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Moody’s affirms Peru rating but unrest triggers negative outlook


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Moody’s Investors Service affirmed its investment grade credit rating for Peru on Tuesday, but cut its outlook on the sovereign to negative from stable, citing the possibility of further deterioration amid an ongoing political crisis.

Moody’s said the Baa1 rating, three notches into investment grade territory, remains “anchored by the strength of the government’s balance sheet.”

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But the negative outlook stems from Moody’s view that growing social and political risks threaten “a deterioration in institutional cohesion, governability, policy effectiveness and economic strength through successive governments.”

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Peru has been mired in the worst outbreak of unrest in decades, following the ouster and jailing of former President Pedro Castillo nearly two months ago.

However, Moody’s expects Peru’s institutions “will prove effective in containing the erosion of fiscal and economic strength.”

The rating agency warned a prolonged crisis would add to the risks investors face in Peru.

“Continued social instability that reinforces political polarization, undercuts policy effectiveness and results in abrupt policy shifts would weigh on investor confidence undermining medium-term growth prospects and complicating fiscal management,” according to the Moody’s statement.

Uncertainty surrounding a potential constitutional rewrite – a key demand of some protesters – could eventually prompt a downgrade as it could “weaken the structural underpinnings of Peru’s credit profile,” it added.

Since early December, Peru has struggled with angry and sometimes violent street protests even as the months-old government of President Dina Boluarte pushes to move up elections to later this year in a bid to quell the unrest. (Writing by Carolina Pulice; Editing by David Alire Garcia, Leslie Adler and Lincoln Feast.)


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