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Peru’s Currency Drops to 18-Year Low After President Ousted

Peru’s Currency Drops to 18-Year Low After President Ousted

Peru’s currency weakened to an 18-year low and its dollar bonds dropped a day after President Martin Vizcarra was unexpectedly impeached and forced out of office.

The head of congress, Manuel Merino, was sworn in as interim president on Tuesday, pledging to name a cabinet of non-political professionals. He told lawmakers that elections will go ahead as planned in April and that he’ll hand over power to the country’s next leader in July.

After the swearing-in ceremony, riot police dispersed anti-impeachment protesters in streets near congress with tear gas and water cannons.

Members of congress voted 105-19 on Monday in favor of removing Vizcarra over corruption allegations. He left the presidential palace hours later and said he won’t fight the decision. His Finance Minister Maria Alva quit on Tuesday.

Peru’s Currency Drops to 18-Year Low After President Ousted

Merino, a lawmaker with the Popular Action party, will be the third president within a single five-year term. Since he was named head of congress in March, the legislature passed measures that Vizcarra opposed and considered reckless, such as allowing Peruvians to tap their pension savings during the pandemic, pay rises for medical staff and payouts from a state retirement fund.

Vizcarra’s ouster is heightening investor concerns over political volatility as Peru struggles back from one of the world’s deepest economic slumps. The sol weakened 1%, the most in emerging markets after the South African rand, while Peruvian bonds maturing in 2050 fell to a five-month low Tuesday, dropping 2.65 cents on the dollar to 156.55.

Peru has been among the countries worst hit by Covid-19, and the economy shrank 30.2% in the second quarter, the biggest crash suffered by any major nation.

Approval Ratings

Most analysts had expected Vizcarra to weather the vote, just as he survived a previous impeachment attempt in September. He maintained his strong approval ratings when he dissolved congress in September 2019 following months of clashes with lawmakers over his anti-graft program. A transitional legislature, in which the president had no representatives, was elected in January.

Peru’s political situation has changed dramatically since Vizcarra dissolved congress. He faced a fractured group of largely first-time lawmakers who pursued an agenda at odds with the government, seeking to gain popularity ahead of next year’s election. With the president unable to dissolve congress in the last year of government, the balance of power shifted in favor of the legislature.

Peru’s Currency Drops to 18-Year Low After President Ousted

Prosecutors are investigating allegations that Vizcarra took 2.3 million soles ($642,000) in bribes from companies building infrastructure projects in the Moquegua region, where he was governor from 2011 to 2014. He denies any wrongdoing, and said the accusations were designed to undermine trust in his administration.

“I leave the palace as I entered it, with my head held high,” Vizcarra said in his address.

Read More: In Peru, Sharp Rebound Ahead of Weaker Long-Term Growth

Years of Tumult

As well as the corruption allegations, lawmakers cited issues from the economic crisis to the management of the pandemic as reasons to oust Vizcarra, whose lack of a party meant he didn’t have a block to defend him.

Vizcarra’s exit follows four years of tumult since the 2016 election, a period during which the opposition-led congress censured ministers and forced out Vizcarra’s predecessor, Pedro Pablo Kuczynski.

Read More: OAS Concerned About Peru Stability on Eve of Impeachment Vote

The cost of protecting Peru’s bonds against default is similar to Chile’s even though the latter has stronger credit ratings, five-year credit-default swaps show.

There are “few pure investment-grade countries” in the region and “Peru’s bonds are among the tightest in Latin America,” said Todd Schubert, head of fixed-income research at Bank of Singapore. “There is little room for policy missteps or political instability imputed in current valuations.”

©2020 Bloomberg L.P.