The rich take their money out of Peru for fear of the new government
The wealthiest in the country are taking their money out of local accounts and sending it abroad at a rate rarely seen in an economy that for decades has been among the most stable in Latin America.
A small mutual fund firm in Lima, Faro Capital, says its clients withdrew half of all their money before and in the month since the election. The great fear, as Faro's investment director Fernando García says, is that Castillo will impose restrictions on Peruvians' purchases of dollars and euros, as Argentina and Venezuela did in recent years.
Whether or not it is justified - Castillo's top economic adviser insists the anxiety is overblown - this concern is driving the wealthy to get their money while they can.
The exodus has helped the Sol drop 8.4% since the first of two rounds of voting took place in April, making it the worst performing currency in emerging markets, despite the Central Bank has repeatedly intervened in the foreign exchange market to prop it up.
Those interventions, along with a decrease in dollar deposits in local banks, have reduced Peru's foreign reserves in the last three months.
"Under the mattresses"
At a press conference last month, Julio Velarde, longtime president of the country's central bank, attempted to clarify that not all the money lost in foreign reserves - about $ 9 billion, or about 11% of the total - had necessarily left the country.
Part of it, he said, is also hidden under people's mattresses at home. The comment didn't exactly help the sentiment, if that was the intention. Lima's benchmark stock index plunged 0.6% that day, closing a brutal two-week slide that has made the Peruvian market the second-fastest contracting in the region this year. Peruvian dollar bonds have posted negative returns of 6.5%, only worse than those of Colombia, Argentina and Lebanon.
According to Paul Rebolledo, CEO of Tandem Finance, a firm that prepares students for CFA (Certified Financial Analyst) certification exams, the profile of the Peruvian investor is very conservative and nervous.
Fraud allegations
In the second round of the elections, on June 6, Castillo obtained 50.1% of the votes, compared to 49.9% for Keiko Fujimori, the conservative free-market candidate preferred by investors. Announcement of the final result has been delayed for weeks after Fujimori alleged fraud, although the United States and the European Union said it was a fair election.
The task of calming nervous Peruvian investors has largely fallen to Pedro Francke, a former World Bank economist whom Castillo appointed last month as his top economic adviser.
Francke has repeated over and over again that Castillo is not an extreme radical and that comparing him to the late Venezuelan leader Hugo Chávez is a mistake. Part of that message was for Castillo to indicate that he plans to keep Velarde as head of the central bank. The announcement triggered a brief rally in Peruvian assets.
"I would say that the fears are unjustified," Francke said in an interview, "but you have to be respectful of the positions that people have."
Vladimir Cerrón, the Marxist neurosurgeon who leads Castillo's Perú Libre party in Congress, also toned down his speech in recent days, saying in a tweet that his party respects the right to private property.
Peru has already been in this situation. In 2011, the election of Ollanta Humala, a former leftist Army officer, sparked similar concerns among investors. However, Humala moderated his positions once in office and the markets stabilized. But the anguish among Peruvian elites is more palpable this time.
Luis Ferreira, director of investment strategy at EFG Capital International, a money management firm in Miami that serves clients in Latin America, says that despite having been working on it for 20 years, now it is different as it is you see a very high level of concern, people liquidating positions, trying to get out.
Contradictory positions
Castillo intends to draft a new constitution through a constituent assembly, which would give the state a greater role as market regulator, what he calls a "popular economy with the market." Perú Libre also proposes the nationalization of strategic sectors, such as mining, gas and oil, which has left sectors of the right and center-right uneasy in the Andean country.
Although Castillo is a candidate with leftist positions in the economic field, he has conservative positions regarding social agendas. He is against the legalization of abortion, same-sex marriage and euthanasia. Castillo is also opposed to the gender focus in the school curriculum. On the issue of public safety, he supports a tougher line.
Perú Libre's platform and Castillo's origins have yielded comparisons between the candidate and left-wing South American leaders such as Hugo Chávez, Evo Morales and Rafael Correa. Political opponents also accuse Castillo of having links to the communist terrorist group Sendero Luminoso, which he denies.
In an interview conducted in April, the candidate from Peru Libre said he feels "stigmatized" to be linked to the terrorist group, which caused thousands of deaths in the 1980s. "There is no terrorism here, they stigmatized us. They don't want a son of the people to unmask the country's sadness and reality," he declared. "I want you to come here to my land and tell me I'm a terrorist."
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