Could Fujimori fallout cause Peru growth to sputter?

Politically and economically, last year was a particularly challenging one for Peru.

Early in the year the country was hit by a double whammy of deadly, devastating floods and the halting of a US$7bn energy infrastructure project - the southern gas pipeline - after its concessionaire was stripped of its contract after failing to secure financing.

And as the year drew to a close, President Pedro Pablo Kuczynski (pictured) - shortly after surviving an impeachment vote over his decade-old business ties with disgraced Brazilian construction giant Odebrecht - sparked furor by pardoning former leader Alberto Fujimori, jailed for human rights abuses and corruption.

In the impeachment hearing, former banker Kuczynski had denied any wrongdoing.

Fujimori is the father of Keiko Fujimori, leader of the majority Fuerza Popular opposition party. Some accused Kuczynski of agreeing to release Fujimori in exchange for Fuerza Popular's support in the impeachment vote.

The political turmoil in the country - Peruvians took to the streets to protest and top government officials resigned - will undermine governance and growth, ratings agency Fitch said.

"Political tensions have raised new governance challenges for Peru and will likely have a negative impact on investment and economic growth in 2018-2019," Fitch said in a statement.

It added that "political paralysis is expected to dominate the remainder of President Kuczynski's term through 2021."

The agency cited political tensions between the president and congress, adding that they have "paralyzed the prospect for major judicial, labor or pension reforms."

The agency said that not all, however, is doom and gloom. It cited the stability of the country's institutions and public consensus for macro stability, as well as an "uptick of mining exports and investment inflows."

The IMF forecast last year that GDP growth for 2017 will come in at 2.7% and will reach 3.8% in 2018. Peru's central bank forecasts 2.5% growth for 2017, down from 3.9% in 2016.

The World Bank, meanwhile, in its latest Global Economic Prospects report, forecasts that Peru's GDP will grow 3.8% this year and next.

Fitch said it may revise down its 2018 and 2019 growth forecasts from the 4.0% and 3.4%, respectively, that it predicted in early December.

Earlier this week, Peru's prime minister, Mercedes Aráoz, told broadcaster RPP that the country's economy could expand 4% this year, spurred on by higher metals prices and public and private investment. She said public investment grew 8.7% last year and that reconstruction spending this year will top 7bn soles (US$2.17bn).

Prices of key export copper rose 30% last year.

This week Kuczynski swore in nine new ministers, the largest overhaul of his 19-member cabinet since taking office in July 2016, as he works to draw a line under the recent political and social unrest.

In terms of banks, loan growth accelerated in the second half of last year on the back of a strengthening economy. The portfolio grew 5.28% in the 12 months through November, after accelerating in October, September and August. However, sector association Asbanc has warned that sustained political unrest could put the brakes on economic growth, which may, in turn, cool demand.