In decisive election, Peru tests “shielding” of its economy

Peru is one of the most politically unstable countries in the Americas: it has had eight presidents since 2016, when the leftist Ollanta Humala was the last president to serve his full five-year term, and several former presidents have suffered judicial convictions in recent years.

However, the Peruvian economy has a kind of “shield”, as it continues to have good indicators even in the face of the never-ending political crisis.

In a report published in May, the International Monetary Fund (IMF) highlighted that the Peruvian economy grew 3.4% last year; the non-financial public sector deficit fell from 3.5% of GDP in 2024 to 2.2% in 2025, within the deficit target of the fiscal rule, after two consecutive years of non-compliance; Peruvian inflation was 1.5%; and the country is facing “the most favorable terms of trade since the 1950s”.

The IMF attributed this favorable scenario “to a combination of high metal prices and low import costs, which continue to be a supportive factor despite higher global oil prices and recent volatility in copper and gold prices due to the war in the Middle East.”

“Business and consumer confidence reached their highest levels since 2020, boosting recent growth prospects and improving macroeconomic balances,” the fund reported.

The IMF praised Peru’s “solid inflation targeting regime, strong supervision of the financial sector and adequate macroprudential policies”, which “allowed the formation of ample reserves” and mean that the Andean country has “one of the lowest public debt/GDP ratios in the region”.

“Peru has a very autonomous central bank, with a more linear strategy and not as vulnerable to changes in government from these various presidents. This means that this central bank is able to establish growth targets and a more assertive monetary policy”, said Ludmila Culpi, economist and professor of international relations and international business courses at the Business School of the Pontifical Catholic University of Paraná (PUCPR), in an interview with People’s Gazette.

“The country also has an interesting situation of being a major exporter of copper and gold, which brings some gains in terms of stability,” he added.

Country could grow even more with political stability, says economist

However, there is a risk of wear and tear on the “armor” of the Peruvian economy. In the May report, the IMF warned that “persistent” political instability “has led to the unpredictability of public policies, while high political fragmentation has prevented major reforms needed to boost growth.”

He also warned that crime rates, although among the lowest in the region, “have weakened the business environment and contributed to a feeling of impunity”.

Culpi stated that, despite the stability of recent years, Peru’s economic growth could be even greater if it were not for the prolonged political crisis.

“There is contagion and instability takes its toll. It’s what they call a ‘zombie economy’: it continues according to its own internal dynamics, with relatively autonomous institutions and products that have external appreciation, but there is still a political volatility that infects the ministries”, explained the economist.

“The president doesn’t stay in office for two years and ministers don’t stay for more than eight or nine months. In the case of the Ministry of Economy, the entry of someone new generally discontinues previous work,” said Culpi.

Candidates have opposing proposals for the economy

Fujimori and Sánchez, the two opponents in this Sunday’s second round, have opposing economic plans. Fujimori wants to foster the market economy, maintain the independence of the Central Bank, reduce the deficit to 1% of GDP by 2031 and attract additional private investment of up to US$7 billion per year.

Sánchez, on the other hand, wants to change the Constitution to “recover sovereignty” over Peruvian natural resources (read nationalization), increase the presence of the State in the economy, revoke contracts that, according to the leftist, place the country “under the total control of international corporations” and renegotiate free trade agreements that “affect national sovereignty”.

“It seems that Keiko Fujimori would have a better chance in the current scenario (of being elected). Her agenda of reducing the role of the State and fiscal austerity seems to fit better, as public debt is growing, which is a global trend”, stated Culpi, citing the leading candidate in the polls.