MILA opens amid Peru election tumult


By Stephen Kurczy
Special to

LIMA, PERU – If anyone knows how the local and international business community feels about today’s launch of the the Mercado Integrado Latino Americano (MILA), which officially merges the stock markets of Peru, Colombia, and Chile, it’s Aldo Defilippi.

Outside the Lima Stock Exchange. Today Colombia, Peru and Chile exchanges officially begin phase one of their merger. (Photo by Nathan Paluck)
Aldo Defilippi, head of the American Chamber of Commerce of Peru, says the stock merger is part of "steps in the right direction" for Peru’s economy. (Photo by Stephen Kurczy)

The executive director of the American Chamber of Commerce of Peru upholds the interests of some 580 local and international member companies.

MILA by itself will not change investor sentiment on Peru, he says, but it is part of a number of recent pro-market initiatives – such as Peru’s establishing a new economic bloc called the Area of In-depth Integration with Mexico, Colombia, and Chile – that have improved the market climate here.

“These are efforts that each by itself is not that significant, but are steps in the right direction,” he told during an interview at his office in Lima.

With a $650 billion market capitalization that is second regionally only to Brazilian bourse Bovespa’s $1.6 trillion, MILA promises to increase liquidity in Peru and provide new places for the rising middle and upper classes to put their money.

That’s certainly welcome news to the businesses and investors, but many have other concerns with Peru. MILA’s launch is a rare piece of good news for local businesses and international investors amid a tumultuous election cycle, regarding which Defilipi has received a number of concerned calls.

“In general terms, the companies don’t have a preference for one candidate but a preference for what each candidate should do,” he said.

And what should that winning candidate do? Continue the macroeconomic policies of the previous two administrations that helped GDP grow 8.8 percent in 2010, Defilippi said, and also support MILA.

“Right now, in this election climate, everything people talk about is the election,” agreed economic analyst Sebastian Guevara of Apoyo Consultaria. “It’s taking all the attention right now.”

The beefed-up bourse will give Peruvian companies a new way to raise capital by allowing Chilean and Colombian brokers to invest directly in the Lima stock exchange, and vice-versa, eliminating fees and hoops.

“The real economy has already shown Chilean and Colombian investments in Peru with companies listed in Bogota or Santiago,” said analyst Hector Collantes of Apoyo Consultaria. “The MILA brings closer to the market the opportunity to gain exposure to Peruvian consumption investment vehicles via those companies listed in Bogota and Santiago.”

The Lima exchange sees daily trading volume of $30-40 million, and hopes to see that increase by 20 percent with the merger. (Photo by Nathan Paluck)
Keiko Fujimori and Ollanta Humala at the debate one week before June 5 elections. (Photo: Transparencia)

With 248 companies listed, the Lima exchange is the largest by number yet still the smallest by market capitalization, at $83 billion at the end of April, according to the World Federation of Exchanges. The Santiago stock exchange had $343 billion among 230 companies at the end of April while the Colombia exchange had $217 billion among 83 companies.

Lima’s relatively tiny stock exchange sees normal daily trade volume of $30 million to $40 million, but the bolsa’s press office said trading volume is expected to grow 20 to 25 percent as a result of the merger.

“There is a lot of interest from Chilean and Colombian investors to acquire mining and junior mining stocks listed on the Lima exchange. This will allow an increase in liquidity,” the press office told

Apoyo Consultaria’s Guevara said MILA won’t resolve the market imbalance in Peru. “There’s a lot of money that could be invested, but not enough instruments to invest in Peru,” he said.

Neither presidential candidate Keiko Fujimori or challenger Ollanta Humala has commented on MILA. Right-leaning Keiko is considered more open to such pro-market initiatives, while the left-leaning former Army captain has in the past shown hostility toward international investors and proposed government controls over corporate mergers.

At one point Sunday night during their final debate before the June 5 run-off election, the daughter of imprisoned former President Alberto Fujimori looked over at her political opponent and said, “I want to tell all Peruvians: right-left, rich-poor … I won’t allow foreign interventions.”

Humala, for his part, said during the debate that he would “promote investments, judiciary stability, and social peace. We need to resolve pending social issues.”

The Lima stock exchange plunged in April when Humala won the first round of voting, but it soared May 26 when Lima-based polling firm Datum showed Fujimori leading with 52.9 percent support. An Ipsos Apoyo poll released Sunday showed them in a virtual tie, with Fujimori leading with 50.5 percent to Humala’s 49.5 percent among the pool of valid votes.

Apoyo analyst Collantes said “the recent elections have given the opportunity of a left wing candidate to be elected and capital flights are starting to be a concern.”

The market fluctuations may also be the business community’s way of saying it won’t easily let go of hard-fought battles over pro-market initiatives in recent years.

That’s something Defilippi knows all to well.

To drum up support for the 2009 U.S.-Peru free trade agreement, the head of AmCham Peru organized 18 missions to Capital Hill in Washington, made 325 visits to US congressmen, and brought the general managers of five major US companies to Peru.

Gesturing at a framed photo on his wall of President George W. Bush signing the free trade pact on Jan. 16, 2009, Defilippi said, “I was sitting back here in the room.”

On another wall of his office is a framed portrait of Bush with a personal note thanking Defilippi for a book on Machu Picchu given during his late 2008 visit to Peru.

While Defilippi obviously had a soft spot for the Republican president, he declined to formally endorse Keiko or Humala and said it’s premature to predict how either candidate would perform.

Other analysts agree.

“If Humala is elected and he chooses to follow the path of Lula in Brazil, I don’t see any problems,” said Guevara of Ipsos Consultaria. “If Keiko wins and she runs a moderate government, if she doesn’t do all the things that people fear like release her father from jail, she could also bring further growth in Peru. It depends a lot of what they say they will do and who they appoint.”

To be sure, many Peruvians want more social services and a share in the riches of recent economic growth, a key part of Humala’s platform. Yet nobody wants that economic growth to end.

“It will make a big difference who wins, but I don’t think Peru will totally turn against market policy,” added Guevara. “A large portion of voters want a bigger state and better services, but they do not want a return to the policies of the 1980s.”

Stephen Kurczy is former Latin America editor for The Christian Science Monitor now covering finance for Debtwire in New York City.