- Cecilia Barría
- BBC News World
“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,” said President-elect Pedro Castillo at a massive event in late June.
It is a speech that over time has moderated if compared to his statements at the beginning of the electoral campaign, when he was an unknown rural teacher who defended the postulates of a self-declared Marxist-Leninist party.
Castillo, who won the elections by just over 44,000 votesHe had to wait more than a month before being officially proclaimed as the next president of Peru – this Monday – after his rival, Keiko Fujimori, accused him of electoral fraud and challenged him in court.
During all these weeks of waiting after the results of the June 6 elections were contested, Castillo has come out to calm the waters amid a climate of uncertainty about the course that the Peruvian economy will follow under his mandate.
To reaffirm himself as a figure that will maintain economic stability in a country that has had four presidents in four years, he has played at least two key cards.
The first was the appointment of Pedro Francke as his main economic advisor, a man who enjoys respect in the business and academic environment.
The second was to ask Julio Velaverde, president of the board of the Central Bank, to continue as in the last 15 years at the head of the institution to guarantee its independence.
This is how Pedro Castillo presents himself just eight days after assuming the presidency – on July 28 – of a country that had the largest economic contraction in Latin America in 2020 in the midst of the covid-19 pandemic.
A country where three of each 10 people live in poverty and more than 70% of workers belong to the informal market, despite the fact that its economy was considered an “economic miracle” due to its rapid growth in the last two decades and a prudent management of public finances that allowed it to maintain fiscal balance and attract investment.
As Peru is such a divided nation, what now generates more uncertainty, experts consulted by BBC Mundo say, is who will really rule the country.
Is it the current Castle or the Castle that a few months ago registered his candidacy with a government program drawn up by the founder of the Peru Libre party, Vladimir Cerrón?
We are talking about the same Cerrón that lost prominence in the campaign after the first round and that is sentenced for crimes of incompatible negotiation and exploitation during the time he was governor of the state of Junín.
What is known about the “popular economy with markets”
As has happened with Castillo himself, the idea of a “popular economy with markets” has also undergone an evolution in recent months.
The new president, whose inauguration is scheduled for July 28, is promoting a change that may alter the economic fundamentals that have guided the country in recent decades.
But what change is it?
The concept of “popular economy with markets” does not appear in any economic text.
Originally it was defined as a mixture between the experience of the leaders Evo Morales in Bolivia and Rafael Correa in Ecuador.
It is thus a kind of “evocorreísmo” to the Peruvian, under the directives of a planning, entrepreneur, industrializing and protective State.
“A State that generates internal resources from the sovereignty of its resources.”
However, when Castillo unexpectedly went into the second round, there was a twist.
The candidate signed new players in his technical team.
Among them, the aforementioned Francke, who is seen as the likely economy minister of the new government.
“Castillo realized that he has to govern for the whole country and his current technical team represents a modern left, not a primitive left,” tells the BBC Mundo Sinecio López, a sociologist and academic at the Pontificia Universidad Católica del Perú and de the National University of San Marcos.
“Greater redistributive component on the part of the State”
Interviewed by BBC Mundo, Francke argues that the popular economy with markets “is a model of free action by private companies, as we have had until now, but with a greater redistributive component on the part of the State.”
“Wealth must be redistributed, particularly mining wealth”, argues by phone from Lima.
Francke anticipates that it is intended that the funds from the wealth redistribution policies be destined to an increase in social spending on health and education, and to greater support for microentrepreneurs in the city and the countryside.
“There is fear about what we could call that other left, a left that has a more statist proposal in the style of Cuba or Venezuela, with a multiplicity of price controls, a heavily planned economy, a huge state presence. That is not what we want.” aim.
The country that most closely resembles the economic system that the new government intends to build is Boliviasays Francke.
“There is a certain closeness to the experience of Evo Morales in Bolivia, but I say true, because we have a national proposal and each country is different.”
The Bolivian economy, he explains, “has a good tax component, but in oil and hydrocarbon production, transnational companies continue.”
“In the industrial and agricultural sector, there are also private companies and there is no price control,” he says.
Uncertainty in a mining country
Castillo’s triumph has many investors and businessmen concerned. The Peruvian sol has lost value against the dollar and the stock market has fallen since the elections.
Given that one of the largest sources of income in the country comes from the mining sector, the uncertainty about eventual nationalizations keeps those who expect Castillo to clearly explain how far he plans to go.
So far, the president-elect has said that two large mining projects, Tía María and Conga, “don’t go”, a decision that can mean stopping billions of dollars.
He has also indicated that he plans to renegotiate contracts with transnational companies operating in the country so that 80% of the profits remain in Peru and the rest remain in the hands of the firms.
In theory, these renegotiations They would be focused on the mining and gas sectors, but questions remain about whether they could expand into other industries.
Castillo also said during the campaign that he was going to ban imports of products produced in Peru, but later moderated the comments, arguing that their objective is to protect Peruvian producers.
It is these kinds of changes in the discourse that have generated concern.
“A potential Pandora’s box is opening in the country that leaves us on an uncertain course,” said Diego Macera, economist and general manager of the Peruvian Institute of Economics (IPE), in dialogue with BBC Mundo.
Recent statements by Pedro Francke
Castillo’s economic spokesman has recently insisted that the new government will promote an open economy, but with greater emphasis on the social.
“The basic idea is that a market economy would be maintained. It is not an idea of massive intervention by the State in the economy,” he said.
In this sense, Francke postulates prioritizing an increase in mining taxes and fighting against tax evasion and avoidance to the income of companies, to finance greater spending on health and education.
He has so far not mentioned any increase in sales tax rates or the creation of a wealth tax.
The man who would be in charge of directing Peru’s economic route is considered a moderate left-wing economist who can sit down to talk with social leaders and Wall Street investors.
Former director of the Peruvian social security agency Essalud and professor of economics at the Pontificia Universidad Católica, has been clear in pointing out that the economic plan does not consider expropriations or “confiscations of savings.”
From that perspective, Francke has been one of Castillo’s main workhorses in assuaging fears about the coming to power of a radical left that would erase the foundations of the Peruvian economic system at a stroke.
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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.