Lima, Peru – The recent change in leadership in Peru, with the swearing in of José María Balcázar as interim president, has surprisingly failed to trigger significant financial turbulence. Despite a history of political instability – Peru has seen six presidents in eight years – markets have remained largely unfazed, a testament to a growing sense of resilience and a distinction made by investors between political noise and underlying economic fundamentals.
On , the Peruvian sol closed at S/3.36, with limited movement throughout the day, while the Lima Stock Exchange reacted with moderation. Analysts attribute this stability to a market that has already priced in political risk and is focused on longer-term economic prospects, particularly the upcoming elections in April.
“The stability of the dollar and the stock market reflects the fact that investors have already discounted the high political risk in the country and that the change of president will not affect economic growth estimates,” said Marco Contreras, Head of Research at Kallpa SAB, according to reports. He added that the market is more focused on the outcome of the April elections than on the interim presidency, which will last for five months.
Víctor Fuentes, Manager of Public Policies at the Peruvian Institute of Economics (IPE), echoed this sentiment, noting the lack of clarity regarding Balcázar’s policy intentions. “The time remaining is short; the idea is not to backtrack on what is being done with Petro-Perú and to ensure that the next government does not start with such a backlog in fiscal accounts,” Fuentes stated.
One key factor contributing to the calm is the exchange rate, which has not spiked and may even be lower than it would be otherwise. José Luis Nolazco, a professor at the Faculty of Economics at the University of Lima, points to external factors – high prices for copper and gold, coupled with a global weakening of the dollar – as driving a trend of appreciation for the sol.
“The exchange rate could be even lower, perhaps below S/3.30, if the Central Reserve Bank (BCR) had not intervened. The BCR has been aggressively buying dollars to avoid a sharp fall,” Nolazco explained. Since November, the BCR has intervened in both the spot market and derivatives to maintain the exchange rate around S/3.35 and prevent excessive appreciation of the sol.
Ricardo Ávila, Manager of Economic Studies at Scotiabank, emphasized the BCR’s crucial role. “The BCR’s role has been decisive. It has instruments to moderate volatility and has strengthened its reserves,” he said.
Beyond currency fluctuations, analysts believe Balcázar’s statements have contributed to the stability. The interim president has indicated he will maintain the current economic framework and avoid abrupt changes in key portfolios, such as the Ministry of Economy.
“Statements about maintaining the current state of the economy and not moving key positions provide some confidence and macroeconomic stability,” Nolazco noted. He does not foresee significant uncertainty that would lead to a slowdown in private investment or capital flight.
The broader economic context is also supportive. Peru’s economy is currently experiencing a phase of expansion, with favorable terms of trade and controlled inflation. This contrasts sharply with previous periods of crisis. According to the OECD, Peru’s strong macroeconomic foundations have supported resilience, but raising living standards requires bold reforms. Growth is expected to moderate amid global and domestic uncertainty, and a lower potential growth rate.
The iShares MSCI Peru and Global Exposure ETF (EPU), which tracks major Peruvian companies – particularly in the mining and financial sectors – listed on the New York Stock Exchange, serves as another indicator. The ETF’s continued high value suggests investor confidence, driven by copper prices and expectations regarding interest rates.
“The message is that there will be no significant volatility due to the change of president. Prices are reacting to economic growth, expectations about interest rates, and the prices of metals,” Contreras explained. Mining companies, in particular, are more exposed to global commodity cycles than to domestic political developments.
Looking ahead, analysts suggest the true test will be the outcome of the elections scheduled for April-June . Until then, the scenario is one of transition. Fuentes of IPE noted that foreign investors are observing a risk associated with political volatility, acknowledging that Peru has a growth rate of around 3%, but could achieve expansion of 5 or 6% if these episodes were not limiting factors.
The potential for a transition to a bicameral Congress is also seen as a positive development, potentially strengthening institutional checks and balances and reducing political fragmentation. However, the immediate focus remains on maintaining stability and avoiding disruptions to the current economic trajectory. The resilience of Peru’s economy, underpinned by its mineral wealth – the country is the world’s second-largest copper producer – and the prudent management of the BCR, continues to provide a buffer against the ongoing political uncertainty.
Peru’s mineral wealth, including significant reserves of copper, gold, silver, and zinc, has created a positive trade balance, enhancing market liquidity and private sector credit. The service sector, including transportation and trade, is also showing signs of recovery, indicating a broader economic recovery. However, environmental disruptions could slow mining production, potentially impacting growth figures.
