Peruvian Assets Rally as Sagasti Tapped to Fill Power Vacuum
Faced with violent protests and political chaos, Peru’s besieged congress chose a third president in less than a week.
(Bloomberg) -- Peru’s currency and bonds rallied after its besieged congress chose a U.S.-trained engineer and systems analyst to be the nation’s president -- the third in less than a week -- in a bid to restore some measure of calm.
Lawmakers on Monday chose Francisco Sagasti, an elder-statesman legislator with extensive consulting experience at home and abroad, to lead a new government by electing him head of congress.
Sagasti, 76, who has a doctorate from the University of Pennsylvania, is a former head of strategic planning at the World Bank and a one-time adviser to the United Nations on science and technology. Although he’s been a lawmaker for only eight months, he’s seen as a conciliatory figure and corruption-free in a fractured and volatile congress, half of whose members have been accused of a crime.
After being sworn in as head of congress, Sagasti said he’d seek to heal an anguished nation through fairness and justice. He is expected to be sworn in president later on Tuesday.
‘Wake-Up Call’
“The protests were a powerful wake-up call,” he said. “The pandemic, the economic crisis, the problems with security weren’t enough. We had to wait for the death of two young men to realize the ignominy of the situation we’re living in.”
Miguel Jaramillo, a researcher at the Lima-based Grade think tank co-founded by the new Peruvian president, said becoming president was a long-time dream for Sagasti. “He’s better qualified for the post than anyone else in congress and better placed to convince competent technocrats to take over public administration until next July.”
Sagasti’s predecessor, Manuel Merino, assumed the presidency last week following the surprise impeachment of Martin Vizcarra, just five months before the country’s next general election. After demonstrators flooded the streets of Lima, where two people were shot dead, Merino quit on Sunday.
Merino, his cabinet chief and interior minister are now under investigation by the office of the attorney general for the two deaths and abuse of authority.
As head of congress, Merino led the impeachment of Vizcarra, one of the most popular politicians in the country, in what many saw as a naked power grab. Vizcarra had the backing of much of the nation but butted heads with the legislature -- his party has no members in it -- in a dynamic that has paralyzed Peruvian politics.
Sagasti’s Purple Party is the only one in congress to have voted squarely against Vizcarra’s ouster.
Sagasti has opposed congressional economic proposals considered dangerous by the government, such as a large cash payout from the state retirement fund. He was on the ticket with a leftist lawmaker, Mirtha Vasquez, who’ll become acting head of congress.
Paradox of Peru
Peru has long been a paradox -- wild politics and endless corruption allegations but solid economic and market opportunities. The coming and going of numerous presidents has rarely affected investment basics.
The Peruvian sol rallied more than 1% on Tuesday morning, leading gains among emerging market currencies, after weakening to a record low in the previous session. The nation’s dollar bonds due in 2050 rose 0.7 cent to 159.1 cents on the dollar, trimming Monday's losses.
Some analysts said Sagasti’s election would strengthen institutions shaken not only by this infighting but by Covid-19 and the deep economic challenges it has brought to Peru.
“Francisco won’t do anything to jeopardize a democratic transition,” said Carlos Penny, a veteran banker who taught at Universidad del Pacifico at the same time as Sagasti. “I think he’ll be cautious in making sure the process is smooth. He’s a thoughtful person, who’s not impulsive.”
Jo-Marie Burt, a Latin America specialist at George Mason University, said what happened in the past week reflected the raw nature of Peru’s politics. Vizcarra had sought reforms, including term limits and an end to parliamentary immunity, that many in congress found threatening.
‘Private Interest’
“There is a coalition in congress that act on their very personal, private interest to maintain their seats in parliament, their parliamentary immunity, to be able to run in the next government and keep access to government funds,” she said.
She added, “Peruvians understood what was going on and protested massively. They want to put an end to this conspiracy of ‘to the victor goes the spoils.’”
The speed with which congress installed a new president was an indication that its members understood the public was feeling betrayed and furious. Demonstrations continued on Monday throughout the voting.
Nicolas Urrutia, a senior analyst at Control Risks, put it this way: “When you boil it down to its simplest elements, you have a very unpopular congress led by a second or third degree politician that ousted the most popular head of state in 20 years.”
Fractious Congress
Maintaining calm will not just depend on appeasing regular Peruvians but also a fractious congress that faces elections in five months, according to Nicholas Watson, an analyst at the Teneo consultancy.
“The main challenge to stability is likely to come from increasing electoral competition in the run-up to next April’s vote,” Watson wrote in a note clients on Tuesday.
After his Monday swearing-in ceremony as head of congress, Sagasti went outside to the street, waving and holding up a clenched fist to demonstrators.
Speaking to journalists, he added, “It’s not a time for celebration. We have too many problems and difficulties. It’s a moment of reflection to ask ourselves where we lost our way, to correct and advance decidedly.”
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