Political turmoil takes its toll and Moody’s downgrades Peru

Credit rating agency Moody’s downgraded Peru’s sovereign debt rating from A3 to Baa1, following months of continuous political turmoil. The current crisis began with President Martín Vizcarra’s impeachment last year, leading to a highly polarized election environment and constant clashes with the newly instated Pedro Castillo administration.  

“The downgrade to Baa1 from A3 reflects Moody’s view that a continuously polarized and fractured political environment has increased political risk and materially weakened policymaking capacity,” wrote the agency. Baa1 is still considered investment grade. 

When Mr. Vizcarra was impeached in November 2020, the country had an astonishing three different presidents in eight days, all while being home to the world’s highest Covid-19 mortality rate.

A chance for peace, lost

The presidential election which followed was seen as key to restore balance and potentially turn the page on an apparently never-ending crisis. A surprise presence in the run-off, teacher and trade union leader Pedro Castillo eventually prevailed, beating far-right opponent Keiko Fujimori.

There was no such peace, however. Mr. Castillo’s victory was put on hold by a series of spurious fraud allegations lodged...