Peru’s new president has plunged it into instant political crisis

Pedro Castillo’s nomination of leftwing radicals for cabinet posts shows he is no mood to 

Michael Stott, Latin America editor

Peru’s president Pedro Castillo, right, with prime minister-designate Guido Bellido © Ernesto Arias/AP


Peru has suffered the world’s worst per capita death toll from coronavirus, experienced one of the deepest pandemic-induced recessions and been torn apart by a bitter election campaign.

To this unenviable cocktail, its new president has added a deep political crisis on his first full day in office.

Pedro Castillo, a primary school teacher and small farmer from a remote Andean village, had never held elected office before snatching a narrow victory in June’s presidential election.

The ultimate political outsider, his candidacy alarmed the wealthy but delighted the have-nots. 

Castillo’s slogan “No more poor people in a rich country” resonated among millions left behind by uneven economic growth in the world’s second-biggest copper exporter.

Castillo’s favourite props in a highly professional campaign that belied his humble origins were a large yellow pencil, symbolising education, and a trademark Stetson hat. 

He rode to vote on horseback.

But behind the modest school teacher with no political track record lurked Vladimir Cerrón, the Cuban-educated leader of the Marxist-Leninist party Free Peru, which adopted Castillo as its presidential candidate not long before the election.

Castillo was constantly questioned about how he might govern if he won: as a hard-left revolutionary or a consensus-seeking moderate? 

His responses were contradictory and confused.

The original Free Peru manifesto, pledging sweeping nationalisation, gave way to a vaguer and less radical programme. 

Cerrón disappeared from view during the election. 

Castillo stopped giving interviews, while moderating his stance and playing down the hardline views of Cerrón.

The devastation caused by coronavirus gave his campaign extra potency. 

Strict lockdowns crippled the economy but failed to contain infections. 

Hospitals were swamped. 

Almost 200,000 people have died so far from Covid-19 in a country of 32m, and economic output shrank 11.6 per cent last year.

Castillo won by the slimmest of margins, just 44,000 votes. 

His defeated conservative rival Keiko Fujimori fought the result for six weeks, alleging fraud, but international observers and Peruvian authorities concluded that the vote had been fair.

Peru’s mainstream left had sought to build bridges with Castillo prior to his inauguration on Wednesday. 

It hoped to put together a broad coalition to help the inexperienced new president win support for a moderate programme of change in the fragmented Congress, where he lacks a majority.

Thursday night’s chaotic events appear to have put paid to that initiative. 

Castillo’s decision to name Free Peru radicals to key posts outraged moderates and conservatives alike and set his administration on a collision course with the legislature.

Almost as soon as the names were announced, there was uproar. 

Peruvians from different parts of the political spectrum lined up to denounce the choices, with particular opprobrium reserved for prime minister-designate Guido Bellido because of his sympathies with a guerrilla movement whose war on the Peruvian state cost 70,000 lives. 

The foreign minister is a former Marxist rebel with close ties to Cuba.

Castillo must seek a vote of confidence from Peru’s unicameral Congress for his unconventional cabinet, and some legislators fear a trap. 

If they reject his choices twice, the president can dissolve Congress and call fresh elections. 

Since legislators cannot run for a second term, they would in effect be signing their own death warrant.

Congress, however, has a powerful weapon of its own. 

Legislators may remove a president from office for the ill-defined offence of “moral incapacity”, a device that has been used to trigger the ejection of two of Castillo’s predecessors.

Either way, serious political turbulence beckons. 

Investors who liked to say of Peru that “regardless of the crazy politics, the economy grows fine” are discovering that the politics matters after all.

After the exodus

Office re-entry is proving trickier than last year’s abrupt exit

As economies reopen employers face tough choices


Eight years ago Google’s then finance chief, Patrick Pichette, recalled being asked how many of the tech giant’s employees telecommuted. 

His answer was simple: “As few as possible.” 

Despite the fact that Google was busy churning out apps that enabled remote work, his comment was also unremarkable. 

From Silicon Valley and Wall Street to the Square Mile in London, La Défense in Paris, Potsdamer Platz in Berlin and Hong Kong’s Central, the world’s business districts welcomed millions of office grunts every workday. 

