Peru bonds surge as investors cheer on president for moderation

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(Bloomberg) – Peru’s foreign bonds posted their biggest gain in a year after President Pedro Castillo replaced a far-left prime minister with a more conventional choice in a bid to improve his administration’s relationship with legislators.

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Benchmarks due in 2031 jumped more than a cent to 100.2 cents on the dollar early Thursday, as the cost of insuring the country’s debt against default plunged the most since April 2020. The steps came after former congress president Mirtha Vasquez was sworn in as prime minister, replacing Guido Bellido, a radical in the left-wing Castillo government who stirred up trouble last month by threatening to nationalize the government. largest gas field in Peru.

Investors are rejoicing at signs Castillo is seeking a dovish approach after more radical members of his cabinet created rifts with conservative members of Congress and questioned the country’s commitment to foreign investment. The announcement marks the second high-profile departure of Castillo’s cabinet just over two months after starting his presidency, as it signals a pragmatic and consensual approach in dealing with the energy sector and others. industries essential to the economy.

“This is another affirmation of a more pragmatic approach to policy,” said Edwin Gutierrez, head of emerging market sovereign debt at Aberdeen Asset Management in London. For now, the cabinet reshuffle is a strong enough signal that Peru will remain a safe place to invest in Latin America, he added.

There is a risk that Castillo’s measures will sever relations with his own socialist Peru Libre party, potentially jeopardizing his congress program. Waldemar Cerron, Congressman of Free Peru, called the new cabinet appointments an act of treason.

“The members of the Free Peru Congress do not support this cabinet because we consider it a betrayal of all the majorities who have waited many years to come to power,” Cerron told reporters in Lima. .

Vasquez, 46, represents the Frente Amplio, or the Broad Front coalition, which includes socialists, environmentalists and center-left politicians.

Castillo appointed six other new cabinet members, including ministers of mines, labor and the interior. The Minister of Finance Pedro Francke, much appreciated by investors, will remain in office.

Castillo said these measures would improve “governability” and said it was time to put Peru’s interests above ideology.

Party leader Vladimir Cerron, Waldemar’s brother, was close to Bellido and defended him in posts on Twitter. Bellido had been accused of sympathizing with terrorist groups, although he denies the charges.

Read more: Havana-trained Marxist pushes Peru’s new president to the left

“The changes appear designed to bring more peace to the markets,” said Jose Alejandro Godoy, professor of social and political sciences at Pacifico University. “We will have a cabinet more engaged in debate, more open to discussion, closer to a more moderate left.”

Bellido, who lasted 69 days as prime minister, threatened to nationalize Peru’s largest gas field last month, comments that other members of the government tried to turn back the clock in the following days. Bellido told a press conference in late September that the government would consider activating a constitutional mechanism known as the vote of confidence, which could eventually lead to new elections for the unicameral chamber in the politically unstable country.

Read more: Clash between Peruvian government and Congress triggers crisis

“The vote of confidence, interpellation and censorship must not be used to create political instability,” Castillo said in his speech, in a veiled rebuke from Bellido.

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