Last week extraordinary congressional elections were held in Peru, a year and a half before the end of what has been a choppy presidential and congressional term that began in mid-2016. The current term, mandated until 2021, had been characterized by strong congressional opposition to the executive power and, consequently, widespread frustration with what appeared to be a blocked Government. The political confrontation, amid a slower growth environment and the impact of the Odebrecht corruption scandals, resulted in a presidential resignation in 2018, and, in late 2019, the dissolution of congress by the current President, and an call for special elections.Interestingly, Peru’s two decades of democratic and open-market macroeconomic management, as well as its relatively solid macroeconomic position, as reflected in its still low debt to GDP ratios, low fiscal deficit, and its high international reserve to GDP ratios relative to regional peers, all seemed to allow the country to weather this internal political noise relatively unscathed. The country’s investment grade ratings and country risk spreads have remained stable, and its currency evidenced relative stability within the broader Latin America and EM market context. Leading up to this election, the market projected Peru to continue to be among the highest-GDP-growth countries in Latin America for 2020.The recent congressional election is seen as an important check on the political outlook for the coming years and a preview to the full-term 2021 elections. Preliminary results reflect a fragmented congress, with at least 10 parties expected to gain seats, the largest achieving approximately 10% of valid votes and seats. Of these, what local political analysts consider centrist parties would be attaining a majority, which should ensure the continuity of Peru’s economic model. The top spot in the poll was achieved by a historical center party that has not had a major role in the executive power or congress in the last 40 years. The second-largest representation was obtained by a historical, conservative, albeit previously non-protagonist party, born out of a local religious movement. Traditional parties which led the government in recent terms, all impacted by the recent political noise, were the biggest losers, some losing representation altogether. Parties aligning with left-wing stances could end up achieving around 25% of seats, slightly above their historical poll results, which is causing some concern in certain market actors. Nonetheless, others argue that in a regular election with a lower degree of absenteeism, the results and degree of representation of these parties should reverse to historical levels.Official results are not expected until March, which means the new congress will take office only in April. This shortened congressional term, together with the learning curve expected of the majority first-time congress participants, added to the high degree of fragmentation, could result in an inability to advance any of the more controversial items on the broader political agenda. At the same time, the public’s focus on the country´s more pressing needs such as public safety, the reactivation of the economy and certain political reforms, could result in a more focused, common agenda and a way forward in the short term. This constructive and more balanced dynamic could also be supported by the need of elected parties to preserve political capital in the eyes of the public for the longer-term, 2021 presidential and congressional elections just around the corner.In this wait-and-see context, not much is expected to change until 2021, when the main political forces will have more time to prepare and react to these latest poll results. However, Peru, which continues to grow, albeit at what several analysts say are rates way below its true economic growth potential, cannot afford to keep wasting time and not take advantage of its preeminent macro position in the region to drive aggressive investment and reactivate historical growth rates. With several anchor industries with relevance to the global economy, a demographic bonus with a large young population, a large informal economy ripe for productivity increases from the growth of formal businesses, and still low penetration of infrastructure and basic services when compared to other leading countries in the region, Peru still stands as an interesting investment destination and the current scenario as an attractive entry window for a long-term investment strategy.

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