Fourth Time’s the Charm – A Path to Better Governance in Peru

Peru has experienced years of political churn, including repeated confrontations between the executive and legislative branches and a revolving door in the presidential palace. However, Keiko Fujimori’s presidential election victory, in combination with recent constitutional changes, may offer Peru something it has lacked for much of the past decade – durability in government. That matters because Peru’s macro foundations have often looked stronger than its politics, and a more stable political backdrop could finally allow those strengths to shine through. For that reason, we come away more optimistic on Peru’s outlook following Fujimori’s win.

After falling short in three previous presidential bids, Fujimori defeated Roberto Sanchez by approximately 50,000 votes, a razor thin margin considering over 18 million votes were cast. The narrow margin points to a deeply polarized electorate and broad voter dissatisfaction with both candidates. At first glance, that result would not appear to bode well for political durability over Fujimori’s five-year term, particularly given that Sanchez has stated he will not recognize the results. No doubt in the short-run protests similar to those on the heels of former President Castillo’s ouster are a real possibility.

The post-election institutional setup, however, appears more supportive of continuity. Under the 2024 constitutional reforms, Peru reinstated a bicameral Congress, reversing the unicameral system adopted in the 1990s. Because presidential removal proceedings must now clear both chambers, the new framework introduces an additional institutional check that should help limit politically-motivated efforts to unseat a president.

In addition, Fujimori’s party, Popular Force, won 22 of the 50 Senate seats, giving it a meaningful blocking position against the two-thirds majority required for removal. Including parties that are ideologically aligned with Popular Force, Fujimori appears to have a working majority in both chambers.

An improvement in political durability could have outsized economic importance, in our view, because governance has long been Peru’s Achilles’ heel. Peru has maintained credible macroeconomic anchors, including a respected central bank, a history of fiscal discipline and relatively strong external metrics. However, political infighting and weak institutional cohesion have too often translated into policy paralysis, corruption and bureaucratic inefficiency. We believe a more stable presidency could help narrow the gap between Peru’s macro potential and its actual performance. It could also allow the government to focus on areas where better execution matters most, including illegal mining, public-private partnerships and the broader investment climate.

Just as important, improved governability may give Peru a better chance of advancing Fujimori’s stated policy priorities, namely addressing the country’s crime and security challenges and pursuing deregulation to support growth and investment. After years in which political instability repeatedly disrupted policymaking, even a modest increase in stability could meaningfully improve growth, confidence and asset performance within the country. In our view, that is the core of the bullish case. Peru does not need perfect politics to improve meaningfully; we believe it simply needs a government that can last long enough to govern.