Ecuador’s violence sends shockwaves; El Niño impact less severe than expected; BCRP likely to pause in February and March
We discuss three topics in this report. First, in politics, we discuss the risk that the recent wave of violence in neighboring Ecuador will spread to Peru. Next, we discuss our economic outlook, and reassess the impacts of the El Niño weather shock. Finally, we discuss the recent decision by the Board of the Banco Central de Reserva del Perú. In light of a less upbeat December inflation report from the BCRP and the El Niño shock, we suggest that the Board at its February and March meetings may choose to pause.
The wave of violence led in early January by organized crime gangs in Ecuador compelled President Daniel Noboa to declare a national state of domestic armed conflict, and subsequently to dispatch the Army and National Police Force. The events in Ecuador sent shockwaves through the Peruvian political ranks, prompting Prime Minister Alberto Otárola on January 9th to declare a state of emergency in Peru’s border states, and to direct Army patrols of the border, meant to prevent Ecuadorean criminal gangs from crossing into Peru. The events in Ecuador have served as a warning to Peruvian President Dina Boluarte, and to the country’s political leaders. Should the authorities allow the violence to spread across the border, it could have a disastrous effect on the already-high unpopularity rating of Boluarte and her Cabinet (in previous reports, we have argued that this unpopularity results principally from the economy having fallen into recession in 2023, and from high domestic insecurity).
The media on Thursday January 4th reported the resignation of Economy and Finance Minister Alex Contreras. On Sunday January 6th, Contreras visited Boluarte, and afterward announced to reporters that he had not resigned, and that he had the support of the president. On Monday, January 7th, Contreras’ Finance Undersecretary José Chávez resigned, and most press reports interpreted this development as Chávez’s assumption of blame for the ineffective policies implemented by the Economy and Finance Ministry.
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