In celebration of the bicentennial of Peru, the Legatum Institute initiated a program to identify reforms to the political and judicial system that can gain the consensus of the main political parties.

With the support of Peruvian and international experts, in June 2021 the Institute shared a declaration that listed key consensus-based political and judicial reforms with members of the main political parties, which is available to download here.

Prior to this, we produced a note (below) on ‘Innovations to ensure competent and honest political leadership’, authored by Carlos Montes and Stephen Brien with contributions from José Ugaz, Augusto Alvarez Rodrich, Elena Panaritis and Profs Patricio Navia and Jaideep Prabhu.

We also hosted two  virtual roundtable events, on 23rd March and 5th May 2021, entitled ‘Peru 200 years: Changes for a Good Political Leadership?’ You can watch the full event videos here and here. Speakers at the events were:

23rd March:

• Fernando Tuesta Soldevilla (ex-president of the High Level Commission for Political Reform) Video
• José Ugaz (ex-president Transparency International) Video
• Rosa Maria Palacios (journalist and lawyer) Video
• Augusto Alvarez Rodrich (journalist and economist) Video
• Carlos Montes (moderator, Legatum Institute)

5th May:

• Nano Guerra García (Head Government, Plan Fuerza Popular) Video
• Pedro Francke (Economic Team, Nuevo Perú) Video
• Elena Conterno (President IPAE) Video
• Augusto Alvarez Rodrich (journalist and economist) Video
• Carlos Montes (moderator, Legatum Institute)

In the coming weeks and months, the Legatum Institute will continue to support the consensus around political and judicial reform.

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Innovations to ensure competent and honest political leadership (originally published in March 2021)

[Note: A Spanish version of this policy commentary is available here / version Español aqui.]

Over the past 20 years, Peru has been one of the fastest growing economies in Latin America. Financial markets have regarded Peru as one of the best managed economies, as reflected in the decline of the spread of Peruvian sovereign bonds over US Treasuries (Figure 1). Moreover, the last two decades have seen Peru run competitive, free, and fair elections, unlike most other times in its history.

Yet, as it approaches its 200^th anniversary of independence, celebrations are on hold. The confidence Peruvian citizens’ express in their Government, politicians, the judiciary, and the police is among the lowest in the world (Figure 2). Despite free and fair elections, the political system serves the self-interest of narrow groups, rather than the population at large. Furthermore, corruption is ubiquitous and has become the engine of the political system. As a result, the Peruvian state continues to lack the requisite capacity to deliver public services efficiently, while large parts of the economy operate outside formal rules and regulations (the ‘informal economy’). In addition, much of the population still endures poor living conditions and lives in fear of crime.

Despite Peru’s strong macroeconomic performance and free and fair elections in the last couple of decades, the anniversary is being marked by three severe crises:

1. Political, with three presidents in one week, massive youth-led protests against the political establishment, and the last six presidents indicted or investigated for corruption.
2. Public health, with Peru among the most adversely affected countries in the world by the coronavirus pandemic in terms of mortality (deaths per million) and economic damage.
3. Corruption, exemplified by the ‘Vaccine-gate’ scandal, which saw 500 politicians and VIPs jump the queue to access Covid-19 vaccines, by the Lavo Jato case and by the mafia at high levels of the Judiciary uncovered by the ‘White Collars of the Port’ case.

The upcoming general election in April provides a unique opportunity for citizens and the political class to reflect on Peru’s challenges and to choose the path the country will take – should it continue the present path, with the accompanying risks of a return to the instability of the past, or instead should it seek a more effective state that acts in the interest of most Peruvians? The building of such a state would necessitate changes to the political system supported by a broad-based coalition.

1. Key challenge: pervasive corruption and ‘informal’ political parties

The return to democracy in 2001 ensured the formal separation of powers between the Executive (the President), the Legislature (parliament) and the Judiciary (the courts). However, these institutions have not had the capacity, nor the integrity, required to support the rule of law in a substantive way.

The weakness of the Judiciary results in a deference towards the Executive and Legislature, which enables the corruption of the political system and allows public officials to abuse their office to divert funds for their private benefit. The Comptroller General estimates that about 15% of total public expenditures is lost to corruption in Peru every year. This corruption is also carried out with impunity – for example, despite appearances of progress, the great Lavo Jato corruption scandal investigations have not been translated in substantial indictments. As a result of all this, Peruvians have very low levels of trust in the Judiciary.

Polls from Proetica in 2019 show that 62% of Peruvians consider corruption to be one of the most important problems in the country – second only to criminality. However, polls also show that, although 73% expect it to get worse in the next five years, a significant number of Peruvians express tolerance of corruption.

The weakness of the Judiciary and these public attitudes towards corruption create a permissive environment for corruption. The political system has become an ideal target for self-interested individuals to profit. Political parties have been replaced with informal political groupings that serve as temporary vehicles for political ‘entrepreneurs’ to run in an election, manoeuvring to win power to benefit personally from their electoral success and to reward their financial supporters. This informal political system is transactional, based on the buying and selling of political favours and positions, in the context of fluid political ideologies and loyalties.

The absence of strong political parties makes it easier for politicians to operate without the constraints of party discipline, such as complying with internal party rules, maintaining a focus on longer horizons, following a collective approach, keeping consistency with a political philosophy, or building broader and more stable political coalitions.

The outcome of this informal political system is a myriad of highly atomistic political parties, which revolve around personalities, with no organisational capacity to discipline political candidates, to produce solid government plans, to benefit from a strong technical team or capable legislators, or to maintain long-term political support.

