Political turmoil in Peru

This is an audio transcript of the FT News Briefing podcast episode: ‘Political turmoil in Peru’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, December 8th, and this is your FT News Briefing.

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The bond market is showing that the US economy is in for a bumpy ride. Peru removed its president yesterday and swore in a new one. And the German authorities uncovered an attempt to overthrow the government. Plus, your holiday shopping list might be in better shape this year. US supply chains have done a U-turn since last holiday season. I’m Marc Filippino and here’s the news you need to start your day.

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There’s another sign the US could tip into an economic recession. The yield curve is the most inverted that it’s been since 1981. The yield curve is a chart that shows interest rates from short-term bonds to long-term bonds. In this case, the two-year and the 10-year. When the curve is inverted like it is right now, it means yields on short dated bonds are higher than yields on longer dated bonds. Short dated Treasury yields reflect expectations of where interest rates will be in the future. And investors right now keep selling Treasuries because they think the Federal Reserve is going to keep aggressively raising interest rates to fight inflation. And that could drive the economy into a recession.

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Peru’s Congress voted to impeach President Pedro Castillo yesterday and then swore in a new president. This all came after Castillo announced that he was going to temporarily dissolve parliament. Here to talk more about what this means for the country is the FT’s Joe Parkin Daniels. Hi, Joe.

Joe Parkin Daniels
Hi, Marc. How are you?

Marc Filippino
First of all, what were the impeachment proceedings about? Why was Castillo ousted?

Joe Parkin Daniels
The impeachment charges were brought against him for moral incapacity and for corruption allegations brought against him by the opposition, who have been out to get him really since he took over, since he took office in July 2021. This is the third impeachment attempt that they brought against him, and it wasn’t clear that the impeachment would have worked. In fact, the general feeling was that this impeachment process wouldn’t have gone through, that the opposition wouldn’t have the votes to bring him down. But he took this extraordinary step of announcing that he was dissolving Congress, which then brought everything to the fore, and that then swung Congress against him almost entirely.

Marc Filippino
So Peru has a new president now, Dina Boluarte. She’s the country’s first female president. What can you tell us about her, Joe?

Joe Parkin Daniels
Well, she was obviously Castillo’s vice-president and therefore comes with the baggage of being a member of the Castillo administration, an administration that was constantly dubbed with scandal. And that scandal will follow her and that will lead her into problems with Congress, which will remain the same make-up, being opposition-led, and will essentially lead to a showdown. We just have to wait and see when that will be.

Marc Filippino
Now, what are you looking out for in the coming days and weeks?

Joe Parkin Daniels
The crisis that came to its head yesterday, that only resolves the kind of chapter of which Castillo is the protagonist. The issue going forward is that Dina Boluarte now lacks legitimacy somewhat. She was not at the top of the ticket. And even then Castillo only won very narrowly last year. So there will be calls for elections pretty soon. I think that’s the next kind of phase. The legitimacy crisis is not just in the executive, but also in Congress. Congress is viewed very unpopularly. The last major Ipsos poll, then President Castillo was polling at something like 24 per cent, whereas Congress at 18 per cent approval. So there’s a governance crisis really that is going to continue.

Marc Filippino
That’s the FT’s Andean correspondent, Joe Parkin Daniels.

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Now a story about political intrigue in Europe. German police this week uncovered an alleged rightwing plot to overthrow the government. Officers arrested 25 people in raids across Germany, Austria and Italy. The alleged conspiracy was to storm Germany’s parliament, the Bundestag, and install a new government. The FT’s Guy Chazan has more on this.

Guy Chazan
The plans were apparently quite advanced and they had some very sort of influential people supporting them, including a former Bundestag MP who apparently would have been the justice minister of the new government because she was an MP or had been. She would have helped them actually enter the Bundestag where they intended to arrest MPs and lead them in handcuffs out of the plenary hall.

Marc Filippino
So Germany’s attorney-general said that the 25 people who were arrested are accused of being members of or supporting a domestic terror organisation. How long has this alleged plot been brewing, Guy?

Guy Chazan
I mean, the background to this is that Germany has, for many years, had a movement called the Reichsbürger, which means sort of, you know, “citizens of the empire.” This group is a rather peculiar, kind of eccentric group of people who don’t recognise the authority of the Federal Republic of Germany. They refuse to, you know, get German passports or driver’s licence or whatever because they just don’t recognise the authority of the state. And they’ve always been considered a rather kind of comical, sort of ridiculous and eccentric band of people. But it does seem that they’ve become increasingly radicalised and this investigation shows that they are actually quite organised as well. They have links to the security services or at least former members of the security services. And they’ve been plotting to overthrow the government.

Marc Filippino
That’s the FT’s Berlin bureau chief, Guy Chazan.

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Last holiday season, supply chains were an absolute mess. There were shipping delays from China, a shortage of truckers and very little warehouse space. It got US retailers worried that they’d be left with empty shelves, and many consumers were frantically tracking orders, hoping they’d arrive on time. But it’s a whole different story this year. Those disruptions have eased. The FT’S US business editor, Andrew Edgecliffe-Johnson, looked into this and he joins me now. Hi, Edge.

Andrew Edgecliffe-Johnson
Hi, Marc. Thanks for having me on.

Marc Filippino
All right. So Edge, what has changed since last holiday season?

Andrew Edgecliffe-Johnson
Essentially, the inflation that has been the biggest economic story this year and which was partly driven by the rising costs in those supply chains has started to bring down consumer demand and business demand. And that means that those supply chains, which are operating a little bit more easily right now, are better able to cope with demand. And what we’ve seen as a result is dramatic reductions in the cost of shipping goods from factories on the other side of the world to your local store. So the spot rates for shipping from Asia to West Coast ports are down 87 per cent year on year. The cost of airfreight has halved, and the Biden administration and Congress intervened to make sure that a rail strike, which could have cost the US economy about $2bn a day, did not happen. So suddenly, supply chains have gone from a highly inflationary factor to a rather deflationary factor.

Marc Filippino
All right, so prices are coming down. What about workers’ wages? They increased during the pandemic. Have they been affected by supply chains getting untangled?

Andrew Edgecliffe-Johnson
So that is one piece of inflation which is looking pretty sticky in the supply chain. There is still a shortage of labour. It’s not as acute as it was last year, but if you’re running a trucking company or a warehouse, it is still quite hard to get the number of people you want. I spoke to the head of DHL’s North American supply chain operations, who was saying he’s only hiring about 15,000 people to help with the surge in holiday work this year, down from 20,000. But he’s actually adding about a third as many robots as he was using last year to work with them because the cost of labour, which is up about $3 to $5 an hour to about $20 an hour, is not coming down. And so that changes the return on investment on automation, instead of employing more humans.

Marc Filippino
All right. So are we done? Are we no longer concerned about supply chain issues?

Andrew Edgecliffe-Johnson
We are still very much watching supply chain issues. And even as the Fed is talking about an easing of supply constraints in its outlook for inflation, it is obviously very, very watchful of any inflationary pressures in corporate America. The one big question mark out there, the one cloud on the horizon, is what happens next in China. And we’ve seen disruptions because of protests over the zero-Covid strategy. And there is a real question now, a very live question, about whether China’s response to these protests, which may involve opening up more, leads to surges of infections and therefore more shutdowns, which could lead to more disruption.

Marc Filippino
That’s the FT’s Andrew Edgecliffe-Johnson.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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