Peru's Congress repealed a new labor law on Monday after thousands took to the streets to protest the legislation that cut benefits for young workers, part of reforms aimed at reviving the economy.
Demonstrators chanted "victory!" and banged drums after hearing the news that lawmakers, including eight from President Ollanta Humala's party, had approved repealing the law in a vote of 91 to 114.
The reversal dealt a blow to Humala's pro-business measures in the midst of the worst economic slowdown in five years.
Late on Friday, in a rare speech to the nation, Humala defended the law, arguing that nearly two million young people toiling in the informal economy would receive labor rights as a result of it.
Critics derided the law as unconstitutional and discriminatory and said it would encourage employers to phase out older workers to cut costs.
The reform would have allowed employers to give workers aged 18 to 24 half the amount of vacation time mandated by law.
Companies would also not have to pay fees for unemployment funds for young workers or the twice-yearly bonuses other employees enjoy.
Worries that unrest would break out at Monday's protest helped drag the local sol currency to a new five-year low against the U.S. dollar, traders said.
The legislative defeat highlighted Humala's waning influence over Congress, where a fresh defection from his party on Sunday transformed an opposition group into the biggest voting bloc.
The ruling party's coalition Gana Peru now holds 34 of the 130 seats in the single-chamber Congress, one less than a group affiliated with jailed former president Alberto Fujimori.
Sergio Tejada, a prominent politician and the 13th lawmaker to abandon Gana Peru, quit to protest the labor law.
"It's too bad," Humala told reporters when asked about Tejada's defection. "I regret this young congressman acted in that way ahead of an electoral year. It doesn't look good."
Peruvian law bars presidents from holding office for consecutive terms.
Twice last year, Humala struggled to find enough votes in Congress to ratify his picks for new prime ministers.
Humala has also been battered in recent weeks by allegations of government spying on political opponents and the fleeing of his former campaign manager to Bolivia amid corruption inquiries. Humala has denied wrongdoing related to both scandals.
Humala's approval rating fell five percentage points to 25 percent in January, one of the lowest of his term, an Ipsos poll found.
"It is clear that the government will continue to deteriorate," said opposition lawmaker Mauricio Mulder.