Congregating in one place was believed to spur productivity, innovation, camaraderie. 

It enabled bosses to keep a beady eye on their underlings. 

Work from home was something to be done only if it absolutely couldn’t be avoided.

In March 2020 it suddenly could not. 

The covid-19 pandemic forced governments around the world to impose strict lockdowns. 

Overnight, most of the world’s offices became off limits. 

To survive, companies everywhere embarked on a gigantic experiment in home-working. 

City workers swapped suits for jogging trousers and city-centre flats for the suburbs. 

In a corporate change of heart that typified the era, Google gave each employee globally $1,000 for home-office furniture, offered them virtual fitness videos and cooking lessons, and urged everyone to “take good care of yourselves and one another”.

As vaccination rates rise in the rich world the home-working experiment is being unwound (see chart 1). 

But the speed of the unwinding, and its scope, has become a matter of hot debate among chief executives, and between them and their staff. The strategies that emerge out of these debates will shape not just what happens in the next few months but also the longer-term future of office work.


One change is already obvious. 

The universal anti-remote-work mindset of yesteryear is gone, replaced by a range of attitudes that vary by industry and region. 

At one extreme, some companies now expect all workers to be back at their desks. 

At the other, certain firms are doing away with offices altogether. 

Most businesses fall somewhere in the middle.

The most ardent supporters of the status quo ante can be found on Wall Street. 

David Solomon, boss of Goldman Sachs, has called remote work an “aberration”. 

His opposite number at Morgan Stanley, James Gorman, recently quipped, “If you can go into a restaurant in New York City, you can come into the office.” 

Jamie Dimon, chief executive of JPMorgan Chase, has conceded that “people don’t like commuting, but so what?” 

The three bank bosses worry that remote workers are less engaged with the company, and potentially less productive.

Whether or not they agree with the Wall Street titans deep down, their counterparts in Europe see such intransigence as an opportunity to lure disaffected bankers who prefer greater flexibility. 

ubs, a Swiss lender, is reportedly about to allow two-thirds of its employees to pursue “hybrid” work, which combines some days at home and some at the office—in part as a recruitment tool. 

NatWest, a British bank, expects just one in eight workers back at the office full-time, with the rest on hybrid schedules or primarily home-working. 

People at Germany’s Deutsche Bank will work remotely up to 60% of the time. 

Noel Quinn, chief executive of hsbc, has described drifting back to pre-pandemic patterns as a “missed opportunity” and would like the Asia-centric bank’s staff to embrace hybrid arrangements.

Many technology ceos seem to share Mr Quinn’s sentiment. 

They fret that strict return-to-office mandates will put off restless software engineers. 

Dylan Field, co-founder of Figma, which helps firms create and test apps and websites, worries that employees will jump ship if the rules are too restrictive. 

Tech workers may indeed be getting more footloose, with quit rates seemingly higher and poaching more rampant than usual. 

Perhaps in recognition of this, in June Facebook said that all of the social-media giant’s full-time employees could apply for permanent remote work. 

Companies such as Spotify, a music-streamer, Square, a fintech firm, and Twitter have told many of their staff they can work remotely for ever if they please.

Corporate chimeras

Across regions and industries evidence suggests that people like the ability to work from home at least occasionally. 

A poll of 2,000 American adults by Prudential, an insurer, found that 87% of those who worked from home during the pandemic wanted to be able to continue doing so after restrictions ease. 

According to the same survey, 42% of remote workers said they would search for a new job if they were asked to return to the office full-time. 

Only one in five American employees say they would seldom or never want to work from home (see chart 2). 

In a recent poll of more than 10,000 European office workers, 79% said that they would back legislation prohibiting bosses from forcing people to work from the office.


Young workers, often seen as casualties of remote working, have warmed to flexible schedules. 

Members of Gen-z, now aged 16-21, were more likely than any other age group to cite personal choice rather than employers’ policies as the main reason for continuing to work remotely, according to a study by Morgan Stanley. 

At the same time, many workers of all ages are still keen to come to the office every now and again—not least to enjoy reliable air-conditioning during what is shaping up to be a scorching northern summer. 

