Living in Peru : your everyday companion

The good path and growth of the Peruvian economy in the region is highlighted by the financial columnist of the prestigious US daily The Wall Street Journal, Mary Anastasia O'Grady.

In the article named "Peru's Born Again-Free Marketeer", the American journalist claims that the Peruvian economy is growing very fast and that President Alan Garcia is trying to promote the country to investors with good arguments due to annual growth of over 6.2 percent in the last six years.

Therefore, the columnists argues that "Peru has prospered by their competitiveness, something unimaginable a decade ago". It is a miraculous growth considering that the country was affected by decades of poverty and violence.

After sustaining an interview with Peruvian President, the columnist said that Garcia speaks the language of someone who was reborn with liberal economic principles and upholds the markets as a way to reduce poverty.

O'Grady also noted that Peruvians are finding their comparative advantages in markets around the world in various sectors in the mining industry, including manufacturing, textiles and agriculture.

This is the result of a fundamental change in the economic model of Peru, as Garcia preaches, in order to insert the country into the global economy, open their borders to investment and ensure fiscal and monetary stability in the country.

According to O'Grady, the Peruvian president acknowledged that many of their neighbors are not courting investors, which benefits Peru.

The president, says O'Grady, that the country has had a significant rate growth over the past three years, increasing from six percent to nearly eight percent and then nine percent per year.

"This year we hope to maintain the highest growth rate and the lowest level of inflation in South America," said García.

The article stresses that Garcia argued that his role as leader is to persuade people to be open to all possibilities of investment and, with this, decentralize economic activity so as to create more jobs.

García believes that Peru has to reduce the cost of being part of the formal sector. Without such changes, the country will continue with what Garcia has agreed to call the "slavery of the twenty-first century".

News source: ANDINA

Living in Peru
Israel J. Ruiz


In an effort to push the country forward, Peru's government granted regional authorities billions of soles in 2007.

Unfortunately, only half of this money has been put to use.

According to local press, "it has been raining millions" but there is little to show for it.

The 25 regional governments across the country were granted 10 billion soles in 2007 but only invested 51.4 percent of the funds.

In 2008, another 15 billion soles have been granted to theses regional governments.

If we add the 5 billion not spent last year, which have to be invested by July, to the 15 billion that have been granted this year - regional governments have 20 billion soles to spend, said congressman Juan Carlos Eguren.

Regional governments will be able to do four times as much in 2008 as they did in 2007, Eguren told El Comercio daily.

The statistics for the way regional governments were spending funds were provided by a board in charge of supervising the investments made by governors and their administrations across the country.

The board also revealed that Peru's central government was investing even less than regional governments.

Ministries such as the Ministry of Justice, the Ministry of Foreign Affairs, the Ministry of Foreign Trade and Tourism have all invested less than fifty percent of their funds.

On the other hand, it was reported that the Labor Ministry as well as the Ministry for Women and Social Development had spent from 85 to 98 percent of their funds.

Living in Peru
Israel J. Ruiz


The U.S. dollar's value continues to increase in Peru and around the world. It was valued as high as 2.865 soles on Tuesday afternoon.

According to stockbrokers in the Andean country, the dollar's value was boosted today not because of decisions made by the Central Reserve Bank of Peru, but because their is a higher international demand for the U.S. currency.

Outside Peru, the dollar has jumped to its highest level in three weeks against the euro and gained versus the Norwegian krone the Japanese yen and the pound as well.

This has been attributed to speculation the Federal Reserve will stop decreasing interest rates.

One factor within Peru that has contributed to the dollar's increase in value is the Central Reserve Bank's announcement to raise the reserve requirement on non-resident's bank accounts.

This and an external demand have brought the dollar to a 7-week high in the Andean nation.

In other reports, economists revealed that inflation for April would be as low as 0.39 percent, less than inflation in March 2008, which was registered at 1.04 percent but higher than April 2007, when it was at 0.18 percent.

