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Exclusive: Humala pledges fresh currency action

Mar 1, 2013

Peru will press ahead with measures to protect its currency from any rapid appreciation that could threaten its export sector, the country’s president Ollanta Humala has told LatinFinance in an exclusive interview.

"We are a dynamic economy and we are concerned about the strengthening of the sol and the depreciation of the US dollar," he said, in his most extensive interview with the foreign press since taking office in 2011.

Humala, who has been named Man of the Year by LatinFinance, acknowledged that while central bank intervention this year has helped stem the currency's rise, authorities must remain watchful of renewed upward pressures as strong inflows of capital continue entering Peru.

"We are also trying to create a capital market in soles in which the finance ministry will intervene with measures to avoid the arrival of short term capital," he said.

Authorities are prepaying $1.68 billion in multilateral debt as part of a broader effort to weaken appreciation pressures.

Humala's comments also come in the wake of aggressive action by the central bank that has led to a 1.9% decline in the currency since January 1. The monetary authority has hiked dollar reserve requirements and stepped up its sterilized dollar purchases in the foreign exchange market.

Diversifying the country's export base away from raw materials is a top priority of his administration, Humala said. He stressed the need to shift the economy towards exporting non-traditional goods, which he says already account for 30% of total exports.

"Peru is basically a raw materials exporter and our principal partners are the European Union and China," he said. "We are diversifying our economy to depend less on the sale of raw materials and more on the non-traditional sector."

Humala pledged to redouble his administration's focus on infrastructure development in order to preserve the country's record growth streak. "We need more infrastructure, more energy, more services," he said. "We need to reduce risks to guarantee a sound economy and public policies to ensure that growth is reaching the people who need it."

He said his government will prioritize investment in transport, energy and telecommunications infrastructure. "My legacy will include infrastructure," he said. "I do not think that any government policy can be successful if we do not have a successful economy."

Humala told LatinFinance his goals in office are the same as those he promoted on the campaign trail.

"People say there are two Ollantas, one the candidate, the other the president. But this is not true: I am the same person who wants to follow through on my commitment," he said.

"We created the mining tax, but unlike those who did not know me, who thought I was going to do it based on coercive methods, threats of nationalization, we did it through dialogue with the companies, explaining the country's needs," Humala said. "That is what this is about: complying with my duty."

The president said that maintaining Peru's record economic expansion was key to fulfilling his promise of social inclusion. "We need to sustain growth…[but] the economic model cannot only be focused on growth," he said. "We cannot kill the goose that lays the golden egg, but create the conditions for it to lay more eggs."

Peru's potential growth rate - the maximum rate output can expand without the economy overheating - is widely seen at between 6% and 6.5%. Officials expect the economy to grow at 6.3% in 2013.

Click here to read the full interview with Peru's president Ollanta Humala





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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management