Salesforce, a business-software giant itself implementing a work-from-anywhere model, found that although nearly half its employees are opting to stay home most of the time, four in five want to maintain a physical connection with the corporate office.

The public sector, often the largest employer in a country, faces similar considerations. 

Britain’s tax authority is offering all employees the right to work from home two days a week. 

In America the federal government predicts that many civil servants will want to maintain flexible schedules after the pandemic. 

Ireland, which wants 20% of its 300,000 public servants working remotely by the end of the year, is offering financial support to encourage them to relocate outside cities. 

It will create more than 400 remote-working hubs, allowing staff to work closer to home. Indonesia has set up a “work from Bali” scheme for civil servants to help revive the tropical island’s tourism industry.

All this suggests that hybrid arrangements will persist in most places (with the possible exception of Wall Street). 

They present their own challenges, however. 

They blur the lines between work and family life. 

Virtual meetings can be even more tedious than in-person ones; people who have admitted to Zoom fatigue include Eric Yuan, the video-conferencing app’s billionaire founder. 

And hybrid schedules make managing office space tricky, especially at a time when many companies, including hsbc, are planning to reduce their office footprint.

Given a choice, most Australian workers would prefer to work from home on Mondays and Fridays, according to ey, a consultancy. 

Even if managers’ suspicions that this is a thinly veiled effort to extend the weekend prove unfounded, that means that offices would be far busier on Wednesdays, the least popular choice for home-working, than at the start and end of the work week.

Some firms still intend to let people come in whenever they want. 

Others are getting inventive. 

Mr Field of Figma gives his staff a choice: work remotely full-time or, if you come in at least twice a week, get a desk in an office. 

Snowflake, a data-management firm, will let individual units decide how to organise themselves. 

Many companies, including giants such as Apple, have got around the problem by mandating days when employees are required to be present.

Normality bites

The sudden reconfiguring of work life is leading to friction. 

Workers who want more flexibility are finding themselves at odds with employers calling for a return to something closer to pre-pandemic normal. 

Some of Apple’s employees have criticised the tech giant’s requirement to work in-person three days a week as tonally “dismissive and invalidating”. 

The afl-cio, America’s biggest trade-union federation, is facing health-and-safety complaints from its own staff over its measures to bring workers back to the office in the absence of improved ventilation and amid fears of continued risk of infection while commuting on public transport.

Such disagreements are spilling over into boardrooms. 

Some shareholders, including big institutional investors, are keen to promote flexible working not only to retain talent but also to burnish companies’ environmental, social and governance (esg) credentials. 

s&p Global, an analytics firm, says that under its assessments, the ability to work from home is one measure of employees’ health and wellbeing, which can influence up to 5% of a firm’s esg score. 

This is roughly the same weighting attached to risk and crisis management for banks, or human-rights measures for miners. 

It may affect things like gender and racial diversity. 

Studies find that mothers are likelier than fathers to favour work from home. 

Research by Slack, a messaging app, found that only 3% of black knowledge-workers want to return to the office full-time in America, compared with 21% their white counterparts.

That is a lot for companies to ponder, even as they deal with short-term controversies, such as whether or not to bar unvaccinated workers from the office. 

Disruptive though it was, last year’s abrupt transition to remote work may, ironically, prove considerably smoother than the shift to whatever counts as normal in the post-pandemic era.  

Central Banking, Fast and Slow

As the global economy emerges from the COVID-19 shock, systemically important central banks are faced with the unenviable task of deciding when and how quickly to phase out extraordinary stimulus measures. While there is no easy answer, there are clear criteria for maintaining policy credibility.

Mohamed A. El-Erian


CAMBRIDGE – Economic-policy discussions in the eurozone, the United Kingdom, and the United States increasingly revolve around the question of when and how quickly central banks should pull back the uber-stimulus measures implemented last year in response to the COVID-19 pandemic.

There are no easy answers. 

Both parts of the question call for finely balanced judgment calls to account for uncertainties that remain in play. 

Policy changes by major central banks can have far-reaching implications for economic and financial well-being, affecting not just those directly involved but also the many countries that will end up “importing” the effects of the decisions.

