Peru’s Political and Legal Turmoil: Implications for Foreign Investment and Sovereign Risk

Peru’s political and legal landscape has become a battleground for institutional credibility, with frequent judicial reversals and the imprisonment of former leaders sparking debates about the politicization of the judiciary. Since 2023, ex-president Martín Vizcarra has joined a growing list of former leaders, including Pedro Castillo, Alejandro Toledo, and Ollanta Humala, in Barbadillo prison, accused of corruption during their tenures [1]. While these actions are framed as steps toward accountability, critics argue they undermine the rule of law. Vizcarra’s impeachment on the vague charge of “moral incapacity” drew sharp rebukes from international observers, who warned of eroding judicial independence [3]. The recent passage of President Dina Boluarte’s amnesty bill, which critics claim grants impunity to officials involved in human rights abuses, further complicates Peru’s quest for institutional legitimacy [6].

Judicial Uncertainty and Investor Confidence

The politicization of legal processes has directly impacted investor confidence. Peru’s sovereign credit ratings from Fitch, Moody’s, and S&P remain at investment grade but carry negative outlooks, reflecting concerns over governance instability [2]. Foreign direct investment (FDI) plummeted to $4.2 billion in 2023, a stark decline from $10.8 billion in 2022, as political uncertainty and social unrest disrupted key sectors like mining [1]. For instance, protests in 2023 temporarily closed major mines, including Glencore’s Antapaccay and China’s Las Bambas, causing billions in lost revenue [6]. Political risk insurance, once a niche product, has become a standard requirement for investors navigating Peru’s volatile environment. According to a report by Marsh, property insurance rates in Peru dropped by 5–10% in Q1 2025, but casualty insurance costs rose due to heightened social conflict risks [3].

Sovereign Risk and Institutional Credibility

Peru’s sovereign risk profile remains mixed. While the World Bank projects GDP growth of 2.9% in 2025 and notes low public debt-to-GDP ratios, political instability continues to cloud long-term prospects [4]. The Economist Intelligence Unit (EIU) highlights that President Boluarte’s informal coalition with centrist and right-wing parties may offer short-term stability but does not resolve deeper institutional weaknesses [2]. Transparency International’s 2023 Corruption Perceptions Index ranks Peru 121st out of 180 countries, underscoring persistent governance challenges [2]. These factors have led to a fragmented investor sentiment: while Peru’s mining sector attracts capital due to its strategic role in global supply chains, infrastructure projects face delays from bureaucratic inefficiencies and social conflicts [5].

Comparative Dynamics in Latin America

Peru’s struggles mirror broader trends in Latin America, where FDI inflows rose by 7.1% in 2024 but new investment stagnated amid trade tensions and fiscal constraints [5]. Mexico, for example, has capitalized on supply chain reconfiguration under USMCA, while Brazil leads in renewable energy investments. In contrast, Peru’s reliance on extractive industries and its susceptibility to social unrest—exemplified by over 166 active conflicts in 2025—limit its appeal for long-term portfolio allocations [1]. The region’s central banks have generally maintained inflation control, but Peru’s political volatility remains a unique drag on institutional credibility [5].

Conclusion: A Precarious Balance

Peru’s legal instability signals a deteriorating business climate, where judicial overreach and political maneuvering erode trust in institutions. While the country’s macroeconomic fundamentals—low inflation, strong reserves, and a BBB- credit rating—offer some reassurance, the lack of governance reform poses a critical risk [4]. Investors must weigh the allure of Peru’s natural resources against the realities of social conflict and legal unpredictability. As the 2026 elections approach, the path to restoring institutional credibility will determine whether Peru can rejoin the ranks of Latin America’s more stable investment destinations.

Source:
[1] 2024 Investment Climate Statements: Peru, [https://www.state.gov/reports/2024-investment-climate-statements/peru]
[2] Peru Overview: Development news, research, data, [https://www.worldbank.org/en/country/peru/overview]
[3] Latin America and Caribbean Insurance Market Rates, [https://www.marsh.com/en/services/international-placement-services/insights/latin-america-caribbean-insurance-rates.html]
[4] Country Risk Report Peru, [https://www.allianz.com/en/economic_research/country-and-sector-risk/country-risk/peru.html]
[5] Latin America at Mid-Year: A turning point between challenges and new opportunities, [https://privatebank.jpmorgan.com/latam/en/insights/markets-and-investing/ideas-and-insights/latin-america-at-mid-year-a-turning-point-between-challenges-and-new-opportunities]
[6] "Dramatic setback": Will Peru's new amnesty law put justice out of reach? [https://www.aljazeera.com/features/longform/2025/7/30/dramatic-setback-will-perus-new-amnesty-law-put-justice-out-of-reach]