The presidency of Pedro Castillo began with Castillo's inauguration as the president of Peru on 28 July 2021, the Peruvian Independence Day. In the 2021 Peruvian general election, Castillo, a school teacher and union organizer, won the presidential election against the right-wing candidate Keiko Fujimori of Popular Force by a 45,000 margin in the runoff. In the congressional elections, Castillo's party, Free Peru, did not get a majority in the Congress of the Republic of Peru.
Transition period and inauguration
Government Palace In his inauguration speech Castillo said he would not govern from the Government Palace, also known as the House of Pizarro, due to it being a colonial symbol. Additionally, Castillo said that he would turn the Government Palace into a museum. Castillo first governed from a temporary house in Breña, Peru, but he began to govern from the Government Palace due to legal issues involving the house. Governing from the Government Palace was announced as a temporary measure by Castillo. However, no further announcements on the Government Palace have been made.
Domestic affairs
Economy
Monetary policy Since Castillo's victory in the first electoral round, the Sol has faced a precipitous fall in value against the dollar, due to fears of inflation and expropriations. As of 23 September 2021, the Sol had lost 12% of its value since the start of the year, making Peru's currency one of the worst performers among emerging markets. Castillo has sought to calm the markets by keeping Julio Velarde as the head of the Central Bank. During a speech before the OAS assembly, Castillo stated that his government is not communist and that he wouldn't expropriate anyone. Castillo stated that he didn't come to scare away investment, and invited big businesses to come to the country.
Following Bellido's threat to nationalize the Camisea gas fields, the sol plunged once again. Afterward, Castillo replaced the Bellido cabinet with the Vásquez cabinet, which many have seen as a shift towards a more centrist administration. Following the new cabinet, the Sol began to recover its value, reaching a 10-week high as of 13 October 2021. However, after Castillo asked Congress to nationalize the Camisea gas fields, the Sol began to fall in value once again.
On 9 November 2021, the Bank of America warned that almost all of Peru's inflation indicators are on red alert. They claimed that Peru's expectations "are set to exceed the upper limit of 3% of the Central Bank's target range of a two-year term." The Bank of America suggested that the Central Bank will have to tighten monetary policy.
On 16 November 2021, Velarde announced that Peru would work jointly with India, Singapore, and Hong Kong in developing a central bank digital currency.
Price regulations In a bid to lower soaring gas prices, Castillo reintroduced liquefied petroleum gas (LPG) to the Fuel Price Stabilization Fund (FEPC). The FEPC was created in 2002 and serves as a price support by giving a range of minimum and maximum consumer prices. In theory, the FEPC is self-sustaining. Should the price of gas be above the maximum consumer price, the FEPC will subsidize the cost for consumers. If the price of gas is below the minimum consumer price, then the profits will be given to the FEPC. However, LPG was removed from the FEPC in 2020, due to financial costs and scepticism on whether consumer prices were affected by the fiscal intervention. The reintroduction of LPG to the FEPC by Castillo reversed the 2020 policy decision.
Additionally, while Pedro Castillo's Economic Minister Pedro Francke and then Prime Minister Guido Bellido have denied any plans to institute price controls, the Free Peru caucus later attempted to modify the constitution to implement them. The amendment would have allowed the state to regulate the "supply and prices of goods and services produced by public and private companies" due to shortages or a state of emergency. However, the amendment failed to pass within the opposition-controlled Congress.
Natural resources Initially, some mining executives feared that Castillo may nationalize mining, as he alluded during his electoral campaign. However, as of late, the Castillo Administration has toned down its rhetoric and showed greater willingness to work with private companies. Castillo has pledged to raise taxes on mining companies, and to make sure that projects are "socially profitable" for local mining communities. Prime Minister Guido Bellido has stated that he welcomes investment, as long as it means the development of the population.
Later, the then prime minister stated that the energy sector should be under government control, while using the Camisea Gas Project as an example. In response, Economic Minister Pedro Francke ruled out expropriating the Camisea gas field. Francke also claimed that Bellido's call for government control of the energy sector was actually referring to state participation in the construction of a proposed natural gas pipeline, the Gran Gasoducto del Sur. However, PM Bellido later urged for the contract with the Camisea gas field to be renegotiated, threatening to nationalize the gas field if higher taxes aren't paid. The Prime Minister has also stated that strategic resources cannot remain in private hands. The Minister of Justice, Aníbal Torres, has stated that he's in favor of renegotiating the contract with Camisea, "like almost all the other ministers." However, Torres rejected the possibility of unilateral nationalization, and said that there were no talks about nationalization within the cabinet.
