Over the past decade, Peru has become one of the fastest-growing economies in Latin America with an average annual growth rate of 6 percent and an average inflation of 3 percent. The country owes much of its economic success to free trade agreements, healthy public finances, emerging industries such as steel and textile manufacturing, and service-oriented sectors such as tourism. But mining remains its most crucial industry, accounting for more than 60 percent of the country's exports and at least 13 percent of its GDP, according to the Peruvian Ministry of Mines. From 2002 until about 2012, Peru's average annual growth rate was nearly 7 percent, buoyed by soaring commodity prices. In 2010, the country's GDP grew by 9 percent. As China's global commodities consumption has waned, however, demand for Peru's mining products has fallen, hurting Peru's economic performance — though its other robust industries have softened the blow. Today, the Peruvian economy's growth rate has slowed to 4 percent, and as commodity prices languish, it will struggle to maintain sustainable growth.
A Matter of Growing Concern
Despite his vows to reinvigorate Peru's economy, Kuczynski has bigger problems to contend with. Containing the country's burgeoning crime rate will be a formidable challenge for the president throughout the course of his term, set to conclude in 2021. Violent crime is on the rise in Peru: From 2011 to 2015, the urban homicide rate increased from 5 to 7 incidents per 100,000 inhabitants. Peru also has one of the highest incidences of kidnapping in the Americas, 2.3 abductions per 100,000 people. In the city of Callao, home to Peru's most important port, the spike in crime has been especially dramatic. Callao is the most violent city in the country, and since 2011, its homicide rate has climbed from 10 to 15 homicides per 100,000 residents.
Many of these crimes are related to domestic violence, petty theft and armed robbery. But particularly in Callao, the surge in violence has a more insidious cause. Organized crime groups in the area have been locked in a bloody battle for control of the city's port, an invaluable resource for drug trafficking, contraband smuggling and extortion operations. For years, former Peruvian kingpin Gerson Galvez Calle, better known by his alias, Caracol, held de facto control of the port, charging transit fees to local coca growers and contrabandists who wanted to offload their goods. After Caracol's detention in May, violence in Callao rose steeply as competing groups vied to take his place. In fact, the security situation in Callao deteriorated so much that Kuczynski recently extended the state of emergency that former President Ollanta Humala declared in the city in December 2015.
Though improving security in Peru is a priority for Kuczynski, it will be easier said than done. Much of Peru's crime problem extends far beyond the country's borders. The fight raging in Callao, for instance, involves not only Peruvian criminal organizations but also Mexican cartels. Caracol had ties to the Sinaloa cartel and to Colombian and Ecuadorian criminal groups that also use the Pacific cocaine supply route that stretches from the Port of Buenaventura to the Galapagos Islands, and which includes the ports of Acapulco and Lazaro Cardenas. In addition, sourcing cocaine from Peru allows the cartels to diversify their supply beyond Colombia.
Less President, More Negotiator
As long as the Mexican cartels have an interest in Callao, violence in the city will continue. After all, Peruvian criminal organizations have much to gain from doing business with foreign cartels. Because Peru's criminal organizations already have substantial ties to local farmers in Peru's River Valley of Apurimac, Ene and Mantaro (also known as VRAEM), the epicenter of cocaine production in the country, doing business in Callao is easy for transnational criminal outfits. Therefore, it is safe to say Kuczynski will be struggling for some time to contain Peru's crime problem.
Beyond Peru's security issues, Kuczynski will face challenges from the country's divided Congress. The opposition Popular Force party — led by Keiko Fujimori, who conceded the presidential race to Kuczynski — controls 73 of the 130 seats in Peru's legislature. Veronika Mendoza's Broad Front party, meanwhile, holds 20 seats, leaving the ruling Peruvians for Change party with just 18 seats. This means that for the duration of his term, Kuczynski and his center-right party will have to negotiate with Congress to pass legislation, increasing the risk of legislative gridlock in the years to come. More than a ruler, then, Peru's president until 2021 will be a negotiator, dealing with the powerful opposition parties that dominate the legislature while waging an uphill battle against the criminal organizations wreaking havoc in the country's primary port.
