Peru at a crossroads: Corruption, stability and the 2021 elections

Congress will vote on a new attempt to impeach President Martín Vizcarra five weeks after failing to oust him on 18 September due to corruption allegations. He is the sixth consecutive head of state to be accused of corruption in Peru.

• Vizcarra will remain committed to promoting anti-corruption reforms, but his tense relations with Congress will hinder the approval of significant legislation.
• The anti-corruption agenda will make very limited progress during Vizcarra´s final months in office, and it will be left to the next administration to promote pending reforms.
• Weak political parties and electoral opportunism will likely lead to a fragmented Congress being elected in 2021, thereby reducing the next president’s ability to push major reforms.
• The overall integrity environment is likely to remain largely unchanged, and businesses will remain exposed to corruption risks after the general election.

Persistent tensions block progress

Vizcarra has had a complex relationship with the country’s legislative since he took office in March 2018, and this is highly likely to remain the case until the end of his term, particularly following the second congressional attempt to impeach him in the past two months. Tensions between the executive and Congress in part stems from the fact that Vizcarra was not elected as president, and he lacks the support of a political party – he came into office after serving as vice-president for former president Pedro Pablo Kuczynski (2016-18), who was ultimately forced to resign amid accusations of corruption. During his first few months as president, congressional tensions with the executive were largely attributed to political and electoral animosity between the opposition Popular Force (FP) party of former presidential candidate Keiko Fujimori (2016) and Vizcarra, who had served under Kuczynski after the latter won the election in a second-round vote with Fujimori.

Despite losing the presidential race in 2016, the FP won 73 of the 130 seats in the unicameral Congress, giving it a rare parliamentary majority. This allowed it to block the executive’s key initiatives. In time, however, congressional opposition to Vizcarra grew beyond the FP, and other parties in the legislative began to resist the president’s proposals for anti-corruption reforms, which threatened to end parliamentary immunity and reduce congress’ authority in appointing judges, among others. Tensions over the reforms between the two branches of government escalated until they reached a tipping point in September 2019, leading the president to dissolve Congress and call for new elections in January 2020. Vizcarra’s popular anti-corruption stance helped him overcome congressional resistance to the decision, as thousands of protesters took to the streets in the capital Lima and other major cities to support the dissolution.

Elections were held on 26 January, resulting in a new splintered Congress of nine parties. The FP lost most of its seats in the legislative, securing just 15, while parties that had long been absent from Congress (such as the leftist Union for Peru – UPP), or had never been a significant political force (such as the nationalist FREPAP), gained ground. Vizcarra’s ability to work with a fragmented legislative was quickly put to the test, with meagre results. Lack of party discipline and an eye on the 2021 general election have reduced opportunities for cooperation with the executive, while political priorities have changed in the wake of the COVID-19 pandemic. In the latest blow to Vizcarra’s attempts to push significant anti-corruption reforms, on 6 July Congress transformed a proposal to eliminate congressional immunity into a bill that eliminated executive immunity for the president, ministers, and high court judges.

Eyes on the next administration

Vizcarra is highly likely to survive the new impeachment attempt, as he did in September, but he will have very limited opportunities to enact significant reforms to combat corruption in the next nine months. Only a small number of legislators voted in favour of impeaching the president on 18 September (32 of 130), but Vizcarra did not come out of the proceedings unscathed. According to pollster IPSOS on 16 September, although 79% of Peruvians surveyed said they were in favour of the president remaining in office, 78% stated that he had acted incorrectly and that after leaving office he should be investigated for his role in a series of controversial contracts awarded to a popular music performer by his former Minister of Culture. A similar poll conducted on 23 October suggests the public continues to hold those views. This is likely to erode public support for the president in coming months, particularly as the economic and social impacts of COVID-19 become increasingly apparent to citizens. In the absence of a political party vested in protecting the president, a steady decrease in public approval will likely erode Vizcarra’s last chance to implement significant reforms.

Although the president has the authority to make some adjustments to mitigate corruption risks within the executive branch, structural reforms of the political system can only be pursued through Congress or, as a last resort, through public participation mechanisms such as referendums. Vizcarra on 6 July announced that he will organise a national referendum in April 2021, at the same time as the general election, so that Peruvians can vote on whether to eliminate congressional immunity. It is somewhat likely that the referendum will be approved by a majority of Peruvians, in which case it will create a legal obligation for the next Congress to pass a law that complies with the popular mandate, but this would only occur after Vizcarra leaves office in July 2021.

In this context, the integrity agenda will be left up to candidates looking to run for president and Congress in 2021. Current front-runners in the presidential race are independent candidates with no clear party affiliation, including former Mayor of La Victoria District in Lima George Forsyth (2017-20), former president of the Council of Ministers (2019) Salvador del Solar, and Senator Daniel Urresti. All three have received between 9% and 25% approval ratings in polls conducted since December 2019, and anti-corruption has been a significant aspect of their public statements. However, weak party discipline, political fragmentation and tactical alliances in the final weeks of the presidential race make it very likely that new candidates will emerge as favourites as late as March or April 2021, which raises uncertainty regarding the next government’s commitment to anti-corruption reforms.

A new splintered Congress

Despite continued uncertainty regarding the candidates most likely to reach the presidency, the country’s political system makes it very likely that the next Congress will formed by a mixture of six-to-eight parties. This will make it very difficult for the incoming executive to pass significant reforms without extensive negotiations and consensus-building among parties from across the political spectrum, which increases the probability of reforms being watered down or simply failing to secure sufficient support. In the past 20 years, there has been only one legislature where a single party secured enough seats to ensure a majority that allowed it to approve laws without extensive concessions: the 2016-19 legislature led by the FP.

Legislative coalitions in the country are known to be short-lived and unreliable, which also increases transaction costs for the executive, and often requires an exchange of bureaucratic favours that the incoming administration may not be inclined to accept. Vizcarra’s constant tensions with Congress have often been the result of failed agreements and the president’s unwillingness to compromise his public support by engaging in opaque legislative transactions. This has set a precedent that aspiring presidential candidates are likely to consider strongly, as Vizcarra remains the most popular head of state in modern Peru, with approval ratings consistently above 60%.

A complex but stable integrity environment

Corruption risks are very likely to persist in Peru over the 12-to-24-month outlook, due to congressional gridlock, limited executive authority and low probability that the next government will be able to count on a legislative majority. In this context, the anti-corruption agenda is likely to lose steam and lead to missed opportunities for significant reform during the first years of the next presidential term. However, the absence of major progress does not entail that integrity risks for business will increase significantly either.

Regulatory and enforcement reforms implemented during the past five years have allowed the country to introduce relevant improvements in its capacity to combat corruption, while also helping deter some types of corrupt behaviour within the national government. These improvements are reflected in Control Risks’ 2020 Capacity to Combat Corruption index, which ranks Peru as the fifth of 15 countries in Latin America based on 14 variables that track the ability to deter, detect and prosecute corruption.

In these conditions, corruption risks are likely to persist in some public contracting processes, particularly in cases where the contracting agency is part of a regional or local government authority. Large-scale projects or long-term concessions contracted by the national government through public bidding processes and collaborative mechanisms such as Public-Private Partnerships (PPPs) are likely to remain less susceptible to corrupt practices. Therefore, companies with strong anti-corruption credentials and adequate safeguards will retain their capacity to operate successfully in Peru even if the broader integrity environment does not improve significantly in the short-to-medium term.