The rise in prices has been attributed to higher demand.

Living in Peru
Israel J. Ruiz


Credit cards continue to be increasingly popular in Peru.

According to the country's Banking Association (ASBANC), the Andean country's people ran up over 7 billion soles in debt in the first three months of 2008.

When compared to the first three months of 2007, a 27.91 percent increase was registered.

This increase can be seen when compared to the same period last year and when viewing Peruvians spending habits over the past 12 months. It was reported that the use of credit cards in the country had increased for the past twelve months.

Consumers have used credit cards over 25 percent more in the first three months of 2008 than in 2007, while small businesses have used them over 47 percent more this year than last.

According to reports, consumers account for over 82 percent of credit card use in the country, while approximately 15 percent of use is attributed to small companies.

The number of credit card holders has also increased in Peru.

More than 5.3 million credit cards have been issued in the country, over 600,000 more when compared to the first trimester of 2007.

ASBANC reported that the number of credit card holders that were behind on payments had decreased to 3.53 percent in 2008.

Living in Peru
Israel J. Ruiz

After falling to its lowest exchange rate in over a decade, the U.S. dollar has regained this week some of the value it has been losing for the past year in Peru.

To keep the U.S. currency's value from dropping to dangerously low levels, the country's government and the Central Reserve Bank (BCR) have tried everything from slashing taxes and raising interest rates to purchasing over $8.7 billion in the past several months.

The latest move to raise the reserve requirement on non-resident bank accounts by Peru's BCR has proven to be the most effective measure yet.

Since plans to hike the reserve requirement on non-resident accounts from 40 percent to 120 percent were announced this week, the dollar-sol pair has gone from trading at 2.69 to approximately 2.8.

On Wednesday afternoon, the U.S. dollar shot up to a 6-week high of 2.82.

According to economist Javier Zuñiga, the dollar's increase in value is not a trend but a momentary effect of the BCR's recently announced decision to raise reserve requirements.

He assured that the exchange rate would stabilize itself when short-term investors took their money out of Peru.

In 2007, one dollar was traded for as much as 3.5 nuevo soles. In 2008, it dropped below 2.7 soles for every dollar.

Living in Peru
Israel J. Ruiz

Despite an obvious increase in the price of products over the past several months, especially food, Peru has a considerably low inflation rate, said experts.

According to Renan Quispe, the head of Peru's National Statistics Institute (INEI), Peru has one of the lowest inflation rates in the region.

Quispe assured it was not surprising that the Andean nation's consumer price index rose 1.19 percent in March, stating that inflation was much lower than countries such as Venezuela or Bolivia.

Inflation in Metropolitan Lima has increased 5.55 percent over the past 12 months, said Quispe, citing a study carried out by INEI.

He assured that this was much lower than Venezuela's inflation rate, registered at 29.10 percent and Bolivia's, registered at 14.08 percent.

These two countries are followed by Argentina (8.81%), Chile (8.51%) and Ecuador (6.56%).

According to the INEI study, the only two countries in the region ahead of Peru were Brazil and Mexico, with inflation rates as low as 4.73 and 4.25 percent respectively.

Peru's Central Reserve bank explained that inflation was currently a global phenomenon, stating that it was being fueled by an increase in the cost of imported products such as maize, soy, oil and petroleum.

Living in Peru
Israel J. Ruiz

Peru's real estate explosion over the past few years and the approval of a massive number of mortgage loans, especially in the country's low-income sectors, has worried a real estate association in the country.

According to Augusto Peñaloza, president of the Asociación Peruana de Empresas Inmobiliarias, there is a concern that Peru is headed towards the same mortgage loan crisis the U.S. is experiencing.

Peñaloza argues that loans have been granted to people that cannot guarantee long-term payments, explaining that it is not just because of them but because of the country's volatile situation.

"I see a lot of long-term commitments but there is also long-term instability as well, and this is because there is always a political juncture in the country that can cause an unexpected change of plans in obligations as well as financial and work conditions," said Peñaloza.

