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Electoral uncertainty shakes markets in Peru

Ten days before the Peruvian general elections, the markets are feeling the effects of the uncertainty surrounding a fierce campaign in which none of the 18 presidential candidates has more than 15% of the intention to vote.

The exchange rate has risen to a record of almost 3.8 soles per dollar as some candidates launch promises that raise fears among investors and the outgoing Congress, dominated by populist banks, gives the green light to a controversial new withdrawal of private funds of pensions.

Peru will elect on April 11 the successor of the interim president Francisco Sagasti and will renew the 130-member Congress, while the covid-19 pandemic does not give truce.

In the country, more than 1.5 million people have been infected, with more than 52,000 deaths, which has had a high economic cost and has raised the prices of insurance for people and companies.

The Peruvian economy is in recession as a consequence of the pandemic and, as a result of the electoral campaign, for the first time the price of the dollar is rising in line with the rise in the price of copper, the country’s main source of foreign currency.

“In Peru, the exchange rate (TC) has always been related to the price of copper (more dollars enter, lower the TC). The current political context has broken the relationship. Record copper and TC prices. we are at that level of risk, “Diego Macera, the manager of the private Peruvian Institute of Economics, wrote on Twitter.

To the ravages caused by the pandemic and the recession (GDP fell 11.12% in 2020) is added the political instability of the last five years, which reached its climax in November when Peru had three presidents in five days, with protests that left two dead and a hundred wounded.

– Mining projects in doubt –

The tension subsided with the arrival of Sagasti to power, but the uncertainty does not cease and could extend another two months, as the polls predict that no candidate will win the presidency on April 11, the contest would be defined in the second round, on April 6 of June.

Six candidates – five from the right and one from the left – have the option of going to the ballot, according to the polls.

Among them are the center-right lawyer Yonhy Lescano, the ultra-conservative businessman Rafael López Aliaga, the former soccer player George Forsyth and the economist Hernando de Soto.

There are also two women from opposite poles, Verónika Mendoza (left) and Keiko Fujimori (populist right), daughter of the imprisoned former president Alberto Fujimori (1990-2000).

Both Lescano, who is leading the polls, and Mendoza promise to archive mining projects resisted by the communities, such as Conga and Tía María.

De Soto promised to give the green light to both projects, which together include an investment of some 6.5 billion dollars.

Peru is one of the world’s largest producers of copper, gold, silver, zinc and lead, but social conflicts and bureaucracy make it difficult for the country to benefit from the cycle of high mineral prices, explains geologist Enrique Garay, from the Institute of Mining Engineers.

– Insurance prices go up –

In recent days, the 18 candidates have led rallies across the country with supporters piling up, while COVID-19 infections averaged 9,000 a day.

The weight of the pandemic has raised the price of insurance for individuals and businesses.

“The COVID situation has generated a price increase of different magnitudes globally. The Peruvian market suffers similar impacts,” Francisco Rodríguez, general manager of Gallagher Seguros in Peru, explains to AFP.

For Pietro Solari, CEO of Gallagher Reaseguros in the country (another company belonging to the same international holding company), “the electoral context does not have a direct effect, for now”, but insurance contracting policies and rates will be tougher if there are strikes. or “vandalism or similar acts of a certain magnitude.”

That “happened a few months ago in Chile, as a result of social unrest that caused significant damage to state and private infrastructures,” Solari tells AFP.

– Retirement of pension funds –

Added to this scenario are laws passed by the outgoing Congress classified as “populist” by the business sector. One of them, voted on Tuesday, allows a third withdrawal from pension funds of up to $ 4,700 per person.

“Members will be left with fewer funds, including some with zero soles in their individual capitalization accounts,” warns the president of the Association of Pension Fund Administrators, Giovanna Prialé.

According to the association, the new law will have a harmful effect on Lima’s stock market and on private investment, and will leave four million workers without funds for their retirement, in a country where 70% of the population earn their living in the informality.

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