Date first published: 17/02/2022

Key sectors: all; mining; oil and gas

Key risks: political stability; policy continuity; governability


Risk development

Far-left President Pedro Castillo has reshuffled his cabinet four times since taking office on 28 July 2021. Most of these changes took place in recent weeks, with three prime ministers being designated in just over a week. Driven by myriad scandals, opposition-led Congress threats not to approve the cabinets and lack of strong political direction, the changes underscore Castillo’s struggle to govern, with consolidating risks of policy uncertainty, political stability and governability expected to have a negative impact on private and foreign business operations.

Why it matters

The recent major reshuffles – which came on the back of other ministerial changes – have been perceived by the populace as a sign of weakness that has dented Castillo’s popularity. According to an Ipsos poll published on 14 February – after the fourth cabinet was announced – the president’s approval rating had fallen to just 25 per cent, with 69 per cent disapproving his leadership. This certainly does not bode well with an opposition-led unicameral Congress which has so far proven determined to obstruct radical reforms – as well as radical members of cabinet.

A weakened position and electoral base could lead Castillo to resort to populist measures and erratic policy decisions to shore up support. Such decisions would continue to be met with congressional resistance, which would in turn lead to further showdowns between the executive and the legislative branches. The potential for Castillo to dissolve Congress and call for snap legislative elections, as well as the risk of Castillo struggling to remain in office for the entirety of his five-year term should not be overlooked.


Castillo is the first hard left president in the country’s recent history. Expectation and speculation over suggested reforms – including heightened state interventionism, nationalisations and even drafting a new constitution – have been on the rise. These concerns led lobby groups and opposition lawmakers to put pressure on the president to designate a more moderate cabinet as part of attempts to mitigate fears that started to impact local currency volatility and investment prospects – particularly in the crucial mining sector.

Peru has long been a regional beacon of macroeconomic orthodoxy and relatively stable regulatory frameworks. Despite heightened political stability risks – with presidents resigning, being impeached and linked to several corruption and other scandals in recent years – the country remained relatively stable on the policy front. This could change under Castillo, although his first months in office have proven that his suggested reforms – and teams – would not be easily absorbed by the political system.

Risk outlook

Private and foreign businesses will continue to face high levels of policy uncertainty. Although Congress seems ready to block initiatives that could damage the business environment, Castillo’s weakened stance further undermines predictability. The risk of contract frustration – such as contract reviews and cancellations – and of changes in regulatory frameworks will persist and may lead to legal disputes for those operating in or seeking to invest in the country.

Back and forth comments including on the potential nationalisation of key natural gas assets, intervention in already granted licenses and constitutional reform have added to a growing perception of lack of control – and experience – to govern.

Absent a coalition with opposition parties – a highly unlikely scenario – that would strengthen governability prospects, the current administration will continue to change cabinet members and be in almost permanent need to reinvent itself.