On 28 July, Toledo was sworn in as the new Peruvian President.  Fulfilling the ample campaign promises of creating new jobs and alleviating the dire social conditions of the country’s poor will prove challenging, since the economy remains deeply mired in recession. Thus hopes remain concentrated on the large international financial aid package Toledo was able to secure to finance his job creation programme and jumpstart the economy. 

Toledo inauguration as President marks end to year of political turmoil.  On 28 July, Alejandro Toledo, who narrowly defeated Alan García in run-off elections June, was sworn in as the new president in Peru.  He replaces Valentin Paniagua, who had led the interim government since last November, following Fujimori’s flight to Japan in November 2000.  Rather than laying out the design of economic reforms to revive the ailing economy, Toledo concentrated his inaugural address on domestic policy issues such as the reform of the military and police forces and the investigations of corruption under the Fujimori administration.  On the economic front, Toledo merely reiterated his campaign promise to create new jobs during his five-year term with programs targeted at assistance for agriculture, tourism and small businesses. 

Cabinet appointments should reassure the investment community about market-oriented economic policy.  In a separate ceremony, Toledo swore in his cabinet, which he had announced just two days prior to his inauguration.  The cabinet is led by Roberto Dañino as Prime Minister.  The 50-year old Harvard-trained lawyer and economist has long lived in the United States and served stints as Secretary General of Peru's economy ministry as well as chairman of the foreign public debt commission in the 1980s.  He has also worked at the Inter-American Development Bank.  Dañino is considered a market-friendly appointment and is thus likely to appeal to investors.  The new Prime Minister could become a close ally of economy minister Pedro Pablo Kuczynski (for details about Kuczynski see June and July edition of the Consensus Forecast), the only cabinet member announced well ahead of the inauguration, and some observers even say the pair could pull the Cabinet to the right.

Diego García Sayan, the justice minister in Peru's outgoing interim government, is taking over the foreign ministry.  The 51-year-old Garcia Sayan, a constitutional lawyer and human rights expert, who also studied social and political science in Lima and Texas, has won respect with his handling of investigations into corruption under the Fujimori regime as well as overseeing the controversial retrial of US citizen Lori Berenson on terrorist charges.  García Sayan has also headed the prestigious Andean Commission of Jurists and has been Peru's representative to the Inter-American Commission on Human Rights.  His nomination should help restore confidence from national governments and international organisations, whose support Toledo considers essential to continued financial aid flows. 

The ministry of justice will be headed by Fernando Olivera, who made public the notorious corruption video which finally toppled Fujimori.  Olivera ran against Toledo in the first round of presidential elections but supported Toledo against García in the second round.  As the leader of the Independent Moralizing Front (FIM, Frente Independiente Moralizador) party, Olivera’s participation in Toledo’s cabinet secures the support of important votes in Congress where Toledo’s own party lacks a majority.  Incoming Minister of Industry, Raul Diez Canseco, is also a well-known figure in Peru’s political world.  The 53-year-old economist and founder of a private university, who ran for president in 1995 for the Popular Action Party (AP, Acción Popular) plans to prioritize the fight against poverty and to improve education, two cornerstones of Toledo’s electoral agenda. 

Economy contracts stronger than expected amid weaker primary sector output.  Fulfilling the campaign promises to create new jobs will be a challenge for the incoming administration.  The economy remains deeply mired in recession and recent output data provides little hope for a quick turnaround.  In June, the economy contracted another 2.3% compared to the same month last year, following the more moderate contractions of 0.3% and 0.4% in April and May.  The June contraction marked the eighth consecutive monthly decline in economic activity.  GDP contracted 1.0% in the second quarter and 1.7% in the first half this year compared to the same periods last year.  The June GDP reading came in below expectations, as a result of a significant weakening in the manufacturing industry, where activity dropped 3.2% over June 2000, following two months of positive growth in April and May.

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