(Bloomberg) — Peru’s overseas bonds rallied the most in a year after President Pedro Castillo replaced a far-left prime minister with a more conventional choice in a bid to improve his administration’s relations with lawmakers.
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Benchmark notes due in 2031 jumped more than a cent to 100.2 cents on the dollar early Thursday, while the cost to insure the country’s debt against default plunged the most since April 2020. The moves came after former head of congress Mirtha Vasquez was sworn in as prime minister, replacing Guido Bellido, a radical in Castillo’s left-leaning government who created turmoil last month by threatening to nationalize Peru’s biggest gas field.
Investors are cheering signs that Castillo is seeking a conciliatory approach after the more radical members of his cabinet created fissures with conservative members of congress and cast doubt on the country’s commitment to foreign investment. The announcement marks the second high-profile departure from Castillo’s cabinet just a bit more than two months into his presidency as he signals a pragmatic, consensus-building approach in dealings with the energy sector and other industries critical to the economy.
“This is another affirmation of a more pragmatic approach to policy,” said Edwin Gutierrez, the head of emerging market sovereign debt at Aberdeen Asset Management in London. For the time being, the cabinet reshuffle is a strong enough signal that Peru will remain a safe place to invest in Latin America, he added.
There is a risk that Castillo’s moves will rupture relations with his own own socialist Peru Libre party, potentially imperiling his agenda in congress. Waldemar Cerron, a Peru Libre congressman, described the new cabinet appointments as an act of treachery.
“Peru Libre members of congress don’t support this cabinet, because we consider it to be a betrayal of all the majorities that have waited for many years to come to power,” Cerron told reporters in Lima.
Vasquez, 46, represents the Frente Amplio, or Broad Front coalition, which includes socialists, environmentalists and center-left politicians.
Castillo named six other new cabinet members, including ministers of mining, work, and interior. Finance Minister Pedro Francke, who is popular with investors, will stay on in the role.
Castillo said the moves would improve “governability” and said it was time to put Peru’s interests above ideology.
Party leader Vladimir Cerron, Waldemar’s brother, had been close to Bellido, and defended him in posts on Twitter. Bellido had been accused of sympathizing with terrorist groups, though he denies the accusations.
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“The changes seem designed to provide more tranquility to the markets,” said Jose Alejandro Godoy, a professor of social and political sciences at Pacifico University. “We will have a cabinet that engages in more debate, is more open to discussion, closer to a more moderate left.”
Bellido, who lasted 69 days as prime minister, had threatened to nationalize Peru’s biggest gas field last month, comments that other members of the government tried to dial back in subsequent days. Bellido said at a press conference in late September that the government would consider activating a constitutional mechanism known as vote of confidence, which could eventually lead to new elections for the unicameral chamber in the politically volatile nation.
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“The confidence vote, interpellation and censure should not be used to create political instability,” Castillo said in his speech, in a veiled rebuke of Bellido.
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