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Peruvian Congress dissolved: What does it mean for Peruvian citizens and Peru’s economy?

Illustration Credit: Eva Dinino

Written by Mariana Bedon

On September 30th, Peru’s President Martin Vizcarra dissolved Congress. It is the second time in Peru’s history that Congress has been dissolved. The last time this happened was April 5, 1992 when Alberto Fujimori was president.

What happened?

The battle between President Vizcarra and Congress started back on June 4th. It was on that day that President Vizcarra and Prime Minister Salvador Del Solar asked Congress for a “matter of trust”, a motion which represents Congress’ support of a project or law proposed by the President and his cabinet. At that time, Congress denied it. Then on September 30th, Prime Minister Del Solar walked into one of Congress’ meetings and asked for a second “matter of trust”, this time in regards to changing the selection method for members of the Tribunal Constitutional (or for short, TC.). The purpose was for this process to be more democratic and citizen driven, instead of relying only on Congress’ decisions. Congress members heard him, took a break in between meetings, and resumed hours later. 

However, it is important to mention that during the morning meeting, Congress had already selected a member of the Tribunal Constitutional. President Vizcarra interpreted this action as a second denial of the matter of trust, leading him to dissolve Congress. According to the Peruvian constitution, the President can legally dissolve Congress after two denied matters of trust. However, two minutes before Vizcarra’s announcement, Congress members had actually voted and decided to approve Del Solar’s matter of trust.

There is still a lot of confusion around the dissolution of Congress. Congress members say they did approve the matter of trust, even if it was two minutes after Vizcarra’s decision. They argue that President Vizcarra’s decision was based purely on the interpretation of a fact or a “factual denial”, instead of actual Congress’ votes. Unfortunately for them, there is nothing specified in the constitution in regards to the different ways a matter of trust can be denied. Therefore, selecting a member of the Tribunal Constitutional could be interpreted as a denial of the proposed matter of trust. 

Amid the confusion, news outlets began consulting former members of the Tribunal Constitutional about the legality of Vizcarra’s decision. They said that a matter of trust can only be denied with actual votes and not with doings. Of course, it needs to be considered that these members were chosen by Congress and can potentially be biased to support Congress.

Congress’ retaliation attempts:

During his speech, President Vizcarra explained his decision. He said Congress was obstructionist, corrupt, and that it defended impunity. Congressmen and women counterattacked President Vizcarra by calling him a populist, autocrat, and even compared him with Hugo Chavez and Nicolas Maduro (both considered dictators and socialists).

Nonetheless, things did not end peaceably. At first, Congress members proposed to impeach President Vizcarra but failed to do so since they lacked majority in votes. Then, they decided it would be easier to vote to suspend Vizcarra on the supposed grounds of incapacity, even though this is used in medical circumstances. Once this was accomplished, they voted to install Mercedes Araoz, the  Vice President as the new President. In one of Araoz’ interviews, she stated that “accepting this job was the saddest decision of her life.” However, none of these efforts or political maneuvers were viable because a dissolved Congress no longer has a say or vote. It simply does not exist.

A look at the people’s reaction

Vizcarra’s decision came as a blessing for all Peruvians. For a couple of years now, news outlets started informing citizens of the many irregularities shown in Congress. Some of them include, but are not limited to, the protection and impunity of several judges and prosecutors, the delay of many projects and laws, the unnecessary expenses in office amenities, the group chats where Congress members were caught discussing ways to manipulate the law in their favor, etc. Broadcasting these issues and events created rage and turmoil among the citizens. Peruvians wanted every congress member out with no possibility of reelection.

Vizcarra has set January 26, 2020, as the next elections for Congress. According to the law, the most recent Congress members cannot be reelected right after they end their period. This then raises the question, are they then allowed to participate in the elections for 2021? This discrepancy remains unclear and it is something that the Tribunal Constitutional will have to address. If this were possible, will Peruvians choose them again? After all, Congress members were chosen by the people. Historically, Congress always leaves with less than two digits of approval. Peruvian citizens are never happy with Congress by the end of their term, but somehow end up reelecting them for future terms.

Effects on the country’s economy:

Economically speaking, dissolving Congress means that the President and his cabinet have absolute control over the country’s budget. For businesses, this would normally create uncertainty and fear. However, in this case, businesses see it as a positive action. Since Peru’s Congress was so obstructionist, the projects and laws held or delayed can now be put into action by the President and his cabinet.

The economic effect on citizens relies heavily on their reactions towards closing Congress. Much of how citizens react depends on what the media outlets broadcast. Since the media has mostly focused on the possible negative effects, the fear and wariness in Peruvians has increased. If fear and wariness dominate the way Peruvians behave, there are higher chances of a slowdown in consumption, which could severely damage the country’s economy.

From a macroeconomic standpoint, a decrease in consumption implies a decrease in businesses’ profits. If businesses have lower profits, they would have less money for salaries, which could either cause inflation (less income, more costs) or higher rates of unemployment. If these events were to happen, it could generate a major slowdown in the economy. 

In terms of currency and exchange rates, we can look back at months prior to the dissolution of Congress. At the time this all began, several economists  discussed the likelihood that Peru’s currency (Nuevos Soles) would devalue given the dissolution of Congress. Their forecasts seemed to be accurate when the Peruvian currency experienced a great loss moments after the event. Nevertheless, the currency came back to normality when the BCR (Banco Central de Reserva del Perú) released a statement confirming that there was no need to worry because it had enough money to invest back into the economy in order to keep the exchange rate stable.

It is only a matter of time to see how President Vizcarra and his cabinet will manage the country’s budget. So far Peruvians around the world are happy with Vizcarra’s decision, and they believe it is an act against corruption long overdue. However, it is now time to get to work towards boosting the economy as political turmoil is not good in the eyes of foreign investors. We will have to wait and see.