Peru’s Sagasti Picks Veteran Economist for Finance Minister

(Bloomberg) -- Peru’s interim president appointed veteran economist Waldo Mendoza as his finance minister in a bid to shore up investor confidence shaken by political turmoil.

Interim President Francisco Sagasti swore in most of his 19-member ministerial team Wednesday after becoming the country’s third leader in little more than a week.

Mendoza, a former deputy finance minister and central bank board member, was previously the head of the public finance commission in Lima. He’s the country’s ninth finance minister in less than five years.

Mendoza will be tasked with allaying investor concern about deterioration in public finances amid a deep recession, and pressure from congress to increase spending despite a soaring budget deficit.

“Waldo is a good choice,” said Alonso Segura, a former finance minister who teaches at the same university as Mendoza. “He has a conciliatory personality and he’s very didactic, which should serve him well in his relationship with the rest of the executive and congress.”

Sagasti’s team initially looked at bringing back former Finance Minister Maria Antonieta Alva for the role, according to three people familiar with the matter, who requested anonymity because the talks were private. They dropped the idea after congress pushed back because of her association with former President Martin Vizcarra, the people said.

Peru’s sol rallied Wednesday to post its biggest two-day advance in seven months, while five-year credit default swaps gained. Shares of Lima-based Credicorp Ltd., which is 52% of the MSCI Peru Index, extended their six-day rally to 20%.

Sagasti, a 76 year-old former head of strategic planning at the World Bank, assumed the presidency Tuesday pledging to defend fiscal and economic stability.

Among his other cabinet picks were Pilar Mazzetti, who was health minister under Vizcarra, and Nuria Esparch to become Peru’s first woman defense minister. Constitutional lawyer Violeta Bermudez will lead the team as cabinet chief.

One of the finance minister’s top tasks will be defending legislation before a congress that last week ousted Vizcarra, despite his high approval ratings. The former leader regularly clashed with the legislative body over his anti-corruption campaign and lawmaker proposals for pension fund withdrawals, which are of concern to investors.

Manuel Merino, who replaced Vizcarra as president last week, signed a law allowing pension contributors to withdraw as much as 17,200 soles ($4,814) each just hours before he quit in the face of protests.

The move denied Sagasti the opportunity to use a presidential veto. The 76-year-old centrist lawmaker criticized the pension legislation when he was in Congress.

Alva warned the law would see up to $3.9 billion being pulled from the pension system, and risked pushing up borrowing costs by forcing funds to reduce government bond holdings.

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