Toledo's approval rate is 11%
Beatriz Merino replaces Luis Solari, who resigned last Monday along with the rest of the cabinet.
The move had been widely expected after the Peru Posbile Movement legislators last weekend refused to approve a tax hike to pay striking teachers, a measure that had the unanimous support of the cabinet.
Toledo, whose approval rating is at a rock-bottom 11%, swore in Merino and the rest of the cabinet, which included 10 returning ministers and six new ones, on Saturday.
Toledo said he had become disconnected from regular Peruvians while focusing on economic matters and vowed to regain their confidence.
The President said he would now take responsibility for “winning back the faith and lost hopes of Peruvians”.
“I have great expectations of working together and sharing power with Dr. Merino,” said Toledo.
The President’s openness came after a crisis week in which members of the opposition suggested he should be replaced before the end of his term in 2006.
The first Peruvian of indigenous origin elected democratically in the county’s history, Toledo faces allegations of frivolous conduct in an impoverished nation, loss of support in the legislature, and a small-scale resurgence of the Maoist Shining Path rebel group.
No political novice
Merino is no stranger to politics. She was a Senator from 1990 to 1992, when then-President Alberto Fujimori disbanded Congress. She later served again in Congress from 1995 to 2000 as a member of the opposition independent Moralist Front.
Earlier in his presidency, Toledo had appointed Merino head of the National Superintendent of Fiscal Administration, a key post in a country where fraud and corruption are rampant. In this post her popularity grew.
Merino also served as Director of an Inter-American Development Bank programme for the advancement of Latin American women.