(Bloomberg) -- Peru’s new interim leader vowed to defend fiscal stability in the face of demands for higher government spending, signaling he’ll resist populist economic measures from congress.
The pandemic has diminished fiscal reserves and the government will have “enormous” difficulty balancing the budget, President Francisco Sagasti said in a speech to lawmakers Tuesday. His administration will address the most urgent demands while respecting fiscal stability. “If we don’t, we all lose,” he said.
Peruvian Assets Rally as Sagasti Tapped to Fill Power Vacuum
Sagasti was sworn in as interim leader following a week of unprecedented political and social tumult triggered by Martin Vizcarra’s impeachment. Peruvian assets rallied on Tuesday on expectations the new government won’t give in to congress’ demands for higher spending amid the deepest recession in a century.
His team asked Maria Antonieta Alva to return as finance minister just a week after she resigned, according to three people familiar with the matter.
Alva, who left following Vizcarra’s ouster, is considering the proposal, said the people, who requested anonymity because the talks are private. Neither Alva nor a representative for Sagasti’s Partido Morado replied to requests for comment.
The 35-year-old economist, known as Toni, won early praise for putting together one of Latin America’s largest rescue packages during the pandemic, although the plan eventually fell short as rising infections turned Peru into a global hotspot.
She’s 35 and Finance Minister and Suddenly a Rock Star in Peru
Harvard-educated and social media-savvy, her potential return could appease younger voters, who took to the streets following Vizcarra’s ouster. Those protests led to the resignation on Sunday of Manuel Merino, who had taken over as interim leader days before. Congress chose Sagasti as Peru’s third president in a week yesterday.
As the political turmoil eased, Peru’s sol leaped 1.9% against the dollar on Tuesday, after touching an all-time low the day before. The nation’s dollar bonds due in 2050 climbed 1.2 cent to 159 cents on the dollar. Shares of Lima-based financial services firm Credicorp Ltd., which is 52% of the MSCI Peru Index, extended their five-day rally to 17.9%.
Sagasti is moving quickly to build a cabinet as he’s tasked with leading the country to new presidential elections slated for April. His term would end in July.
Gino Costa, a lawmaker with Sagasti’s party, was unable to confirm Alva’s invitation, but said her return to the post would be the best option given her experience defending legislation in congress.
“She already has a team that’s been managing things, that’s been negotiating with congress,” he said by phone from Lima.
Sagasti’s team is also considering former Finance Minister Alonso Segura and Waldo Mendoza, the head of a public finance commission, two of the people said.
The new cabinet will be independent, including officials with government experience who represent multiple parties, according to Alberto de Belaunde, another lawmaker with Sagasti’s party. He said they’re in the middle of active discussions about the potential appointments.
One of the finance minister’s top tasks will be addressing populist proposals by lawmakers, such as large pension withdrawals, which Vizcarra opposed.
“Pensions are absolutely important for a country like ours,” Claudia Cooper, chair of the Lima Stock Exchange and a former finance minister, said on a Canadian Council for the Americas panel. “We need a minister of finance who’s empowered to negotiate with congress and get an outcome that’s feasible.”
Costa said the coalition in congress that emerged in the last week and carried Sagasti to power gives him a political base that Vizcarra never enjoyed.
“A climate of national concordance” will help the economic recovery, he said.
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