A simple way to frame the debate is to think of a road trip. In the car are two groups that agree on three things: the “destination” is to achieve high, durable, inclusive, and sustainable economic growth; the route to get there is far from straight; and the car has good forward momentum.

After that, the two camps disagree. 

One group believes that much of the remaining journey will be uphill and is therefore not too worried about the curves along the way. 

It would prefer to keep its foot on the accelerator, pedal-to-the-metal, lest the vehicle decelerate or stall.

The other passengers anticipate a downhill journey with many treacherous curves. 

With the vehicle gaining speed, this group would prefer to ease off the accelerator and avoid risking a sudden “economic handbrake turn,” as Andy Haldane, the Bank of England’s former chief economist, recently put it.

Whether you are an uphiller or a downhiller depends mainly on your assessment of three current issues: the labor market, the surge in inflation, and the risk of not being able to recover quickly in the event of a policy mistake.

The big labor-market puzzle is that, despite massive demand, the labor market is unable to match unemployed workers to jobs. 

The situation is particularly stark in the US. 

While Job Openings and Labor Turnover Survey data for April (the most recent available) show that there are a record number of job openings in the US – more than nine million – labor-force participation remains stubbornly low, and unemployment high, compared to pre-pandemic levels.

To explain this gap, some point to temporary and reversible factors such as school closures, enhanced unemployment insurance benefits, and insufficient childcare, whereas others worry about longer-term issues such as an altered propensity to work and skills mismatches. 

In any case, the labor market’s persistent malfunctioning – particularly employers’ struggle to find employees – is likely to lead to higher wage growth, a possibility that fuels concern about the second issue.

How “transitory” is today’s inflation? 

The pedal-to-the-metal camp has a surprisingly strong conviction that the current uptick in inflation will sharply reverse itself. 

As the year progresses, they expect base effects to wash out together with the supply and demand mismatches.

Others, including me, are not so sure, owing to the likelihood of persistent supply bottlenecks, changes in supply chains, and lasting inventory management challenges. 

We will probably need many more months of data before we can offer convincing assessments of these variables.

In the meantime, policymakers must be mindful of the risks associated with any given course of action – including inaction. 

In the face of such uncertainty, it is wise to ask not just what could go wrong but also what the consequences of a policy mistake would be. 

Under the current conditions, a wrong move could have far-reaching and lasting effects.

Those favoring a continuation of pedal-to-the-metal monetary policies argue that central bankers still have tools to overcome inflation should it persist. 

But as the downhillers are quick to point out, those tools have become increasingly ineffective and difficult to calibrate. 

As such, a central bank that falls behind may be forced to slam on the brakes, risking an economic recession and financial-market instability. 

The risk of inaction (or inertia) in this case may be larger than that of acting early.

In the current policy debate, this decision-making framework offers greatest clarity at the edges. 

For example, there is a compelling case for the US Federal Reserve to start easing its foot off the accelerator. 

Economic growth is buoyant, fiscal policy is also extremely expansionary, and businesses and households alike have significant accumulated savings that they will now be spending down. 

The conditions are now ripe for the Fed to start reducing – gradually and carefully – its bond-buying program from its current rate of $120 billion per month.

The European Central Bank, however, is in a different position. 

While eurozone growth is picking up, the level of fiscal support is not as strong as in the US, and the private-sector recovery is not as advanced.

The hardest case to call is the UK. 

With growth, fiscal support, and the private sector’s prospects more finely balanced, it is no wonder two highly respected central bankers, Haldane and BOE Governor Andrew Bailey, found themselves on opposite sides of the debate this month.

Other central bankers around the world may be tempted to think that they are simply spectators in all this. 

They are not. 

The Fed, the ECB, and the BOE are systemically important: their actions often have meaningful spillover effects (both positive and negative) on the global economy.

As such, central bankers elsewhere should be running their own scenario analyses and formulating appropriate response plans. 

There is nothing wrong with hoping that three systemically important central banks will get to their destination smoothly. 

But the journey is far from over, and the risk of someone slipping is not negligible.


