Peruvian Congress shelves Vizcarra's proposal for snap election, markets rattled

LIMA (Reuters) - Peruvian opposition lawmakers shelved a snap election proposal from centrist President Martin Vizcarra on Thursday, knocking the country’s sol currency and setting the stage for a new bout of political upheaval in one of Latin America’s most stable markets.

FILE PHOTO: Peru's president, Martin Vizcarra, speaks during the 4th Pacific Alliance Summit in Lima, Peru July 6, 2019. REUTERS/Guadalupe Pardo/File Photo

Vizcarra had proposed holding general elections a year earlier than scheduled to end an impasse with the opposition-run Congress over his proposed anti-graft reforms. He cannot run again due to term limits and has said he wants to clean house to rebuild trust with voters after back-to-back corruption scandals roiled the country in recent years.

Lawmakers with the right-wing opposition said they would not be strong-armed into passing legislation they disagreed with.

Under Peru’s constitution, Vizcarra can now opt to summon a vote of confidence over the dispute. If denied, he would have to dismiss his entire Cabinet but could dissolve Congress in response.

“We will not sit with our arms folded,” Peruvian Prime Minister Salvador del Solar told a news conference, flanked by the rest of Vizcarra’s Cabinet in a show of force.

“We’re going to act with the authority and the strength that the constitution gives us,” he added, without offering additional details.

The comments suggested a vote of confidence was afoot.

Peru’s sol currency depreciated 1% against the dollar after the bill was scuttled, traders said.

The showdown threatens to slow lawmaking in the world’s No. 2 copper producer, where investor confidence and economic growth have already faltered on the U.S.-China trade war.

Some opposition lawmakers played on those fears, urging Vizcarra to give up the proposal and try to work with them.

“Today more than ever, the country needs calm,” said opposition lawmaker Marisol Espinoza. “Investments are leaving the country. People can’t plan their lives.”

The president of Congress, Pedro Olaechea, said the opposition continues to “extend its hand” to Vizcarra.

Vizcarra, a former vice president who took office last year after his predecessor resigned in a graft scandal, has surprised Peru’s political and business elites by aggressively pushing reforms to uproot corruption, undeterred by having just five ruling party lawmakers in the 130-seat chamber.

Vizcarra’s confrontational stance with Congress has won him support among ordinary Peruvians, who often greet him on the street with shouted calls of support for him to close Congress.

But hardline opposition lawmakers on the right have accused him of overstepping his constitutional bounds.

Vizcarra has already pushed through a law that bans the re-election of lawmakers, giving the current Congress little incentive to heed a recent Ipsos poll that shows 78% of Peruvians favor early elections.

Many political analysts expect the Constitutional Court, six of whose seven members are due for reappointment by lawmakers, will eventually have to take sides in the dispute.

Supporters of Vizcarra’s early-election proposal accuse the opposition parties of trying to cling to their salaries and constitutional immunity from prosecution to shield them from ongoing corruption probes.

“These are dark hours for democracy and this must be denounced. The entire citizenry needs to head to the streets,” to protest, said leftist lawmaker Marco Arana. “The fight against corruption is in danger.”

Reporting by Marco Aquino in Lima; Additional reporting by Maria Cervantes in Lima; Writing by Mitra Taj; Editing by Chizu Nomiyama and Matthew Lewis