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Political crisis pummels Peruvian development after decades of growth

A sustained political crisis and stagnation have finally begun to erode Peru’s status as the fastest growing major economy in Latin America, reports Reuters’ Marcelo Rochabrun. Since 2011, the rapid succession of politicians and corruption scandals had failed to slow an economy boosted by commodity exports to become the fastest growing of major Latin American economies.

Recent World Bank and IMF forecasts show that this trend has ended, with Colombia overtaking Peru for the top spot as Lima expects to see growth decrease to 2.2% for the year. While the big three ratings firms have yet to downgrade Peru’s debt, multiple research notes have recently concluded that politics poses significant downside risks for the economy as President Pedro Castillo’s government introduced austerity measures to reduce the budget deficit while the central bank pursues a scorched earth approach to inflation.

Such government moves come as international investors have stepped away from Peru, discouraged by the far-left platform of then-presidential candidate Castillo and a combative congress that has disrupted critical mining and economic policy reforms and triggered highly disruptive protests. Amid a global risk-off sentiment, an inflation crisis and rapidly falling government spending, business confidence has fallen below 2008 levels just as austerity makes private investment critical for Peru’s prospects.

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