Withstanding crisis: the Peruvian economy

In recent days, Peru has undergone yet another major political crisis, resulting in the President being dismissed and replaced – once again. Though this may sound like heavy news for someone anywhere else, Peruvian politics has gone through so much in recent years that events like this are no longer a big deal. This leads to the question: how has an entire nation become so indifferent to political instability?

To answer that, we would have to take a long step back in Peruvian history. Besides politics being plagued by corruption since the nation's very independence, the past few years have been quite eventful. Since 2016, seven leaders have governed Peru – three of them removed from position by Congress. The last one was Dina Boluarte, who was removed from office on the dawn of October 10th. Regardless, it was safe to say that her demotion was a long time coming: before leaving office, she had amassed an unprecedented 96% citizen disapproval rate (a whole new record in itself). The Peruvian population was clearly not happy with her performance, which could be summed up in one single word: nonexistent. Her lack of action and detachment against the multiple social crises that the population is still currently facing, led the nation into a deep state of turmoil and instability.

Extortion and murder have become a daily struggle for the Peruvian citizen. Gangs all over the country spread fear on the streets, especially in Lima, the capital. Though protests and transport strikes have been going on for months (and continue to do so), no real change has been made and the Peruvian nation remains in fear. One could reasonably assume that, with everything that’s been going on, the Peruvian economy would surely be plummeting by now. Interestingly enough, this is not the case.

In spite of everything, the World Bank claims that “Peru is one of the best performing economies in Latin America”. Only a year ago, the economy was expected to outperform South and Central America by 2%, according to the IMF. The stability of the Peruvian Sol is something that has prevailed even after many disruptive moves in the government. Being one of the most stable currencies in the continent, the Central Bank is to thank. The Peruvian economy can clearly withstand some adversity. So, will it make it through the most recent political crisis? Still, just because some metrics continue to perform well, does not mean all is good. GDP growth had been steady at 6.5% in 2013, yet it was barely able to reach a solid 3% last year. Economic growth has significantly slowed down, presumably because political insecurity is not a favorable landscape investors want to take a gamble on. 

The Peruvian economy mostly consists of small businesses, accounting for 99.2% of all formal enterprises. These are the corner shops, mechanics, restaurants that are such key characteristics of Peruvian daily life - a daily life that has now been stripped of its usual joyfulness, and replaced with panic and fear. Gangs have taken over the streets through extortions, demanding small business owners pay them for the right of keeping their lives under the guise of “security”. It has become hard to distinguish which threats are real or not: failure to comply with extortionists results in lives lost. Between making a profit and keeping your family and yourself alive, the decision is quite easy. Many businesses have shut down, public transport companies have gone into strikes, and people have given up their jobs. This is the product of instability: a retracted economy with no real incentive to grow. 

The current panorama is bleak, with the entire population deeply upset at a deeply inefficient government that has brought over chaos to the Peruvian nation. The latest presidential removal may not be well regarded by foreign investors, especially with yet another presidential election scheduled for 2026, hoping that it is the start of a time of improvement. Whether the Peruvian economy will prevail in spite of its weak politics, or not, can only be determined later in time. Being one of the most resilient in the Latin American continent, it is reasonable to believe that perhaps, the Peruvian nation can overcome adversity one more time.