As soon as Castillo emerged as the winner, the day after the June 6 ballot, markets were shaken for fear of a sharp turn after three decades of liberal economic policies.
Thus, its main challenge on the economic plane, in the opinion of analysts and risk consulting firms, is the credibility it achieves with Peruvian and foreign investors.
“It is necessary to give clear signals that the objective management of the economy will be professional, that solid technicians will be summoned,” says economist Hugo Ñopo, a researcher at the Grade (Group for Development Analysis).
The Eurasia risk consultancy, in a recent report for its clients, warned that “the Castillo administration will probably follow a leftist trajectory even if it moderates in some way at the beginning. However, economic policy is likely to be erratic and could become radical as his presidential term progresses ”, which runs from 2021 to 2026.
Ñopo points out that there are negative expectations in the private sector and Castillo’s ability to impose his program before a fragmented Congress should be noted, where his Peru Libre party has only 37 of 130 seats.
“One of the urgencies is to pay attention to expectations and calm them so that the dollar does not continue to rise, so that prices do not move upward and so that private capital does not leave the country,” asserts the economist.
In dollar terms, it has been close to four soles for a month and a half, compared to 3.62 last December, while the Lima Stock Exchange sank 7.7% the day after the ballot.
The uncertainty persisted due to the six-week delay of the electoral jury in proclaiming the president-elect, which it only did on Monday. The Stock Market was trading higher yesterday (+ 0.56% the general index) and the dollar rose 0.34% to 3.964.
Ñopo believes that the new president must “build bridges to the markets, which today are suspicious of what he could do.”
Seeking to calm fears, on June 26 Castillo announced his intention to keep Julio Velarde as president of the Central Bank, who has been in office for 15 years and is recognized for his prudent handling of monetary policy.
“It is necessary to give tranquility not only economic but to open the doors for large investments,” Castillo said at the time.
Governance is another challenge, after a polarized electoral campaign and a five-year period marked by political upheavals, which led the Andean country to have three presidents in November 2020.
The markets thought that the right-wing Keiko Fujimori would win, so the alarms went off after the vote.
“The threats to political and social stability will be significant, with the consequent risks of protests and efforts to remove (from Congress) Castillo,” estimates Eurasia.
Ñopo warns that “you have to see how many [promesas electorales] they can be fulfilled, because with the expectations of the population during the campaign, there may be a big problem ”.
On the other hand, according to the consulting firm, there may be clashes between Castillo and “key sectors of the population, politicians and business leaders” who fear a radical turn to socialism similar to Venezuela.
Castillo’s team has sought to calm these fears and his main economic adviser, Pedro Francke, stressed that the program has “nothing to do with the Venezuelan proposal.”
“We will not do expropriations, we will not do nationalizations, we will not do generalized price controls, we will not do exchange controls,” Francke said in an interview on June 11.
It is difficult for Eurasia to see a radical reform agenda materialize, given the existing “institutional constraints”, including the lack of a legislative majority.
However, the firm believes that economic policy will be very different from that of recent decades.
Ñopo highlights the importance of the appointments of the new Chief of Staff, ministers of the economic area, as well as heads of state agencies and companies. “There are hundreds of people who must be appointed,” he says, which will outline where the government he takes office is going in eight days.