(Bloomberg) -- Peruvian President Pedro Castillo on Tuesday lifted a lockdown he'd imposed on Lima in an attempt to curb violent protests against inflation that had plunged the nation's capital into chaos.
The president ordered the lockdown that had been slated to run from 2 a.m. local time to 11:59 p.m. to end immediately after meeting with lawmakers in the afternoon. Many congressional leaders urged him to do so, saying the measure restricted fundamental rights.
Castillo left congress after informing lawmakers of his decision, to return to the presidential palace to sign a decree ending the curfew. Even as he and lawmakers met, a protest rally near congress turned violent, with demonstrators battling mounted police who fought back with tear gas. After crowds attacked Peru's judiciary headquarters and tried to set it on fire, Interior Minister Alfonso Chavarry warned that force would be used to prevent violence.
Earlier, the president's cabinet met with lawmakers, looking for ways to address the fastest inflation in over two decades. “We must start working together to address the people's problems,” Congress Vice President Lady Camones said to local radio RPP.
Peru's sol had its worst performance in six weeks as traders worried about the political and economic impact of escalating anti-inflation protests. The currency declined 1.46% to 3.698 per dollar on Tuesday, the second-worst performer in emerging markets. The sol had reached its strongest level so far this year on Monday, before paring gains as protests intensified and the government deployed the army to curb them.
Castillo, who took office in July, survived a second impeachment attempt by congress last month only to find another crisis brewing on the streets. Farmers and truckers staged protests against the rising cost of fuel and fertilizers last week, temporarily interrupting the supply of food to the capital. Over the weekend the president lowered fuel taxes and increased the minimum wage 10% to help Peruvians struggling with the jump in consumer prices. Yet the measures did little to appease bus drivers, most of them working informal jobs without fixed salaries, and who began a strike Monday.
“We believe Castillo is unlikely to finish his term, which runs until 2026, and he will either be removed from office or resign,” Moody's Investors Service analysts led by Jaime Reusche wrote in an April 4 note. But, “we also expect that Peru's orthodox macroeconomic policy framework will continue to underpin the country's creditworthiness.”
What Bloomberg Economics Says
“Castillo has faced growing problems with governing since taking office, and he is quickly losing popular support amid rising inflation and poor economic results. The evident lack of experience in the administration and multiple allegations of wrongdoing by cabinet members have withered approval. Less than a year into his term, Castillo has already appointed four different cabinets. The two impeachment attempts show a determined opposition.”
-- Felipe Hernandez, Latin America economist
Click here to read the full report.
Peru has long been praised by investors for the government's commitment to low fiscal deficits and support for free trade, as well as sound monetary policy making by the central bank.
Yet uncertainty has been increasing as the protests may jeopardize the country's exports. On Monday, an agricultural association said food exports, including those of blueberries, avocados and grapes, were suffering disruptions.
Peru's dollar-denominated bonds due 2050, among the nation's most traded, fell 1.6 cent to 125.5 cents on the U.S. dollar on Tuesday, the most in two weeks.
Peruvian local assets had a strong start to the year despite political headwinds. The sol remains among the best performers in major currencies this year against the dollar. The nation's stocks have gained 28% in dollar terms, ranking third among 92 benchmark indexes tracked by Bloomberg.
Declining Popularity
The confrontation between demonstrators and police in the capital Tuesday in defiance of the stay-at-home order was echoed elsewhere in the country. During the day, in the central region of Huanuco, police and protesters clashed as the latter tried to enter supermarkets and banks. Protesters also kept the Panamericana Sur highway blocked in the southern region of Ica.
The president's position -- just a week since beating back congress's impeachment bid -- remains precarious, according to Citigroup Inc strategists.
“We do not rule out a future push by congress to impeach the president,” Citi strategists including Dirk Willer wrote in a research report. “While the president had the votes to avoid being ousted two weeks ago, a new push down the line might have a different outcome if he loses support of congressional allies.”
Read More: Peru's Fastest Inflation in 24 Years Is Castillo's Latest Crisis
Consumer prices in Lima rose 6.82% in March from a year earlier, the most since August 1998, and well above the central bank's target of 2%, plus or minus 1 percentage point. Prices climbed 1.48% from February, above the median forecast for a 0.92% increase in a Bloomberg survey of economists.
The central bank is expected to raise its benchmark interest rate by half a percentage point on Thursday to 4.5%, its ninth consecutive increase that's so far totaled 375 basis points of monetary tightening since August.
©2022 Bloomberg L.P.
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