Capital Flight Worries Peru Despite Change of Government

In recent years, Peru has experienced a constant capital flight that has concerned financial analysts and wealth managers. Despite expectations of political stabilization with the change of government in early 2023, the trend of capital outflow has persisted, with an alarming figure of US$ 1,675 million leaving the country in net terms that same year, according to data from the Central Reserve Bank of Peru. The situation dates back to 2021, when the rise of Pedro Castillo as head of state triggered a historic capital flight amounting to US$ 17,161 million, followed by another US$ 3,654 million in 2022. Despite the apparent political stability in 2023, economic recession and bleak recovery prospects have led companies with international shareholders to refrain from investing in the local market. Jorge Espada, managing partner at Valoro Capital, highlights that the economic downturn and lack of growth have led many companies to repatriate their profits instead of reinvesting them in the country. Furthermore, political risk remains a concern, with disputes among the branches of government generating uncertainty and affecting the country's perception. On the other hand, the narrowing gap between interest rates in the US and Peru has incentivized capital outflows to more attractive markets, as well as the migration of corporate accounts abroad to take advantage of better financial conditions. Jorge Chavez, president of Maximixe, points out that the interest rate differential and political instability are key factors in capital migration. Although a smaller amount of capital inflow was recorded in the last quarter of 2023, the trend of capital outflow from Peru remains concerning, with a total of US$ 22,490 million leaving the country in the last three years. Experts agree that the evolution of capital flows will depend on various factors, such as decisions by the US Federal Reserve and the political and social situation in Peru. In this context, a challenging scenario is presented for attracting investments and retaining capital in the country. As the 2026 elections approach, it will be crucial to address the underlying causes of capital flight and work on measures to restore investor confidence in the Peruvian economy.