South America Plans Summit to Defend Currencies From Debt-Crisis Fallout

Finance officials from South America and Mexico will gather next month to discuss ways to protect their currencies and economies from the debt crisis in the U.S. and Europe.

The meeting of finance ministers from the Union of South American Nations, to take place Aug. 10-11 in Buenos Aires, was organized at the urging of Colombian President Juan Manuel Santos. The gathering will allow governments to coordinate action to deal with shared problems including “speculative” capital inflows that are fueling a rally in their currencies, Santos said at a summit yesterday of regional leaders.

“Latin America is sitting on $700 billion in reserves that are losing their value because of the crisis we’re going through with the impasse in the U.S. Congress over the debt ceiling,” Santos said in Lima, Peru at a summit of the 12-nation bloc, known as Unasur. “This is affecting us and we can’t continue as mere spectators.”

Policy makers in Latin America are trying to curb gains in their currencies, which hurt the competitiveness of their exports, and fight inflation after near-zero borrowing costs in advanced economies such as the U.S. and Japan spurred demand for higher-yielding assets in emerging markets.

Capital Controls

This week, Brazil imposed a 1 percent tax on bets against the dollar in the country’s derivatives market after the real reached the highest level since the country abandoned its peg to the greenback in 1999. Since last year, policy makers in Latin America’s biggest economy also tripled a tax on foreigners’ purchase of bonds and raised levies on foreign borrowing.

Policy makers in Colombia and Chile, while so far avoiding similar capital controls, have each stepped up daily dollar purchases in their local spot currency markets.

The region’s currencies are among the best-performing in the world over the past two years, with the Brazilian real surging 22 percent, the Chilean peso gaining 19 percent and the Colombian peso up 17 percent.

The International Monetary Fund said in June that it expects Latin America and Caribbean economies to grow an average 4.6 percent this year and 4.1 percent next year, after nations including Peru and Brazil expanded at their fastest pace in two decades in 2010.

Argentine President Cristina Fernandez de Kirchner hailed yesterday’s summit in Lima, saying regional leaders need to be more proactive about addressing common challenges.

“It wasn’t only a routine meeting of Unasur,” Fernandez said today in Brasilia, alongside her Brazilian counterpart, Dilma Rousseff. “For the first time we looked collectively at the problems and how they are affecting our region, like speculative capital inflows that tend to strengthen our currencies.”

Santos said Unasur leaders agreed to invite officials from Mexico to attend the meeting in Buenos Aires, given that the country is a member of the Group of 20 richest nations along with Argentina and Brazil.

Bloomberg
To contact the reporter on this story: Joshua Goodman at jgoodman19@bloomberg.net
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

Journalists from Africa, Europe & Asia cover Humala’s inauguration

More than 1,900 journalists from all over the world, including countries such as Qatar, Morocco, Switzerland, Japan and South Korea, are covering President Ollanta Humala’s inauguration.

Peru's Government Palace, the Basilica Cathedral of Lima, the Congress of the Republic and the Chancellery, are the different venues where the official events are taking place.

Among Asian countries, Japan is the one with the biggest group of journalists, with more than 15 professionals of TV broadcast as NHK, Kyodo News, NKH and Asahi Shimbun.

Ari Hirayama and Mitsuri Oue, of Asahi Shimbun, pointed out that Peru is very attractive for Japanese channels because of its tourist places such as Machu Picchu and news related to former President of Peru Alberto Fujimori.

Finally, they noted that Humala created great expectations on mining investment policies that will be implemented during his government. (Andina)

Today in Peru

Buenaventura Second-Quarter Profit Rises 83% on Higher Gold, Silver Prices

Cia. de Minas Buenaventura SA, Peru’s biggest precious-metals producer, said second-quarter profit jumped 83 percent as metals prices surged.

Net income rose to $204.2 million, or 80 cents a share, from $111.6 million, or 44 cents, in the year-earlier period, Buenaventura said today in an e-mailed statement. Analysts expected profit of 90.5 cents a share on an adjusted basis, the average of four estimates in a Bloomberg survey.

Buenaventura sold gold for an average $1,508 an ounce in the quarter, 26 percent more than a year earlier. Record gold and silver prices offset lower output of zinc and lead, said Imaru Casanova, chief analyst at McNicoll Lewis & Vlak.

“Help came from much stronger metals prices in the second quarter,” Casanova, who rates the stock a “hold” and doesn’t own shares, said by telephone before the report was released. “Production was slack and shareholders should be concerned with where future gold production will come from.”

Gold production rose 3 percent to 269,778 ounces, while zinc and lead output fell 10 percent and 7 percent, respectively, the company said. Silver output gained 11 percent to 3.73 million ounces. New York-traded silver futures doubled in the period.

