IMF's Eyzaguirre: Latin America recovery 'heterogeneous'

Latin America's recovery following the global economic crisis will be "heterogeneous," with a wide gap between fast and slow, said Nicolas Eyzaguirre, who heads the International Monetary Fund's Western Hemisphere Department.

Countries such as Brazil, Chile and Peru, which are in a stronger position than others, will benefit from rising commodities prices and may face strong pressures on their currencies, Eyzaguirre told a meeting of the Council of the Americas on Wednesday.

Their economic strength and the commodities revenues will attract a lot of foreign direct and portfolio investment, Eyzaguirre said as quoted by Dow Jones Newswires.

"Their "dilemma" will be how to expand the economy without an excessive appreciation of their currencies. Those countries that are in the worst position are those that are most reliant on the U.S. economy, or U.S. employment," he added.

That mainly means Caribbean nations that are highly indebted and rely on U.S. tourism as well as remittances from the U.S., he said.

Eyzaguirre pointed out that Mexico is also "complicated"; despite its strong macroeconomics it is very dependent on U.S. domestic demand. (Andina)

Peru, Uruguay likely to begin FTA talks next year

Peruvian Trade and Tourism Minister Martin Perez said Friday that his country and Uruguay would start negotiations next year on a free trade agreement (FTA).

“I met Thursday with Uruguay’s Ambassador Juan Jose Arteaga and he told me that his country is interested in signing a trade deal with Peru,” Minister Perez told Andina.

Perez said that both countries would negotiate a bilateral FTA in the framework of the Latin American Integration Association (ALADI), and it would be an extension of the Economic Cooperation Agreement (ACE) N° 8 that was signed by both countries in the 80’s.

“Although Peru’s FTA technical teams are quite busy with various bilateral trade agreements are being discussed right now, we could start negotiations in 2010 if there is an official political offer,” he said.

"This kind of trade pacts would open more markets to Peruvian agricultural products and services.

At present, Peru has FTAs with the US, Canada, Singapore, China and Chile, and has an Early-Harvest Agreement with Thailand. (Andina)

Peru ETF starts trading on Mexican stock exchange

Peruvian Finance Minister Luis Carranza rang the opening bell at the Mexican Stock Exchange (BMV) to declare the market open on Thursday, August 20, and mark the launch of Peru’s Exchange Traded Fund (ETF), the ETF iShares EPU, which is traded on the New York Stock Exchange (NYSE) and now on the BMV.

The iShares MSCI All Peru Capped Index Fund began trading on 19 June on NYSE Arca.

The fund will track the MSCI All Peru Capped Index, holding the top 25 Peruvian equity securities by free-float adjusted market cap, including those classified in Peru according to MSCI's methodology as well as securities of certain companies that are headquartered in Peru and have the majority of their operations based in Peru.

Thirteen of the 25 index constituents are materials producers, providing investors with significant exposure to commodities. The top three index constituent names as of 31 March 2009 are Buenaventura Minas, Southern Copper, and Credicorp. The fund's annual expense ratio is 0.63 per cent.

The underlying assets for the fund are in the following sectors: financials, industrials, consumer staples, energy, utilities, and S-T securities.

Today's launching ceremony was attended by the Superintendent of Banking, Insurance and Private Pension Fund Administrators of Peru (SBS), Felipe Tam, as well as general and investment managers of Peru-based Pension Fund Administrators (AFP). (Andina)

Peru win Optimist World Championship title

Sinclair Jones from Peru has become the 2009 Optimist World Champion following the final day of racing in Niteroi, Brazil.

Congratulations to Sinclair Jones of Peru, who finished top of the 211 sailors from 47 countries competing in Niteroi to become the 2009 Optimist World Champion. In second place was the Mohamad Faizal of Malaysia, followed by Argentine Ignácio Rogala.

Thailand’s Noppakao Poonpat was the top female finisher, taking fourth place overall.

On the final day of the championship, the race committee and sailors waited patiently for wind today and finally the breeze filled in and race 12 began. Completing this race would permit another discard so for many sailors with a poor race finish, completing this race would enable them to drop their worst result.

The sailors were anxious to start, many remaining above the line during the starting sequence resulting in an AP from the race committee.

Determined to complete this race, at the next start an 'I' flag was displayed in an attempt to keep the sailors behind the line. This time the fleet got away but many sailors were identified as over the line at the starting signal (OCS), did not go back and start correctly and so were scored 73 points.

The left side of the course was heavily favoured and so the fleet remained quite tightly bunched as they all headed to the left. The other starts got away, all with an 'I' flag and so this championship, sailed at a venue with some of the most challenging of wind conditions, was over.

The leader going into today, Faizal Norizan of Malaysia had a disappointing race and was not able to improve his series score but Jones, in second place, sailed an excellent race, finished ninth and became the overall winner by eight points.

Congratulations to Jones and all of the 211 sailors from 47 countries who have made this championship so memorable. The Club Navale Charitas and their many volunteers have done a fantastic job in making this event so successful, thank you. Everyone has been made to feel welcome and I am sure that they will all have incredible memories of their time in Brazil.

