Peru's New Leader Vizcarra Taking Office Amid Persistent Tumult

(Bloomberg) -- Peru’s president-in-waiting, Martin Vizcarra, is set to take office with the daunting challenge of building ties with an opposition-controlled Congress that forced his predecessor to quit after 20 months in power.

Vizcarra, an engineer-turned-politician, will be sworn in Friday to replace Pedro Pablo Kuczynski, who quit amid a corruption scandal, and a day before he faced a second impeachment vote.

Peru's New Leader Vizcarra Taking Office Amid Persistent Tumult

Under Vizcarra, Peru has a chance to turn the page on the continent-wide Carwash bribery scandal that brought down Kuczynski and implicated three other former Peruvian presidents. The biggest challenge may be smoothing tensions that eroded investor confidence and undercut growth prospects.

“Peru has always been a relatively noisy credit, politically speaking,” said Jaime Reusche, a senior credit officer at Moody’s Investors Service. “There are no guarantees that there’ll be a harmonious relationship with Congress, but there is now the possibility of moving past this confrontation.”

‘Constitutional Transition’

Kuczynski said in a national address Wednesday that resigning was best for the Andean nation and would end uncertainty.

“There will be an orderly constitutional transition,” he said on state television flanked by his cabinet. “I don’t want to be an obstacle for the nation finding the path of union and harmony it so badly needs and which was denied me.”

As first vice president, Vizcarra is in line to take power and is entitled to hold office until 2021 when the government’s mandate expires. Vizcarra, who turns 55 on Thursday, joined Kuczynski’s campaign as an adviser in 2015 after a four-year term as governor of the Moquegua region in south Peru. He quit as transportation minister in May under pressure from lawmakers amid a spat over an airport contract. He has been serving as Peru’s ambassador to Canada.

Vizcarra said via Twitter he’s returning to Peru to serve the country in accordance with the constitution.

“I’m indignant with the current situation, like the majority of Peruvians, but I’m convinced that together we will show once again that we can move forward,” he wrote.

‘Starting Behind’

In the three months since the first impeachment vote, Peru’s sol has lagged all major Latin American currencies except for the Argentine peso. The currency gained on the reports of Kuczynski’s resignation, strengthening as much as 0.4 percent to 3.2516 per dollar, the strongest in two weeks.

The Lima stock exchange’s benchmark index is up 4.3 percent this year, buoyed by metal price gains. Peru is the world’s second-largest zinc and copper producer, housing mines owned by Freeport McMoRan Inc., Newmont Mining Corp., and Glencore Plc.

Little known to many Peruvians, Vizcarra is in an unenviable position, inheriting a ruling party that questioned his loyalty to Kuczynski in the face of impeachment and has just 15 of the 130 seats in Congress.

“His will be a much weaker government than Kuczynski’s because he has no social and political support,” said Carlos Melendez of the political analysis group 50+1. “He’s a provincial outsider to the political establishment of Lima.”

Crucial Defections

Political turmoil is nothing new to Peru. Its previous four presidents have been under investigation for money laundering, corruption or human-rights abuses. One is in prison, one has just been released and Peru is seeking the extradition of another from the U.S.

Kuczynski, a 79-year-old Wall Street veteran and former finance minister, had beaten a first attempt at impeachment in December after the revelation that a firm he owned took money from Brazilian builder Odebrecht SA, which doled out hundreds of millions in bribes across the region.

His escape was narrow enough to embolden opponents to make a second attempt, and on Wednesday, some lawmakers who previously supported him called for his resignation after allegations he sought to reward politicians in exchange for retaining power.

Kuczynski’s position deteriorated quickly. Since late Tuesday, Jorge del Castillo, a legislator with the opposition Apra party, and three lawmakers who left Kuczynski’s party last year said that they were in favor of impeachment.

‘Affects Our Democracy’

Their change of heart followed the release of secretly filmed videos that appear to show government-allied lawmakers telling a member of Peru’s biggest opposition party, Popular Force, that he would control public works in his jurisdiction if he abstained in Thursday’s planned impeachment vote.

Del Castillo, who previously said there were no grounds for ousting Kuczynski, told Radio Programas the president should resign. Salvador Heresi, a lawmaker with Kuczynski’s Peruvians for Change party, said before the resignation that he would have voted for impeachment.

“What we saw in the videos released yesterday is disgraceful and gravely affects our democracy,” Heresi said via Twitter.

Speaking to reporters before the videos were aired by Popular Force, Kuczynski said accusations of vote buying were “a big lie.”

Cabinet chief Mercedes Araoz on Wednesday denied to reporters that the government offered projects or money to sway legislators.

Swept Away

Kuczynski had been fighting for his political life since last year after claims that he lied to congress to hide his ties to Odebrecht, which is at the center of Carwash. Prosecutors across Latin America are investigating bribes that the company paid to public officials in exchange for billions of dollars in contracts. The company disclosed payments to Westfield Capital Ltd., owned by Kuczynski, of close to $800,000 between 2004 to 2007 for advice on projects that Peru awarded it.

Peru's New Leader Vizcarra Taking Office Amid Persistent Tumult

Kuczynski said he had no knowledge of the company’s dealings at the time, because an associate was managing the firm and denied granting any favors to Odebrecht when he was finance minister.

The scandal and investigation has roiled the nation’s construction industry and delayed major infrastructure projects while prompting the government and private economists to slash growth forecasts for the Andean nation.

Kuczynski’s departure will bring “some peace” to markets, said Carlos Rojas, founder of Lima-based Andino Asset Management. If Vizcarra takes over as expected, investors can expect a “relief rally,” said Bulltick’s Kathryn Rooney Vera.

BTG Pactual analysts Alonso Aramburu and Cesar Perez-Novoa said more stable politics may help local equities perform well in 2018. “For 28 years, Peru has had center-right governments, with pro-market policies, and this trend is not in our view likely to change,” the analysts wrote in a note to clients.

©2018 Bloomberg L.P.