Peru's Kuczynski faces impeachment in Odebrecht scandal

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Monday, December 18, 2017

Peruvian President Pedro Pablo Kuczynski, who has been in office for less than 18 months, faces impeachment proceedings this week that seem almost certain to oust him, deepening investor uncertainty and possibly delaying billions of dollars in mining and infrastructure investment.

The country's 130 member congress late December 15 approved by 93-17 a proposal to hold an impeachment vote December 21 on charges Brazilian construction firm Odebrecht hired investment funds linked to Kuczynski while he was a government official. Peruvian stocks, bonds and the currency plunged.

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Odebrecht, which in December 2016 admitted to paying hundreds of millions of dollars in bribes to secure contracts across Latin America, has been involved in Peru's largest infrastructure projects including the southern gas pipeline, the Inter-Oceanic highway (IIRSA), the Olmos and Chavimochic irrigation ventures and power plants.

Kuczynski ordered Odebrecht to pull out of Peru after the company admitted to having paid at least US$29mn in bribes to Peruvian officials from 2005-2014. Peru awarded Odebrecht US$16.940bn in 23 contracts from 1988-2015.

While Kuczynski denies any wrongdoing, claiming he was not in charge of funds Westfield Capital and First Capital while he was finance minister and later cabinet chief during the government of former President Alejandro Toledo (2001-2006), analysts expressed their skepticism.

"It's a major crisis," Alberto Vergara, a political science professor at Lima's Universidad del Pacífico, said during a webcast by Washington-based thinktank Inter-American Dialogue. "If this is true, how could the president be so irresponsible to think he could get away with this?"

The acrimonious debate and overwhelming voting – not a single opposition lawmaker opposed the impeachment proposal – also makes it unlikely that any presidential self-defense will sway his political rivals, who have routinely ousted his cabinet ministers over the past year. Just 87 votes are required to impeach the president.

Fuerza Popular, the country's biggest opposition party with 74 seats in congress, is led by Keiko Fujimori, who narrowly lost to Kuczynski in the 2016 presidential elections and has been at loggerheads with his government ever since. Fujimori's backers have also denounced the attorney general and the constitutional tribunal for failing to make more headway in the investigation known as Lava Jato.

Kuzcynski "was warned months ago that the relationship with congress posed a threat to the country's stability," former cabinet chief and veteran lawyer Pedro Cateriano said. "We're looking at an ongoing coup d'état."

Polling firm Ipsos Apoyo, meanwhile, reported that Kuzcynski's popularity ratings plunged to 18% from 27% in October, while 57% of those surveyed believed he should step down and 61% believed the president should close down congress and call for general elections.

Peru's congress previously impeached President Alberto Fujimori in late 2000 after he had fled to Japan, also on corruption charges. If Kuzcynski is impeached, he would be the second sitting Latin American president to be ousted amidst the Lava Jato scandal after Brazil's Dilma Rousseff was impeached last year.

Vizcarra

That would set the stage for Kuczynski to be replaced by his 54-year old vice-president Martín Vizcarra, former regional president of Moquegua. Vizcarra is a civil engineer with postgraduate studies at Lima's ESAN business school.

Vizcarra has also had a fractious relationship with congress, which forced him to resign as transport and communications minister last May on accusations a contract to build an airport in Chinchero, Cusco, was unfavorable for the state.

Vizcarra, who is currently Peru's ambassador to Canada, has refrained from expressing public support for his boss.

"Peru is greater than its problems," Vizcarra wrote via Twitter. "Our commitment is to governability, respecting the Constitution and democratic institutions, no matter what the political slant."

In a televised interview with local reporters at the Presidential Palace, Kuczynski criticized the opposition's haste to oust him, saying he wasn't being given time to prepare his defense. Kuczynski also apologized for not giving a clearer explanation about the financial transactions that took place a decade ago.

"I haven't lied. I haven't committed any crime. Everything has been banked, declared, taxed and audited," Kucyznski said. "What's happening is an assault on the constitutional order."

Whatever the outcome this week, the possibility that a weakened caretaker government might have to call early elections will spark greater investor uncertainty at a time when a rash of major investment projects are on hold, US ratings agency Moody's said.

"This will weigh on business confidence and overall economic sentiment, likely affecting private investment," Moody's analysts led by Jaime Reusche wrote in a report. "Growth would be lower than our 3.9% forecast if private investment does not recover. Growth in 2018 is likely to be higher than 3%, but not much more than that."