OPINION: Will Peru be the next country to abandon its market-friendly constitution?

Peru's new left-wing Prime Minister Hector Valer said on Tuesday that he supports amending the country's market-friendly constitution, a tactic actively pursued by left-wing regimes across Latin America to consolidate power.

"From the executive's side we've been fulfilling what the president promised during the campaign, which is to create a constitution-making moment for a new constitution," the new prime minister told reporters.

Valer, Castillo’s third prime minister in six months in office, is replacing Mirtha Vasquez, who resigned on Monday due to “potential acts of corruption or irregularities committed by officials at the highest level of this administration."

But his remarks are telling of a strategic shift in Peruvian politics and are perhaps indicative of Castillo’s intention to actively push for a constitutional referendum – a campaign promise that he has, so far, been reluctant to act on.

The new prime minister was elected as a conservative member of parliament in July, but quickly switched sides and joined a bloc that promotes constitutional reform – a process which he has said would take “at least” four years to accomplish.

And although markets have been weary of yet another cabinet shake-up, Castillo also named Oscar Graham – a London-educated technocrat who spent more than two decades at Peru’s central bank – to replace former Finance Minister Pedro Francke, who resigned on Tuesday.

The Andean country’s bonds and currency gained after Graham was sworn in as finance minister, calming the nerves of alarmed investors as the sol appreciated 0.9% in early trading on Wednesday, leading gains among Latin American currencies.

“The new cabinet isn’t radical, which was the fear,” said Juan Prada, a currency strategist at Barclays in New York.  

So while Castillo may very well begin to push a left-wing social agenda, he is still signaling to investors that his administration won’t implement abrupt changes to its economic model.

According to Rodolfo Rojas, a partner at Lima-based Sequoia political advisory group, “The presence of someone like Graham confirms that the president knows he can’t touch the macroeconomy” and his appointment “gives signals to the markets that Peru will maintain macroeconomic stability.” 

Although the political battle appears to be over for now, Peru’s increasingly unpopular president still faces multiple crises, including a catastrophic oil spill, the resignation of his interior minister on Monday and a surge in crime that has led to a state of emergency in Lima.