Per The Economist, “the fastest growing of the larger economies in Latin America [in 2009] will once again be Peru, not least because the government will keep faith in free trade, rather than the socialism fashionable elsewhere.” To that extent, Peru and the U.S. have implemented a free-trade agreement, one of several promoted by the U.S. to counter rival proposals by Venezuela’s President Hugo Chavez. Nonetheless, Peru’s President Alan Garcia is suffering from a ratings slump (though he just announced a $3 billion economic stimulus plan) that some pundits attribute to such liberalized economic policies. From The Council on Hemispheric Affairs this past October:
Despite Peru’s impressive recent economic development – 83 months of consecutive growth as of May 2008 – its civil society is becoming increasingly discontent with the leadership of Alan García. Reuters news service reported that while the country’s GDP growth rate hit 9.37 percent this year, the president’s personal approval ratings sunk to 19 percent. These ratings reflected a 16 point drop in the last four months alone, as protests and strikes over the FTA’s provisions have attracted a significant following. On October 7th labor groups across Peru organized a nationwide strike protesting the government’s economic policies, specifically accusing them of failing to alleviate poverty. According to the BBC, thousands of protesters marched in the nation’s capital and called for García’s entire cabinet to resign. As the President continues to lose legitimacy and popular unrest surges, fewer and fewer Peruvians are accepting the notion that the global free market will increase their odds of gaining prosperity.
That said, with expected (albeit slowing) growth of 6.4%, and inflation a (relatively) low 5%, a frontier investor could do worse than parking a portion of his or her money in Peru. Like that of Chile, Peru’s government has room to spare vis a vis public spending (i.e. credit lines and sector bailouts) given its savings of mineral revenues. The government is also continuing with its plans to sell its first foreign bonds in almost two years to “demonstrate the economy’s strength” after receiving investment-grade ratings. In doing so Peru would follow Mexico, which recently became the first developing nation to tap international debt markets since the global credit crisis deepened. Peru is also seeking to establish benchmark bond yields that would help its companies sell debt abroad.
Peru’s Lima General Index has not been spared by any means (see chart below), but the point here is that it represents a relatively attractive entry point (along with Chile) vis a vis Brazil, for example, where growth will be 2.7% in the coming year as tighter fiscal and monetary policy will squash consumer spending and curb growth.
The backbone of Peru’s economy is mining–it is the world’s largest silver miner and third-biggest copper producer (though textile, agriculture and energy related exports are also certainly vital to its continued growth). On that front, Canada announced last week that it will spend 4 million more U.S. dollars in the next three years to help promote its mining industry’s contribution to Peru’s sustainable growth. According to a bilateral memorandum of understanding, Canada agreed to extend the Peruvian-Canadian Cooperation Program (PERCAN) for another three years, to end on Dec. 31, 2011. Through its Agency for International Development, Canada will increase financial support to Peru’s mining industry to 13.6 million U.S. dollars from the 9.6 million dollars originally agreed under PERCAN. The extension of the program will strengthen Peru’s efforts to make its mining industry environment-friendly, thus contributing to the country’s sustainable growth. “As for environmental issues, we have brought the regulations closer to meeting international standards,” said Felipe Isasi, Peru’s vice minister of mining.