Five-time Olympic medallist and Volvo Ocean Race winner Torben Grael (BRA) presented awards at the prizegiving held at the host Club Navale Charitas in Niteroi. The ceremony included the handing over of the IODA flag to the Malaysian team who will be the next hosts of the IODA Worlds in 2010, in Langkawi. (Andina)

Photo: Sinclair Jones of Peru celebrates becoming 2009 Optimist World Champion. photo: sailing.org/Fred Hoffmann

S&P affirms Peru BBB- Foreign Currency Rating; Outlook Stable

Standard & Poor's Ratings Services on Tuesday affirmed its 'BBB-' long-term foreign currency and 'BBB+' long-term local currency ratings on Peru, adding that the outlook remains stable.

"The ratings on Peru are supported by the government's commitment to economic stability and a positive investment climate that will underpin solid growth through 2012, despite the sharp slowdown in 2009," said Standard & Poor's credit analyst Richard Francis.

Peru's GDP is expected to expand by less than 3% this year after growing by close to 10% last year. In a statement, the ratings agency pointed to Peru's solid growth prospects.

Standard & Poor's said that Peru could post a recovery of growth rates to 4% in 2010 and potentially more than 5% in 2011-2012.

The agency said that Peru's government has maintained prudent fiscal and monetary policies over the past decade, despite political uncertainties.

It added that the government is expected to run fiscal deficits of 1.0% to 2.0% of gross domestic product from 2009-2011.

"Therefore, net general government debt likely will remain close to 20% of GDP over the next three years, well below the 'BBB' median. Inflation is well contained, although the level of dollarization in the financial system remains high," S&P added.

The ratings agency said that Peru's external indicators are expected to remain robust, "despite the fact that the current account balance swung to a deficit of 3.3% of GDP in 2008 and likely will remain at a deficit of 2%-3% of GDP from 2009-2011."

The agency added that Peru is well positioned to weather adverse global economic conditions, with growth driven by large new investments in gas and mining, alongside continued economic diversification.

"Furthermore, negligible external amortization requirements for the next three years help insulate the government from the difficult international financial conditions," it said.

S&P said Peru's main vulnerability is political, pointing to "a large, informal economy, widespread poverty; and significant income disparities," saying this makes Peru susceptible to populism.

It added that radical alternative candidates could gain traction in the run-up to the 2011 presidential elections.

"The government's ability to address the underlying causes of its population's discontent will be key in keeping the government on a path toward improving creditworthiness and in preserving the hard won economic gains achieved in the past decade," it said.

Peru's laws ban President Alan Garcia from running for a second consecutive term in the 2011 elections. (Andina)

Peruvian Central Bank Cuts Rate More Than Expected

Peru’s central bank cut its benchmark lending rate more than economists expected today after the annual inflation rate fell to a two-year low and economic growth slowed on declining consumer demand.

The seven-member board, led by bank President Julio Velarde, reduced its reference rate by 0.75 percentage point to 1.25 percent, the lowest in five years. The move surprised all 18 economists surveyed by Bloomberg, most of whom forecast a half-point cut.

The bank said it would probably leave the rate on hold unless there’s a significant change in inflation, which fell for an eighth month in July to 2.7 percent, down from a decade-high of 6.75 percent in November. The economic slump, coupled with slowing inflation and a rally by the sol against the dollar, spurred the bank to extend its longest rate cutting cycle on record, said Alejandro Grisanti, an analyst at Barclays Capital.

“They have positive inflation results, but economic figures are discouraging,” Grisanti said in a telephone interview from New York.

Peru’s economy has slowed as the global crisis erodes demand for the Andean country’s exports and reins in domestic spending.

Inflation will slow to the lower end of policy makers’ target of 1 percent to 3 percent this year, the bank said today.

“Unless there are major modifications to inflation projections, we don’t see the need for new changes in the reference rate,” policy makers said in a statement posted on the bank’s Web site.

Rate Cuts

After six increases last year pushed borrowing costs up to the highest since 2001, the bank has cut the overnight rate by 5.25 points in 2009 in a bid to spur consumer spending.

Since weakening to a 30-month low on March 3, the sol has gained 10 percent, boosting its year-to-date gain to 6.1 percent, the seventh-best performance against the dollar among 26 emerging-market currencies tracked by Bloomberg.

After expanding 9.8 percent in 2008, the fastest pace in 14 years, Peru’s economy may slow to 3 percent growth in 2009, the slowest pace since 2001, according Finance Ministry forecasts.

Economists in a Bloomberg survey say full-year growth for 2009 may slow to 2.5 percent, according to the median of four forecasts.

Metals Prices

Exports dropped 31 percent from a year ago to $11 billion in the first half of 2009 on declining sales abroad of metals, textiles and agricultural produce, according to exporter association ComexPeru. For 2008, exports totaled $31.5 billion, accounting for almost a quarter of Peru’s $127 billion GDP.

Still, a recovery in demand for commodities next year along with rising prices will help fuel an economic rebound in Peru, said Neil Shearing, an emerging markets economist at Capital Economics Ltd. in London.

Prices of copper, zinc, lead, tin and silver, which account for 60 percent of Peru’s export revenue, have all gained at least 27 percent this year as increases in U.S. and Chinese manufacturing signal rising demand for industrial materials.

“The economy is still struggling, although we’re not seeing the large month-on-month declines that were posted at the turn of the year,” Shearing said in an e-mail. “Peru is still well placed to recover and the medium-term outlook is good.”

To contact the reporter on this story: Alex Emery in Lima at aemery1@bloomberg.net

Photo: Julio Velarde BCRP President