Peruvian President Ollanta Humala swore in six new ministers yesterday led by his former justice minister as he seeks to jumpstart talks with protesters who have blocked the country’s biggest investment project.
Juan Jimenez, Humala’s third Cabinet chief in less than a year, replaces Oscar Valdes. Humala, who also named his fourth interior minister, retained Finance Minister Miguel Castilla, Energy & Mines MinisterJorge Merino and Foreign Trade Minister Jose Silva. Peru’s stocks, bonds and currency declined.
Humala took office in July 2011 vowing to boost spending on the about 8 million Peruvians in the nation of 30 million living in extreme poverty without jeopardizing $50 billion in mining investments expected over the next decade. His Cabinet chief Valdes failed to reach an agreement with opponents of the $5 billion Minas Conga gold project, including Cajamarca regional government President Gregorio Santos, after six months of talks.
“It’s an acknowledgement by the government that they’re having trouble addressing the issue of social conflict,” Aaron Freedman, a senior analyst at Moody’s Investors Service, said today in a telephone interview. “ Unless they can figure out how to do that in a productive manner, it’s likely to have negative implications” for Peru’s credit rating, he said.
Moody’s rates Peru’s foreign debt Baa3, the lowest investment grade, while Standard & Poor’s and Fitch Ratings both rate it BBB, the second-lowest investment grade.
Protests, Approval Rating
Valdes stepped down after protests against Newmont Mining Corp. (NEM)’s Conga project left five dead this month and forced Humala to impose a state of emergency in the northern Andean region of Cajamarca. Humala authorized Newmont to resume work on Conga on June 23 after a six-month deadlock.
Humala replaced both his defense and interior ministers for the second time in two months after police opened fire on protesters in Cajamarca and arrested protest leaders including a former priest.
Southern Copper Corp., Zijin Mining Group Co., Ltd. and Bear Creek Min Corp. have all suspended work on mining projects following protests by farmers concerned that their water supplies could be polluted.
“We’ve shown a complete willingness to take part in dialogue and keep making progress,” Newmont Vice President Carlos Santa Cruz told reporters in Lima yesterday after meeting with a delegation of Catholic priests acting as mediators between protesters and the government.
The retention of the finance, trade and mining ministers will ease investor concern about possible change in economic policy, said Daisy Johnson, an analyst at Bath, UK.-based risk consultant firm Maplecroft.
“Humala’s continuing to pursue pro-business policies,” Johnson said in a telephone interview. “These ministers have done a good job as economic growth has continued and inflation has cooled, which is beneficial to stability.”
Jimenez, 48, a former law professor and adviser to the Organization of American States, will be a more moderate negotiator than Valdes, a former lieutenant colonel who taught Humala at a Lima military academy, said Fernando Rospigliosi, a political analyst and former interior minister.
Market View, Polls
Former congressman and Deputy Justice Minister Pedro Cateriano, also a lawyer, was named defense minister. Milton Von Hesse, director of state investment promotion agency Proinversion, was named minister of agriculture.
The sol dropped 0.2 percent to 2.6418 per U.S. dollar in Lima, according to prices compiled by Bloomberg. The sol has gained 3.6 percent over the past 12 months, the best performance of 25 emerging markets currencies tracked by Bloomberg.
The yield on Peru’s benchmark bonds due in 2020 rose five basis points to 4.71 percent, according to Deutsche Bank’s local unit. The yield on the bonds reached 4.50 percent on July 16, the lowest since they were first sold in 2005.
Lima’s General Stock Index (IGBVL) slumped for a third session, dropping 1.1 percent to 19,536.55 points.
Humala’s approval rating fell to 40 percent in July, the lowest since he took office a year ago, from 45 percent last month, daily El Comercio reported July 22, citing a poll by Ipsos Apoyo.
The poll of 1,210 people, conducted from July 11 to July 13, has a margin of error of plus or minus 2.8 percentage points, the newspaper said.
The Cabinet shuffle “highlights the instability and lack of direction of someone who wasn’t ready to govern and has been improvising with all these sudden changes,” Rospigliosi said in a phone interview from Lima. “Humala has been hurt by his drop in the polls.”