Peru's new Marxist PM says 'don't worry' as chances of radical policy shift rise

FILE PHOTO: Peru's President Pedro Castillo walks out the Congress after his swearing-in ceremony, in Lima, Peru July 28, 2021. REUTERS/Angela Ponce/File Photo

LIMA (Reuters) -Peru's newly appointed hard-left prime minister sought to soothe worried markets on Friday after President Pedro Castillo named members of his Marxist Free Peru party to key cabinet posts, sending both bond markets and the country's currency tumbling.

Guido Bellido, a hardliner from the Andean city of Cuzco who is little known in Lima circles, was named prime minister on Thursday, scuttling investor hopes that Castillo would choose moderate advisers and sending an immediate chill through markets.

Castillo also tapped Ivan Merino, a little known mining specialist close to Free Peru, to oversee the sprawling metals industry in the world's No.2 copper producer. Castillo, a self-described Marxist-Leninist, campaigned on promises to hike taxes on miners to underwrite health and education reforms.

Markets remained on edge throughout the day Friday as investors anxiously awaited Castillo's choice for the key finance minister position. Most of the rest of the cabinet had been sworn in on Thursday.

"Don't worry. Everything's going to be fine," Bellido said in brief comments to reporters early in the day.

Investors were not reassured The local sol currency fell 3.6% to an all-time closing low of 4.068 to the dollar. Peruvian sovereign bonds plunged and the country's benchmark stock index was also on track to close at its lowest since November.

Castillo, inaugurated on Wednesday, took to Twitter in the early hours of Friday to defend his new government.

"Our cabinet belongs to the people. It answers to the people," Castillo wrote.

"Our commitment is to Peru and to no other interest than to dedicate each and every one of our efforts to build a more just, free and dignified country. We will not disappoint your trust."

Investors are growing wary about Peru's prospects under Castillo, who won last month's election against conservative Keiko Fujimori by a razor-thin margin. After a campaign in which his pledges to distribute wealth more evenly had spooked investors but won him votes from Peru's rural poor, he had in recent weeks appeared to take a more moderate tack.

Political wrangling between the radical leftwing arm of his Free Peru party and more centrist allies followed his win. Sources close to Castillo before his swearing-in had said the economy minister role would likely go to Pedro Francke, a moderate left-leaning economist who had helped soften the outsider candidate's image.

(Reporting by Marco Aquino, writing by Hugh Bronstein and Dave Sherwood,Editing by Marguerita Choy and Rosalba O'Brien)

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