Notes on Peru's protests - February 2023

Whether Congress approves early elections or not, Peru's anger means change is coming.

Peruvians want this government gone. Polling shows around two-thirds to three-fourths of Peruvians want Dina Boluarte to resign and for the country to hold new elections as soon as possible. Congress, as always, polls even worse than the president. We wrote about Peru's public opinion numbers a few weeks ago and all of the polls published since then have simply reinforced how bad the situation is for the current congress and president.

The government's failure to empathize with the protesters has led to the protests worsening. The Boluarte government has wanted to portray the protests as being connected to bad actors abroad and terrorist groups domestically. That portrayal is exaggerated, and protestors see Boluarte's failure to acknowledge the legitimate concerns of the vast majority of the protesters, and her government's attempts to only discuss the violence within the protests themselves, as harming the government’s own legitimacy. A majority of Peruvians identify with these protests.

... but criminal elements are now grabbing on to the protests and using them. This past week, a criminal or terrorist group (probably remnants of the Shining Path, though not confirmed) killed seven police officers in an ambush in rural Peru. While this sort of terrorism is not likely to hit more populated parts of the country, analysts should be monitoring for more violent incidents targeting security forces and strategic infrastructure targets. The Shining Path and violent groups like them are a very small segment of the population, but they are motivated to demonstrate that they still matter and really don't care if their actions delegitimize the protests in any way.

Three scenarios: Early elections, forced resignation, or an unpopular grasp on power. Almost nobody believes that the current government will make it until 2026 when their term in office ends. It’s just a matter of how early the elections come. Congress has rejected new elections so far because many of them will be voted out when the elections take place. It is possible that this week, they will reject early elections yet again. Still, even if Congress continues to stall this week, the most likely scenario is that there will be early elections held in the coming 16 months (so before mid-2024). While most protesters would prefer 2023, holding elections is a process that does require some organization, which could push the timeline to early 2024.

Meanwhile, Boluarte is essentially a lame duck just two months after transitioning into the presidency. She will not make it through another three years of her term. At this point, the political system is simply deciding when and how early elections take place. If Congress can't agree to early elections, Boluarte will likely be forced to resign at some point in the coming 12 months and then her resignation may force the early elections issue to be resolved. This means the two top scenarios aren't completely mutually exclusive.

The least likely scenario (perhaps 20% chance), but still plausible is that somehow Boluarte and the Congress hold on to power through the end of 2024 without new elections. One sign that this scenario is more likely to occur is if the protesters simply tire out and return to their day jobs, Machu Picchu reopens, and the mining sector gets back to its pre-protest level of activity. But even if those signals appear in the short term, new flareups of protests are likely this year. The protests going away for a few weeks won’t mean the disappearance of the anger Peruvians have with the political system.

Constitutional change, if it happens, will be slow and complicated. Peru's political elite will probably be forced into new elections. However, if forced into a constitutional change, they will almost certainly manipulate the process to limit the changes by the more radical elements of the protest movement. The protesters, while they may claim victory at the initial call for change, will likely become disillusioned with the process and return to their anger. The first attempt at reform will be a political mess. Similar to Chile, this means that a constitutional reform process could see starts and stops, drafts and rewrites, and multiple votes. Meanwhile, the uncertainty that constitutional change is likely, but that the path is slow and uncertain, will limit Peru's economy in the coming years.

Peru's economic challenges will extend for years. The protests have led to a drop in tourism and mining, something that is likely to exacerbate the challenges for poor communities, leading to continued anger at the government and more protests. Given the current environment, companies and investors are rightfully rethinking plans to either begin or expand their operations in Peru, especially considering the high levels of political uncertainty in the coming months. Finding investment opportunities within the current political mess requires long term thinking, an appetite for risk, and a willingness to search for investments that provide sustainable economic growth for the populations who are currently protesting.

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Thanks for reading

Along with this newsletter, I also run a consulting business called Hxagon. Do you have specific questions about Peru’s protests and their impact on various businesses and sectors? Do you want research done in Peru or elsewhere in Latin America to identify risks and opportunities? Feel free to respond to this email or contact info@hxagon.com to schedule a call.