Bellido's position on the Camisea gas field was supported by the Free Peru caucus. They denied that this was part of an expropriation campaign, saying that the benefits from resource extraction must be prioritized for Peruvians. The President of Congress, Maricarmen Alva, claimed that Bellido's threats of nationalization generated confusion and would scare away investment. Meanwhile, Vice President Dina Boluarte claimed that Bellido's stance on the Camisea oil field was in line with the President Castillo's views. However, Castillo later stated that any renegotiation of the Camisea gas field contract would be in accordance of the rule of law, and stated that "the State and the private sector work together for a better Peru."
Afterward, the Bellido cabinet was removed by the President. Some speculated that Bellido's stance on the Camisea gas field nationalization led to his downfall. However, following the appointment of the Vásquez cabinet, President Castillo urged Congress to make a joint law on the statization or nationalization of the Camisea gas, saying that "It is necessary to give Peruvians what the people have produced." A motion was created in Congress, to ask Prime Minister Mirtha Vásquez to clarify on the President's statements on the Camisea gas fields.
On 20 November 2021, the Prime Minister stated that 4 mines in the Ayacucho region would not be allowed any extensions in their operational timelines, and that the mines will be closed as soon as possible on environmental grounds. Under Peruvian law, all mines have an expected closure date, although the date can be modified by regulators. Oscar Caipo, the president of Confiep, a group of Peru's largest corporations, claimed that Vásquez's decision ignores the rule of law. Raul Jacob, the president of Peru's Society of Mining, Energy and Oil, claimed that Vásquez was legitimizing violence as a justified measure of social pressure, referring to the ongoing mining protests. Vásquez replied by saying that the government respected legal stability and legal regulations.
The British-based Hochschild Mining, which owned two mines subject to closure, had it shares fall by 27% following Vásquez's announcements. Hochschild stated that it would challenge the closure of its mines and claimed that its mines operated under the ""highest environmental standards." The two mines subject to closure account for 80% of Hochschild's gold and silver production. In a press release, Vásquez called for calm and dialogue with the mining industry. However, Hochschild claimed that it had not received any formal communication from the government. JPMorgan analyst Patrick Jones claimed that the recent decisions "further increases the geopolitical risk for miners operating in Peru."
On 23 November 2021, government officials and mining executives claimed to having "productive" talks following the Hochschild stock collapse. The anticipated closure of Hochschild's flagship Pallancata mine would deprive the company of over 60% of its cashflow. Later, the Vice Minister of Mining said that "If [the mining companies] have all the mechanisms to present an extension, they can do so, the door is not closed." This contradicted Vasquez's initial announcement that there would be no extensions, "whether for exploitation, exploration or even shutdown."
On 24 November 2021, PM Vásquez stated that there will be no "violation of legal certainty or unilateral closures," but that "the State assumes the function of supervising the processes of mine closure and environmental control in accordance with the legal frameworks." Additionally, the Council of Ministers released a statement assuring that the government sought active and positive relations with both mining companies and local populations. The statement also rejected violence in all forms but recognized the right to protest as a legitimate right.
On 3 December 2021, the Las Bambas copper mine announced that it would shut down copper production starting mid-December due to continuous road blockades by protestors. The Ministry of Energy and Mines (Minem) said that the shutdown would have significant impact on GDP, and urged for the actors to maintain dialogue and reach a "satisfactory" agreement. Meanwhile, the National Society of Mining, Petroleum and Energy (SNMPE) criticized Minem, saying that "instead of dealing with a solution to the problem, it shows a concern that frankly generates a lot of confusion."
Banking Peru's financial sector is characterized by a lack of credit, as 70% of Peruvians are unbanked or underbanked. Following complaints of loan sharks that charge rates up to 200%, Castillo has sought to improve competition by allowing public banks to compete with private banks. Additionally, Castillo has allowed additional foreign banks to enter the Peruvian market.
Agriculture On 3 October 2021, the 53rd anniversary of Juan Velasco's rise to power via a military coup d'état, Castillo announced the start of the Second Agrarian Reform with the aim of helping small farmers and ending abuse and inequality. This was a tacit acknowledgement of the original Agrarian Reform carried out by Velasco. Castillo stated that the Second Agrarian Reform will respect property rights and will not involve the expropriation of land. However, Castillo also stated "Let's end with the bosses and the landowners. They will no longer eat thanks to the sweat of the poor and of the peasants."
Castillo signaled that he would adjust the price bands to protect domestic agriculture from subsidized foreign products. Price bands for agriculture were created in 2001 for select goods, such as "hard yellow corn, milled rice, white sugar, and whole milk powder." However, over the years the price bands became increasingly liberalized, and by 2015 the price bands became nonexistent in practice. Castillo also spoke about his plan to industrialize coca leaf production and build an airport in Pichari so that goods can go directly to the national market.