Crisis in the Attorney General’s Office: what impact will it have on the Peruvian economy?

The last week of November began with the disclosure of some WhatsApp chats that reveal an exchange of political favors between legislators and operators of the National Prosecutor’s Office, Patricia Benavides, for which she has been accused of leading an alleged criminal organization. One of the concerns of citizens is how much this new crisis could impact the already hit Peruvian economy. Specialists consulted by this means respond.

The president of the SME Committee of the College of Economists of Lima, Ronald Casana, says that, first of all, short and medium-term investments can be postponed for both national and international purposes. If the businessman, for example, was planning to open a new location for his business, he will probably postpone this decision, because he does not know what could trigger this new crisis (social conflicts or even a presidential vacancy).

On the other hand, the country’s credit rating could be affected. “We already have, mind you, the negative perspective of the credit rating. So, at the end of the year there will be a new classification, and what is feared is that due to these political problems, more than macroeconomic ones, “there may be a downgrade”Casana warned.

The consequences of continuing to deteriorate the credit rating are that there will be less foreign investment and that the loans that the country can access will be more expensive. Besides, If the State accesses more expensive loans, it could resort to raising some taxes, and on the side of financial entities, they would have to raise their interest rates; In both cases, the average citizen is affected, according to the economist.

Furthermore, if there is less investment and a perception that corruption is increasing, companies will stop hiring new staff, which will affect the development of the sector. employment, especially the formal type, which is the most needed, says Casana. Let us remember that the Peruvian Institute of Economics (IPE) recently estimated that employment will continue in negative territory and will end 2023 with a fall of 0.7%, the biggest setback in the last 20 years without considering the pandemic.

What sectors of the economy could be most affected?

For former Economy Minister Alonso Segura, it is still too early to determine which sectors of the economy could be most affected by the political crisis. “It depends. You now have a generalized infection, but you don’t know where the pus is going to come from. It’s very difficult to say. Obviously, private investment is in free fall, and what is most likely going to be is that pessimism will continue and the fall in private investment will continue,” said.

According to the Central Reserve Bank of Peru (BCRP), private investment in physical capital contracted 8.9% between January and September compared to the same period in 2022. While the projection at the end of 2023 is a fall 5.3% due to the slow recovery of business confidence, according to ComexPerú.

What’s going to happen with the dollar?

Casana explains that the dollar will maintain its trend and close the year at S/3.80, since above all it will be external factors that can affect this perspective. It should be noted that the currency closed at S/3.73 this Wednesday, November 29 and in the accumulated value of the year it registered a decline of 2.02%.

“Now we are going to depend on the foreign impact or volatility that may occur, unless there is a cut in a US reference rate or some geopolitical problem that may arise. Due to internal problems at this time it will not have greater impacts ( the exchange rate),” he said.