For example, Peñaloza explained that no one could guarantee that a 40-year-old person who committed to paying a 15-year loan would actually be able to do so in the next 10 years because their income may not be the same.

"The agreement would collapse and the property bought would go back on the market," said Peñaloza, stating that this would create a crisis if it happened on a large scale.

Enrique Espinoza, on the other hand, assured that there was no reason to believe that a crisis was ahead, explaining that the Peruvian real estate market was still young and growing.

The president of one of CAPECO's committees explained that the U.S. and Peru were two very different cases.

In addition, ASBANC, Peru's Bank Association, affirmed that the loan approval process in the country was very strict and not just anyone was approved, thus, eliminating the possibility that a crisis would erupt because borrowers would not be able to repay loans.

Banks in Peru approved over 8.2 billion soles worth of mortgage loans in February 2008, 14 percent higher when compared to the same month in 2007.

Rafael Rey: Peru will surpass Chile economically due to investment grade

Peru will surpass Chile economically in a medium-term, after being upgraded to the investment-grade category (BBB-) by the international credit rating agency Fitch Ratings, stated today the minister of Production, Rafael Rey. “Both Peruvian and foreign businessmen must take advantage of this situation in order to increase their investments, because this is a recognition to Peru's economic and legal stability”, he explained. (ANDINA - click here to read complete article)


Investment-grade rating is due to Peruvians' efforts, says Adex

The Peruvian Exporters' Association (Adex) emphasized that the main reason why Peru has been upgraded to investment grade (BBB-) by Fitch Ratings is due to the 70 consecutive months of growth despite an unfavorable international economic environment. José Luis Silva Martinot, head of the Peruvian Exporters' Association, said he was delighted with the Fitch Ratings news and envisaged that this investment-grade category would bring in more foreign investments to the country that would create more jobs and livelihood opportunities. (ANDINA - click here to read complete article)


Australia praises Peru's investment grade status

The investment grade category assigned to Peru by Fitch Ratings was praised in the conference “Excellence in Investments: Latin America” held in the city of Sydney, where several businessmen, bankers and senior officers from Australia’s private sector participated. The Peruvian ambassador to Australia, Claudio de la Puente, highlighted Peru’s economy and stability achieved in the region. (ANDINA - click here to read complete article)

Living in Peru
Israel J. Ruiz

The final draft of the free trade deal between Peru and Canada is to be signed on May 31.

The pact, which is aimed at boosting trade and investments between the two nations, will be signed during a meeting held between foreign trade ministers, announced today Peru's Ministry of Foreign Trade.

The meeting is to take place in Arequipa and will be a part of the Asia-Pacific Economic Cooperation (APEC) forum, an annual summit which fosters trade and investment between Pacific Rim countries.

After Peru and Canada came to an agreement, trade negotiations between the two countries officially came to an end in Davos, Switzerland on January 26 when the Canadian and Peruvian Ministers of Foreign Trade signed documents that concluded the discussion stage.

Due to the trade pact's complexity, it must now be legally revised.

It was reported that the legal revision of the document would take place in Washington D.C. from April 7 - 12. International representatives are to be present at the meeting.

'Peru's public finance and external account performance once again exceeded expectations, contributing to a better than anticipated improvement in the sovereign's financial ratios.

As a result, most of Peru's financial indicators are now stronger than the median for low investment grade credits.

Furthermore, it is important to highlight an incipient structural shift in the drivers of Peru's economic growth, as the most dynamic growth rates now stem from the non-primary sectors,' said Paiz-Fredel.

Fitch upgraded Peru's long-term foreign currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+' and its long-term local currency rating to 'BBB' from 'BBB-'. The Rating Outlook on these ratings is Stable. Fitch also upgraded Peru's short-term IDR to 'F3' from 'B' and its Country Ceiling to 'BBB' from 'BBB-'.

Official press release