the legislative and executive branches.
  • In addition, the proposal includes the reinstatement of senators and deputies following re-election for a consecutive period, as well as the power to constitutionally accuse the president of the central bank and the Banking and Insurance Superintendency, as well as electoral agencies.
  • Congress’s discussion is to proceed among wrongdoing accusations against President Castillo. The latest accusation has come in hand with the revelation of an audio that refers to an alleged bribe by a businessman to the former Minister of Transportation Silva, of which a fraction would have been handed over to President Castillo (according to the testimony of an informant). This accusation comes against the backdrop of President Castillo’s disapproval printing at 70%.
  • This new phase of the political tug-of-war transpires amid a material compression of real labour income despite the employment recovery. In fact, (Lima) employment did recover to pre-COVID levels by April 2022, but the percentage of underemployed is substantially above pre-March 2020 levels, at 45% versus 34%. The labour quality erosion is consistent with a decline in labour income, with nominal labour income running -4.4% below April 2019, which translates into an 18% decline in real terms given the inflation acceleration.
  • While JPMorgan expect inflation to ease ahead, there are still relevant risks to the call, particularly associated with food prices and energy. Given the prevailing political vulnerability of both the Executive and Congress, it is possible that sooner or later the Executive insists on the push for a constituent assembly and/or an early call for elections next year. Conflicts affecting production (poster child mining sector) are likely to linger amid lack of government resolution, while social unrest could emerge again in 4Q22.