In this environment it is more difficult for citizens to assess political options, as the party ‘brand’ does not convey much information. Furthermore, the parties do not represent structural sections of society, and therefore they are less durable. Presidential candidates can be elected based on electoral promises or ideologies that they do not need to follow once they win. Finally, it is also entirely possible for presidential candidates to win control of the Executive with no substantial representation in the Legislature.

This informality of political parties in Peru helps to explain several of the dysfunctional features of the political system, as well as the high levels of corruption and low state capacity outside the macro-economic area.

Some features of the electoral system contribute to further weakening the political system in Peru, including:

• the lack of internal party elections, which weakens internal democracy;
• large legislative constituencies, which weaken the links between parliamentarians and voters;
• the absence of sanctions for politicians who switch parties, which creates incentives for corruption and political instability; and
• weak links between the Executive and the Legislature, which leads to excessive confrontations between the two powers that disrupt policy making.

2. What can be done?

Peru’s economic growth and democratic continuity in the last 20 years is unparalleled in its 200 years of independence. However, the collapse of nearby Venezuela, once an investment grade-rated democracy, offers a stark warning. Like Peru, Venezuela had a strong economy and many years of democratic rule before descending into a severe crisis, in large part due to the failure of elites to respond to national problems.

The 200 years’ anniversary of Peruvian independence offers a unique opportunity for the nation’s elites and citizens to consider if they wish to continue with the existing informal political arrangements and a weak and corrupt Judiciary, or to introduce reforms so that the political system delivers leadership that focuses on the public interest, has integrity, and delivers competent management.

If a consensus is reached that changes in the political system and Judiciary are a national priority and that they should be implemented comprehensively, this will still be difficult to achieve as politicians who currently benefit from the informal political system are the same people that would need to legislate to change the system. In other words, turkeys would have to vote for Christmas.

Citizens will not relate easily to the need for political reform that increases the capacity and strength of political parties, especially given the poor reputation of politicians. However, it is important to make the case that people also dislike other intermediaries, for example estate agents, but still recognise that they are necessary. Paying commissions to estate agents and brokers is often the most effective way to buy a house and to obtain the best price. Similarly, the existence of well-functioning political parties with transparent funding is the best way to ensure that citizens select the most public-spirited and honest politicians and avoid the hidden costs of corruption in terms of misdirected public expenditure etc.

Peruvians also do not give much attention to the need for Judicial reform. Although their level of trust in the Judiciary is among the lowest in the world and their fear of crime is among the highest, in the minds of most these real-life issues do not appear to be directly connected to Judicial reform. However, it is important to help citizens realise that Peru will be able to provide public services, including crime fighting, efficiently and with minimal corruption, only if a competent, honest, and autonomous Judiciary is able to sanction those involved in corruption.

3. Innovations to ensure the emergence of competent and honest political leadership:

• Build broad citizens’ consensus for political and judicial reforms. This would help to engineer corruption out of state institutions and establish minimal conditions in which to build the Peru that most of the population wants. Unlike previous reforms, stakeholders would need to ensure that the implementation of reform goes beyond appearances and is sustained over time. Such reforms will succeed only if they are driven by the passion of leaders who have the patience needed to build strong and robust institutions.
• Reforms to strengthen the capacity and accountability of political parties to make them more trustworthy for voters. For example, ONPE could: (i) make it relatively easy to register new parties but harder to remain registered; (ii) require a minimal set of regulations that ensure transparency and minimise corruption opportunities – similar to those that apply to state agencies; (iii) require political parties to have a minimum capacity to monitor candidates and party members to ensure they follow internal rules; (iv) require political parties adopt internal democratic guidelines for the selection of their leaders – including allowing the general public to participate; and (v) link the level of public campaign financing to political participation of members.
• Reforms that support the capacity of and collaboration between the Executive and Legislative. For example, modify laws, when needed, to allow closer links between: (i) politicians and voters, for example by providing for smaller electoral districts – so that voters can become more familiar with those that they elect; (ii) the Executive and Parliament, for example by ensuring that some members of the Executive are selected from the Parliament; (iii) voters and political parties, by legislating that Parliamentarians that switch parties before the end of their terms are not allowed to continue in their seats; (iv) political parties and citizens, for example by tying public funding to levels of popular participation in internal party processes and strengthening oversight of private political funding.
• Reforms that deliver a competent and independent Judiciary that guarantees that everyone, including the state, is subject to the rule of law. The Judiciary needs to be independent as well as proactive in the defence of citizen’s rights. It needs strong institutional leadership to gain social recognition and respect and to attract the best legal professionals. Independence of the Judiciary is enhanced by the independent appointment of impartial, competent, and honest judges. This requires full transparency, with public vetting of named candidates before confirmation. Peru should also ensure impartiality by clearly defining length of term of office, security of tenure during the term, commensurate remuneration, adequate pension arrangements etc. To ensure the integrity of the Judiciary clear processes for disqualification and removal from office. The country should also consider broader participation in the appointment of Supreme Court judges.

This policy commentary is based on ongoing research into Peru’s governance by Stephen Brien and Carlos Montes from the Legatum Institute, in collaboration with leading Peruvian and international researchers. Contributions from José Ugaz, Augusto Alvarez Rodrich, Elena Panaritis, and Profs Patricio Navia and Jaideep Prabhu are acknowledged.