S&P Downgrades Peru'sCredit RatingAmid Political Turmoil

Standard & Poor's (S&P) has downgraded Peru's credit rating, citing the country's political fragility as a major factor. The downgrade, which occurred on April 29, 2024, reflects the ongoing instability that has plagued Peru's political landscape in recent years.

Why this matters: The downgrade serves as a warning to other countries struggling with political instability, highlighting the potential economic consequences of failing to address internal conflicts. A stable political environment is crucial for attracting foreign investment and promoting long-termeconomic growth, making this story relevant to countries around the world.

Peru's Minister of Economy, José Arista, acknowledged that the political instability contributed to the downgrade. However, President Dina Boluarte countered the notion, stating, "un gobierno sólido, fuerte y unido, a pesar del ruido político" (a solid, strong, and united government, despite the political noise).

The S&P downgrade has also impacted several Peruvian banks, including Credicorp, BCP, Mibanco, Scotiabank Perú, BBVA Perú, and IFS. The credit ratings of these banks have been lowered to align with the country's reduced sovereign debt rating, potentially affecting their borrowing costs and investor confidence.

Despite the downgrade, Peru's economy has shown some positive indicators. The country'sinflation ratestood at 2.11% in April, with a monthly deflation of 0.05% due to corrections in food prices. The Ministry of Economy and Finance (MEF) has projected a 3.1% economic growth for 2024 and plans to increase fiscal targets for the 2024-2026 period.

Peru has faced significant political challenges in recent years, with multiple presidents facing corruption allegations and impeachment proceedings. The country's current president, Dina Boluarte, took office in December 2022 following the impeachment and arrest of her predecessor, Pedro Castillo.

The S&P downgrade serves as a stark reminder of the economic consequences of political instability. As Peru navigates this challenging period, the government will need to focus on restoringconfidencein its institutions and implementing policies that promote long-term economic growth and stability.

Key Takeaways

• Standard & Poor's downgrades Peru's credit rating due to political fragility.
• Downgrade highlights economic consequences of political instability.
• Peru's Minister of Economy acknowledges instability, but President disputes.
• Downgrade affects several Peruvian banks, potentially increasing borrowing costs.
• Peru's economy shows positive signs, with 3.1% growth projected for 2024.