Peru corruption scandal threatens post-flooding reconstruction

Peru's 26bn-sol (US$8bn) post-flooding reconstruction program appears to be taking on water following allegations of corruption within the finance ministry.

Finance minister Carlos Oliva was called to testify before congress after Mardonio Guillén, mayor of Ayacucho district of San Juan Bautista, accused a ministry representative of demanding a 5% kickback in exchange for authorizing an 800,000-sol sewerage project. Ayacucho, in the southeastern Andes, is one of Peru's most impoverished and remote regions.

Widespread floods, torrential rains and landslides caused by the El Niño phenomenon in 1Q17 left at least 163 dead and 291,000 homeless and caused billions in damage to roads, railways, power plants, schools and hospitals, mainly along the north coast, according to the central bank.

The ministry, meanwhile, pledged to form a commission to fight corruption within its ranks. The six-member group, which will be headed by the finance minister and include the deputy finance minister and the ministry's chief advisor, will put together a code of ethics and integrity and implement awareness campaigns amongst personnel, the ministry said.

"The functions of this working group will be to propose, recommend and push through strategies, actions and measures aimed at guaranteeing ethics and integrity in compliance with functions amongst all the civil servants who work at the finance ministry," the ministry said in a statement.

Accusations surrounding the flooding reconstruction program come as Peru continues to grapple with the fall-out from the Odebrecht corruption scandal, which has swept up dozens of local construction firms and government officials including former President Pedro Pablo Kuczynski.

The Brazilian construction firm, which in December 2016 admitted to paying millions of dollars in bribes to secure contracts across Latin America, operated dozens of infrastructure concessions in Peru awarded by the governments of Alejandro Toledo (2001-2006), Alan García (2006-2011) and Ollanta Humala (2011-2016).

President Martín Vizcarra, who replaced Kuczynski in March, has vowed to stamp out corruption in his government as he struggles to reactivate billions of dollars in stalled infrastructure projects, in addition to the reconstruction program, which is behind schedule.

Vizcarra said his government will provide full support for Guillén's denunciation in the specialized anti-corruption prosecutor's office.

"We're fighting corruption, and we will get to the bottom of things, whatever it costs," Vizcarra said in a statement. "We're not going to allow development opportunities to also generate illicit business opportunities for public-sector officials."