Peru's `Orderly' End to Kuczynski Era Pleases Currency Markets

(Bloomberg) -- Peru’s currency was among emerging markets’ best performers after Pedro Pablo Kuczynski quit as president to end months of confrontation with Congress and his vice president pledged to take up the mantle, easing fears of a snap election.

Vice President Martin Vizcarra is set to be sworn in Friday as Peru’s leader and form a cabinet as the nation seeks to turn the page on the continent-wide Carwash bribery scandal that sank his former boss. Opposition politicians signaled they are ready work with Vizcarra to ease tensions that twice brought Kuczynski to the verge of impeachment.

“An orderly exit by Kuczynski and a clear transition has been positive for the markets,” said Diego Marrero, chief investment officer at Lima-based pension fund manager AFP Habitat. “Vizcarra could improve the relationship with Congress.”

The sol rose the most in Latin America and as much as 0.5 percent to its strongest in six weeks, and local government bonds climbed. While Peru’s main stock index fell with emerging markets, Morgan Stanley said the country’s equities will continue to gain this year as political uncertainty eases.

Peru's `Orderly' End to Kuczynski Era Pleases Currency Markets

Party leaders meeting in Congress on Wednesday agreed to accept Kuczynski’s resignation while rejecting some of the terms used in his parting letter, in which he accused the opposition of a demolition campaign against his government.

Starting Behind

Lawmakers will draft a separate document on his resignation and debate it during a plenary Thursday starting 4 p.m. in Lima that will continue Friday, Congress said in an email. Legislators will then hold a vote on the resignation before Vizcarra is summoned for the swearing-in.

Little known to most 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.

Vizcarra was forced to resign as transportation minister last year under pressure from Popular Force, the biggest opposition party. Popular Force lawmaker Daniel Salaverry said Thursday that his party acknowledges it has an obligation to improve the political climate and help Vizcarra get Peru’s sluggish economy back on track. Speaking to Radio Programas, he rejected calls from some parties for a snap election.

“Vizcarra is going to govern three and a half years,” Salaverry said. “In three and a half years I think very important things for the country can be done if he has a message of national unity and tries to reconcile the country.”

Tomorrow’s Man?

Still, any honeymoon won’t last, given the “poisoned” politics and early elections are the most likely scenario, according to Eileen Gavin, an analyst at Verisk Maplecroft.

“Vizcarra is more likely to be a transition figure,” Gavin wrote in a note. “History is not on his side. No president facing an opposition party in Congress has survived a full five-year term in recent times.”

The nation’s 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. That finished his career.

As Kuczynski returned to his home in the upscale San Isidro district on Wednesday, Carwash prosecutors sought an order barring him from leaving the country while their investigations continue.

In a parting shot on Wednesday, Kuczynski decreed a 9.4 percent increase in Peru’s minimum monthly wage to 930 soles ($286).

©2018 Bloomberg L.P.