Peru sets table for growth, cenbank governor says

Peru sets table for growth, cenbank governor says

Corporate & Sovereign Strategy Economy & Policy Regulation Politics Peru

Peru is poised for solid economic growth this year, despite the recent political crisis, Julio Velarde, the head of the central bank, said at LatinFinance's Andean Finance and Investment Forum on June 12.

"Everything indicates that the table is set for growth," Velarde said.

The numbers appear to back him up. The economy is expected to outpace the 2.5% growth from last year, the second lowest level in a decade, as inflation stays low, exports go up and private investment logs solid increases.

After growing 3.9% in the first quarter this year, the economy is set to expand almost 7% in April, according to Velarde. Meanwhile, inflation was just 0.75% in the first five months of 2018, below the central bank's target range of 1% to 3%, and the Peruvian sol has only slipped 0.8% against the dollar, performing much better than most other currencies in the region. Also, Peru logged a trade surplus of $2.2bn through the end of April this year, up from $1.3bn in the same period last year.

Public spending increased 37.5% in May and it is forecast to grow by double digits for the year. Private investment, which had been on the decline for three years straight, is growing again, and Velarde said it could rise 6% for the year.

Private investments in the mining industry, the historic motor of Peru's economy, reached $1.2bn in the first four months of 2018, an increase of 36.3% on the same period last year. Now a number of large mining projects, involving more than $8bn in investments, are expected to get going in coming months, Velarde said.

As Velarde addressed the conference goers, Peru's private investment promotion agency ProInversión signed a contract with Mexico's Southern Copper Corporation to develop the Michiquillay copper mine, with an estimated $2.5bn in investments. Southern Copper has four projects in the works in Peru, including Michiquillay, with more than $6bn in investments in the next few years.

But the rosy economic picture comes as Peru deals with one of the worst political crisis in nearly 20 years. Former President Pedro Pablo Kuczynski stepped down in March, rather than face a likely impeachment trial, and now President Martín Vizcarra is still putting together the pieces of his administration. Two Cabinet ministers have left the Vizcarra government in the past two months, including the Economy and Finance Minister David Tuesta, who resigned on June 4. Carlos Oliva, who served as deputy finance minister from 2011 to 2015, replaced Tuesta.

It is "surprising how little the political turbulence has affected the economy," Velarde said at the event.

Panelists, however, were divided on how much impact the political crisis had on the economy.

"No one cares what government is in power, or who is the economy minister, as long as there is fiscal and monetary stability," said Eddy Sternberg, vice president at the US investment management firm Loomis Sayles.

But Aldo Ferrini, CEO of the local private pension fund AFP Integra, said the lack of interest in Peru's political upheaval is a cause for concern over the long run because it leads to complacency. When the market does not react to political turmoil, it "is a problem because there is an idea that nothing is wrong," he said.

Peru's economy could easily grow at a rate of 6% per year, but because it is doing better than other countries in the region, the market thinks 4% is fine, Ferrini said.

"There is a lot to be done. We should not be happy with where we are," he said.