Over the past month, Peru’s president, Pedro Castillo, has faced the most difficult period of his short term in office. What began as a strike over rising fuel costs ended in at least six deaths, as clashes broke out at mass protests.
The anger at inflated fuel prices was compounded by the discontent of farmworkers, who have been mercilessly hit by rising fertiliser prices, which in turn led food prices to soar.
What’s more, Peru’s agricultural exports – including blueberries, avocados and grapes – are now being affected by supply disruptions.
All of this has exposed the country’s economic vulnerability and sparked a wave of demonstrations, strikes and road blockades. Teacher-turned-president Castillo unsuccessfully tried to contain the protests with a short-lived curfew imposed on the capital, Lima, which was lifted after a day following widespread defiance.
Castillo – a self-described “radical leftist” who has just survived a second impeachment motion in Congress, despite being in office only since July – has had to take severe financial measures in efforts to defuse the runaway inflation.
Whether these measures will be successful is yet to be seen. But how did Peru end up in such a drastic situation?
A war on the other side of the world
The Peruvian government has attributed the rise in fuel prices to the war in Ukraine. The decision by world leaders to isolate Russia from oil markets following Vladimir Putin’s invasion of Ukraine has caused the price of crude oil to soar.
For Peru – which, unlike Latin American countries such as Venezuela or Argentina, imports most of its oil – the impact has been particularly severe. To make matters worse, the soaring fuel costs hit just as Peru’s economy was beginning to recover from a pandemic that devastated the country. (Peru has the world’s highest recorded COVID death rate per capita.)
With such overwhelming price increases, it wasn’t long before protests spread across the country. Eventually, on 28 March, a group of Peruvian lorry drivers called a general strike, demanding cheaper petrol at all costs.
The drivers used their trucks to block roads, including key highways. In some regions, schools closed and returned to the e-learning of the COVID pandemic, due to fears it would be dangerous for children to travel (if they were even able to do so) during the unrest.
In an attempt to appease discontent, the government announced on 3 April that taxes on the most consumed fuels would be suspended until at least June. On the same day, a 10% increase in the minimum wage was approved, which will see monthly salaries raised from 930 soles to 1,025 soles ($280) from 1 May. The latter measure, however, will not help many people due to the high rate of Peru's informal economy, with around 78.1% of workers in informal roles.
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The war is also affecting food prices in Latin America, since Russia and Ukraine – sometimes called ‘the world’s breadbasket’ – account for 29% of global wheat exports and 19% of maize shipments. Shortages of these staple crops threaten to push millions of people around the world into hunger.
And because Russia is a large and low-cost exporter of all major types of crop nutrients, the cost of fertilisers has also not stopped rising since the beginning of the war – increasing by 16% to a 15-year high in March, according to the North American Green Markets. The price of the most widely used nutrient, urea, also rose by 22%.
All of this has left governments across Latin America trying to find ways to secure vital crop nutrients, as well as facing concerns regarding the accelerating global food inflation.
The situation is so pressing that, at a meeting of the UN Food and Agriculture Organisation last month, Brazil, the world's largest fertiliser importer, called for crop nutrients to be excluded from the sanctions imposed on Russia.
As an agricultural superpower and a leading exporter of soybeans, coffee, and sugar, Brazil relies on fertilisers to produce its food. It currently imports 85% of its fertiliser consumption – and Russia is its main supplier. If the war continues, it is likely prices of these products will increase and cause unrest among farmers, as in Peru.
The Peruvian protests highlight the effect the war – and the subsequent price rises – is having on Latin America. The conflict could yet take any direction and there is a risk that it could worsen due to strategic failures by either side. Faced with a possible new cold war, it would be difficult for Latin America not to align itself with one side or the other, knowing that any decision will have costs and consequences.
But even if a long, drawn-out conflict is successfully averted, the reliance of many of the region’s countries on other nations has been exposed. Their leaders must now take action to ensure they are less vulnerable to possible future geopolitical or natural crises.