Mohamed A. El-Erian, President of Queens’ College, University of Cambridge, is a former chairman of US President Barack Obama’s Global Development Council. He was named one of Foreign Policy’s Top 100 Global Thinkers four years running. He is the author of two New York Times bestsellers, including most recently The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

This is as good as it gets for the US economy

America has already been through a renaissance — it is unlikely to be reborn again

Ruchir Sharma 

Booms are often killed by complacency, which grips the US now © Victor J Blue/Bloomberg


Driven by the success of America’s vaccine rollout and massive government stimulus, the US economy is expected to grow as fast as 7 per cent this year and is currently leading the world recovery. 

The commentariat is talking up an “American Renaissance” in a nation that on Sunday marked its 245th Independence Day.

But there is a problem: America just went through an economic renaissance. 

It’s not likely to be reborn again.

A decade ago, in the wake of the 2008 financial crisis, Standard & Poor’s downgraded US government debt for the first time ever, triggering dire forecasts of American decline. 

Instead, the 2010s saw an expansion of American economic power, driven by its tech prowess and its relatively quick resolution of the debt crisis. 

The US share of global gross domestic product rose from a 2011 low of 21 per cent to 25 per cent last year. 

Average incomes started the decade 26 per cent higher in the US than in Europe and finished more than 60 per cent higher. 

The US income lead over Japan grew even more dramatically. 

By early 2020, despite talk of “despair” in the jobless middle classes, US consumer and small business confidence hit highs unsurpassed since the 1960s. 

As a financial superpower, the US reached even greater heights. 

Its share of global stock markets increased in the 2010s from 42 per cent to 58 per cent. 

The dollar emerged more dominant than ever, helping the US extend its lead over other developed nations. 

By late 2019, 75 per cent of all overseas loans to individuals and corporations were denominated in dollars, up from 60 per cent before the crisis of 2008. 

Six of every 10 countries used the dollar as their “anchor” — the currency against which they measure and stabilise the value of their own currency — near a record high. 

China’s efforts to challenge the dollar as the world’s favourite reserve currency also failed utterly during the 2010s.

After a comeback decade, America is unlikely to rise anew in the 2020s. 

As I argued at the start of the pandemic, booms that are potent are almost always followed by a long hangover. 

The US economy led the world in the 1960s, but in the 70s it worried about falling behind the oil-fuelled Soviet Union. 

In the 1980s it fretted over an ascendant Japan. 

The US came roaring back during the tech boom of the 1990s, but the 2000s were all about the rise of emerging markets led by China. 

Forecasts for another US surge rest in part on faith that it can keep extending its lead in technology. 

But the US internet giants already face challengers in emerging markets from Asia to Africa, where local entrepreneurs are building national and regional market leaders in ecommerce, e-banking and search. 

Europe is closing the innovation gap in fields such as robotics and AI, and European start-ups are attracting more private equity money than ever before. 

Booms are often killed by complacency, which grips the US now. 

Significant voices in both political parties have argued that America should continue to borrow and spend freely, thanks to the unrivalled status of the dollar as the world’s most wanted currency. 

But easy money flowing out of the Fed is threatening to weaken the dollar and feeding the rise of zombies — companies which earn too little to make even interest payments on their debt. 

They barely existed in the US 20 years ago, but accounted for 6 per cent of listed companies by 2010, and almost 20 per cent by last year.

The federal government and corporations are now so deep in debt, it is hard to imagine how they can further boost the economy. 

In 2010, the US owed the rest of the world $2.5tn, a sum equal to 17 per cent of US GDP. 

By early last year, those liabilities had risen to $10tn and more than 50 per cent of GDP — a threshold that has often triggered currency crises in the past. 

Currently they are $14tn and 67 per cent of GDP. 

None of this means that American declinists, so wrong in the 2010s, will finally be proved right. 

China’s rising share in the global economy has come largely at the expense of Europe and Japan. 

Declinists, still convinced the US will soon be overtaken by China, overlook the fact that China has huge debt problems too. 

What is more likely is that the US will have a mediocre decade, weighed down by the excesses of its recent boom. 

Relative to other markets, US stocks are at a 100-year peak. 

Valuations that high reflect the new optimism: after a decade of unanticipated US success, many analysts now expect more of the same. 

Alas, this may be as good as it gets for America. 


The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’