Fujimori’s spectacular announcement to resign as President paved the way for an interim government under President Valentín Paniagua to take over.  While the new government promises improved prospects for fair and transparent elections the lingering uncertainty over who will lead the next government remains and threatens to suffocate the private sector investment activities. 

Fujimori resigns, seeks refugee in Japan.  The political events since last month’s edition could hardly have been more dramatic.   On 19 November, during a trip to Japan, Fujimori announced his decision to step down as President and to remain in Japan for an undecided term.  Subsequently, Fujimori said that he has no intention of returning to Peru even if investigators probing circumstances surrounding his resignation demand his presence.  The announcement shell-shocked Peru and was preceded by rumours that Fujimori was seeking political asylum in Malaysia while attending a summit of the Asia-Pacific Economic Co-operation forum (APEC).  Even though his supporters had furiously denied these rumours, lingering uncertainty further eroded Fujimori’s authority, which had been battered ever since he lost control over Congress earlier in November (see last month’s Consensus Forecast).  Fujimori’s resignation quickly eroded the legitimacy of the political forces associated with his administration.  Although the constitution stipulates that the Second Vice President assumes the presidency in the case of a presidential resignation, the new distribution of power rendered the ambitions of Ricardo Marquez to replace Fujimori impossible.  The subsequent Marquez resignation cleared the way for the head of Congress, Valentín Paniagua Corazao, to assume the presidency.

Paniagua acting president.  Paniagua assumed the presidency on 22 November following a congressional declaration stating that Fujimori was “morally unfit” to govern, ignoring the resignation letter from Japan.  Paniagua will remain interim president for the next eight months.  Valentín Paniagua is a constitutional lawyer, congressman and secretary general of a small centrist opposition party, Action Popular (AP).  A political moderate, Paniagua was elected as head of Congress recently by opposition lawmakers as a consensus candidate after ruling party legislator Martha Hildebrandt was censured by a majority in Congress.  Paniagua was a former minister of justice and education, and a one-time president of the now defunct lower house of Congress.  He also served as justice minister in the 1960s and as education minister in 1984 during the two administrations of former President Fernando Belaunde.  While he is largely unknown among Peruvian voters, Paniagua has gained respect in government and opposition circles as having brokered talks this year between the government and the opposition over constitutional reforms.

Interim government seeks stability and debt restructuring.  Paniagua appointed former United Nations Secretary General Javier Perez de Cuellar as prime minister and cabinet chief.  Perez de Cuellar will also serve as foreign minister.  The Ministry of Economy went to Javier Silva Ruete, an economist who led the ministry during the late 1970s, when he spearheaded a program that ended a severe economic crisis brought on by mismanagement by the military leaders who ran Peru from 1968-80.  The interim government has little time to implement any substantial changes.  Its main task is to ensure fair and transparent congressional and presidential elections on 8 April and to maintain economic stability until a new government takes over on 28 July 2001.  Nevertheless, Paniagua announced that he plans to decentralize the government decision-making process and to review Peru's foreign debt servicing to adjust the payments to Peru’s current economic and social capabilities.  Paniagua excluded any unilateral decision and emphasised that any restructuring would take place in negotiations.  Furthermore, the new administration announced its intent to continue with privatisations and maintain fiscal discipline, which meets the fiscal deficit target of 1.5% of GDP agreed with the IMF.  However, panellists have hiked their fiscal deficit projections for 2000 and 2001 substantially and expect the government to over shoot its 2001 deficit target.

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