Corruption Fight Propels Rise of Peru’s Accidental President

(Bloomberg) -- In eight months, Peru’s Martin Vizcarra has gone from being a little-known caretaker president to the standard-bearer of an anti-corruption movement that has devoured some of the Andean nation’s most powerful figures.

As prosecutors delve deeper into a bribery investigation that has snared four former presidents and opposition leader Keiko Fujimori, Vizcarra is channeling public anger into a referendum meant to fight graft. Voters on Sunday will consider a new system for judicial appointments, tightening political-financing rules, adding an upper chamber to Peru’s unicameral congress and banning legislators from consecutive terms. Meanwhile, the president’s approval has surged to more than 60 percent.

The question is whether Vizcarra can use his clout to fix structural problems with Peru’s $211 billion economy while unlocking billions of dollars of infrastructure and mining investment needed to boost short-term growth. The copper-dependent economy is recovering from the commodities bust, many investors are cautious and consumer confidence is subdued.

Walking Tall

“He’s shown a lot more character than other presidents. He looks like someone who’s committed,” said Elmer Cuba, a partner at Lima research group Macroconsult and a director of Peru’s central bank. “It’s fantastic as a political posture, but he needs to translate that image into something tangible.”

A former governor from Peru’s south, Vizcarra was an outsider to the Lima establishment; Pedro Pablo Kuczynski chose him as vice president primarily to appeal to voters in the hinterland, and he had neither a cabinet position nor party to call his own. Vizcarra was thrust into the presidency after Kuczynski, a Wall Street veteran, abruptly resigned amid allegations he sought to buy votes to avoid impeachment. His best bet seemed to be cozying up to the opposition led by Fujimori, scion of a family that has dominated Peruvian politics for much of the past three decades.

Corruption Fight Propels Rise of Peru’s Accidental President

Instead, the interloper turned the political order on its head. Vizcarra announced plans for cleaning up the judiciary after allegations surfaced of contacts among organized crime, judges and Fujimori’s party. He signaled he was willing to dissolve congress after legislators dragged their feet on the referendum, which polls show is broadly popular. In October, Fujimori was jailed for seeking to interfere in a money-laundering probe and her party imploded. She has appealed and denies wrongdoing.

Daunting Tasks

“The president is responding to political instability and public discontent,” said Justice Minister Vicente Zeballos, a Vizcarra appointee. “He’s leading an authentic political and judicial reform process and helping recover people’s trust in their political class, which in some ways reinforces democratic institutions.”

Peru’s economy is nonetheless crying out for change. For more than a decade, high metal prices attracted investment and fueled the fastest growth among major Latin American economies. But productivity has stagnated, constrained by a rigid labor market, and projects are bogged down by corruption probes and bureaucracy. The country fell 10 places to rank 68th in the World Bank’s latest annual report on the ease of doing business in 190 economies.

Corruption Fight Propels Rise of Peru’s Accidental President

Off the Books

More than 70 percent of jobs are in the shadow economy, offering no security or benefits. Tax evasion is among the world’s highest, and the government struggles to spend revenue efficiently. Industries such as mining are overwhelmed by regulation and bureaucracy, and corruption scandals have made officials fearful of signing infrastructure contracts.

“The current inertia and confidence in the Peruvian economy will take us up to 2020,” said Lima Stock Exchange Chairman Marco Zaldivar. “What will be the drivers after 2020? You need to have new projects.”

While Peruvians applaud Vizcarra’s stance on corruption and defiance of congress, they’re unhappy with the government’s handling of the economy, said Urpi Torrado, chief executive officer of Lima-based polling company Datum Internacional.

Vizcarra has signaled he’s listening. Before a gathering of executives in Paracas on Nov. 30, he said his government is working to make the economy more competitive and pledged to publish an infrastructure plan in 2019. The country requires an estimated $160 billion of investment to bring its infrastructure to the level of more developed economies.

“People are concerned about the lack of work and the sluggish economy, so economic growth is an area that could sustain his popularity if people start to feel the benefits,” said Torrado.

Endurance Test

Merely staying in office until his term ends in July 2021 could be an achievement. Peruvian presidents who lacked a majority in congress have often been forced out of office. But lawmakers have little stomach for a fight with Vizcarra, whose current popularity compares with congressional approval ratings in the teens.

And for now there are few politicians ready to take up Fujimori’s mantle of opposition leader. Keiko’s youngest brother, Kenji, was suspended from congress over vote-buying allegations. Her 80-year-old father, former President Alberto Fujimori, remains hospitalized after a court in October overturned his pardon and ordered he be returned to jail to complete a sentence for ordering death-squad killings.

Let’s Talk

Lawmaker Miguel Torres, who’s reorganizing the family’s Popular Force party in the wake of Fujimori’s jailing, said he’s ready for talks with Vizcarra and supports making the economy more competitive, including changing labor laws.

“Dialogue is urgent and shouldn’t wait another second,” Torres said.

This weekend’s referendum will allow the government to fast-track changes to the constitution needed to start cleaning up the justice system, said Samuel Abad, a lawyer whom Vizcarra consulted on the proposals. And if his popularity remains high, he’ll be able to achieve even more.

“We can’t expect that in two years he’s going to achieve radical change, but I think he can lay the foundations,” said Abad.

Should Vizcarra’s crusade falter, there are likely to be more radical politicians vying for power in 2021, ready to upend the political and business class.

“Tolerance of corruption is declining all the time and disappointment with the political class makes radical options more appealing,” Torrado said.

©2018 Bloomberg L.P.