Banks in Miami can’t keep up. Every day they receive calls and visits from Peruvians who seek to open an account in the United States to protect their money from what a change of government in their country could bring. The electoral victory of Pedro Castillo, a leftist presidential candidate, has generated such fear that many citizens are looking for a way to get their money out of local banks.
Diego Alva, a 24-year-old industrial engineer, was received at a Bank of America branch with a sheet that warned, from the title, that proof of residence in that country was required to open an account. “They didn’t even let me talk to an advisor,” the Lima-born man told his thousands of followers in a YouTube video last month. In the end, Alva managed to open her account at another bank in Miami, where she will put part of her savings in dollars.
The video, entitled “How to open a bank account in the USA while being Peruvian”, accumulates more than 78,000 views and, to date, they continue to rise. It is by far the most successful content that Alva and his partner, Juan Diego Cuya, have published on their channel Full Pockets, a personal finance blog that they started after the pandemic. In the weeks after the June 6 election, and following requests from his followers, the blog’s focus was on the country’s risks from politics.
“We were caught by surprise that he could fly so much,” says Cuya, a 27-year-old data analyst, on the phone from Lima, “we did not expect it to be such a striking video and that reaffirms this uncertainty of Peruvians who are looking at options to protect your money, it is a reflection of what you are experiencing ”. This is the topic of conversation between friends and family, all the time, in Peru, Cuya and Alva coincide. If you don’t talk about how to get your money out of the country, you talk about who is looking to do it.
We are facing a country that has suffered strongly from the Covid-19 crisis, says Diego Pereira, economist for Peru and the Southern Cone at JPMorgan. Gross domestic product (GDP) fell 11% in 2020 and this year, “despite the high and persistent political uncertainty, monetary and fiscal impulses together with the terms of trade will push growth towards levels close to 10.8%” , says the specialist. “The 2022 projections strongly depend on the initial message of the incoming administration, with political scenarios associated with a constituent assembly likely to significantly affect private investment,” said Pereira.
The Peruvian sol depreciates
The Central Reserve Bank of Peru has not reported data on bank reserves and deposits for the weeks after the election, but the evidence that there has already been a significant flight of capital from the South American country is in the exchange rate. The Peruvian sol has lost 8% of its value against the US dollar since April 11, the date of the first electoral round, even though the Central Bank has aggressively intervened to defend the currency. Investment bank JPMorgan estimates that $ 11 billion, 5.4% of GDP, has been spent on financial instruments to prevent the sun from falling.
A specialized source, who wishes to remain anonymous, estimates that both foreigners and Peruvian citizens have taken the equivalent of 6% of GDP, that is, about 14,000 million dollars from the country – data that cannot be confirmed until the Central Bank publishes the official figure. It is possible, however, that risk aversion is stronger within the country than outside.
“Our outlook on the sun is constructive,” says Carlos Pedroso, an analyst at Banco de Tokyo-Mitsubishi UFG Brasil. “The good macroeconomic fundamentals and the global recovery that supports the high price of copper tend to appreciate the currency,” he says. Copper is one of the main sources of income in Peru. “We hope that this movement will take place once Castillo assumes office,” adds Pedroso, “of course, the political scene in Peru is still far from normal, which limits this appreciation.”
Castillo won at the polls by just over 44,000 votes, a testament to the division so marked that they left the elections. A candidate of a party that declares itself Marxist-Leninist, the teacher of a rural school in Peru proposed in a campaign to draft a new Constitution by means of a Constituent Assembly, as Chile did, to increase the budget for education, agriculture and conserve the environment . An opponent of “neoliberalism” was said and promised to change the economy to a “social market” and “popular with markets.” The State, he said, will take a much more central role in the economy as controller, so it will seek to renegotiate the profits distributed by transnational companies, especially mining companies.
His opponent, Keiko Fujimori, falsely denounced that there was fraud in the elections and, together with his followers, imposed 270 petitions to annul the vote. On Thursday, the highest level of the electoral court denied the requests, which calmed the markets a bit. However, since the June 6 election results were announced, Castillo has tried to calm not only the economically powerful elites, but Peruvians who are uncertain about the change to come.
Castillo appointed Pedro Francke, an economist and university professor with a good reputation among bankers and businessmen in the country, as his main adviser and to calm concerns and separate himself from the idea that his proposals are “communist.” He also announced that Julio Velarde, president of the board of the Central Bank, will continue to lead the institution to guarantee its independence and continuity.
“We are not Chavistas, we are not communists, we are not going to take away their properties from anyone, what has been said is totally false, that is sealed: we are democratic, we respect Peruvian governance and institutions,” Castillo said at a massive event June 27. But Castillo has not cut ties with the party and with figures considered to be on the extreme left. This has generated much confusion as to the direction the country will take, which intensifies fear and uncertainty regarding the economy and the heritage of Peruvians.
“If you ask someone right now, what do you expect from the Castillo government? they are going to have very different answers, “says Cuyo,” some will tell you that it will be radical and that the economy is going to worsen, others will tell you that they hope it will moderate. But there are really no hard facts to say who is correct, any view is valid in this nebula. “
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.