Buenaventura’s revenue climbed 52 percent to $343.3 million, while operating costs fell 33 percent to $19.5 million. Exploration spending rose 17 percent to $12 million.

Buenaventura’s American depositary receipts, each representing one ordinary share, rose 38 cents, or 0.9 percent, to $42.55 in New York Stock Exchange composite trading. The ADRs have gained 8.5 percent over the past year. The report was released after the close of regular market trading in New York.

‘Attractive’ Risk-Reward

The company has a 19 percent stake in Phoenix-based Freeport-McMoRan Copper & Gold Inc. (FCX)’s Cerro Verde copper mine and a 44 percent stake in Newmont Mining Corp. (NEM)’s Yanacocha gold mine, which contributed $129.6 million toward earnings, a 50 percent increase from a year earlier.

Gold output at Yanacocha, Latin America’s largest gold mine, fell 3 percent to 341,665 ounces in the quarter. Cerro Verde copper production rose 2 percent to 76,905 metric tons.

The company and Peru’s mining industry face less risk of radical change from President-Elect Ollanta Humala’s government than originally expected, said Carlos De Alba, an analyst at Morgan Stanley. Humala, who takes office July 28, won the May 5 elections on pledges to impose a mining windfall tax.

“After proposing to reappoint the current central bank president for a new period, we believe the next administration in Peru will pursue a moderate, more market friendly position than the market is discounting,” De Alba, who upgraded the stock to “overweight,” said in a July 20 report. “The stock’s risk-reward is attractive.”

The proposed tax may make Peru’s mining industry less competitive, Chief Executive Officer Roque Benavides said in a July 13 interview.

Gold futures for December delivery rose $4.90, or 0.3 percent, to $1,619.30 an ounce today on the Comex in New York. The August contract reached a record $1,624.30 yesterday. Silver climbed to a 31-year high of $49.845 on April 25.

(Buenaventura will hold its quarterly conference call July 27 at 11 a.m. New York time. To call from outside the U.S.: 1-973-582-2710, Code: 78016946. For U.S. participants: 1-888-693-3477.)

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

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

Today in Peru

Peru exports up 30% to US$20.9bln in first half

Exports from Peru rose 30 percent year-on-year in the first half of 2011 to a total value of US$20.9 billion, the country's foreign trade association ComexPeru said Sunday.

Between January and June, China was the main market for Peruvian products taking over 15.8% of total exports, followed by the United States (12.3%), Switzerland (11.8%) and Canada (9%).

Exports to China increased 32 percent from a year earlier, while those to Switzerland and Canada jumped 36 percent and 18 percent, respectively.

During the first six months of 2011, the value of exports from Peru's traditional sector reached over US$16.3 billion, fueled by strong sales of copper (up 54% to US$4.1 billion) and gold ores and concentrates (up 14% to US$4.3 billion).

Exports from the agricultural and manufacturing industries also witnessed strong growth in the period, rising 54 percent to US$300 million and 33 percent respectively. (Andina)

Today in Peru

Humala Names Castilla Peru’s Finance Minister in Bid to Attract Investors

Peru’s President-elect Ollanta Humala moved to ease investor concerns about how he’ll manage the Andean nation’s economy by filling his cabinet with experts in finance and markets.

Humala will name Miguel Castilla finance minister, his Gana Peru party said in a post on Twitter. In an interview on television channel ATV, Humala said he will name campaign manager and businessman Salomon Lerner as cabinet chief and Carlos Herrera as energy and mining minister.

Humala, a former army rebel who takes office July 28, is seeking to reassure investors that his plans to raise mining royalties and enlarge state control won’t erode economic growth under departing President Alan Garcia that was the fastest in Latin America. In addition to Castilla, who served as Garcia’s deputy finance minister, Humala this week tapped central bank President Julio Velarde to remain in his post.

Naming Velarde and Castilla is a “magnificent” sign that Humala has heard investors’ concerns, said Patricia Teullet, general manager at the Peruvian Exporters’ Association and a critic of Humala.

“It reveals pragmatism and that he’s prioritizing long- term development over measures designed for effect and with an ideological face,” Teullet said.

Slowing Expansion

Peru’s $153 billion economy expanded at the slowest pace in 15 months in May as companies cut spending while waiting for Humala to detail his economic plans. The president-elect, after running as an ally of Venezuela’s Hugo Chavez in a failed 2006 presidential bid, changed tack during this year’s campaign and said he would emulate the pro-business policies of former Brazilian President Luiz Inacio Lula da Silva.

Humala, in a message posted on his Twitter account today, asked Peruvians “to have confidence” in his appointments and that each member of his cabinet “is committed to change.”

The 42-year-old Castilla has a doctorate in economics from Johns Hopkins University and worked as chief economist at the Caracas, Venezuela-based Andean Development Bank, known as CAF, according to a copy of his resume sent by the Finance Ministry. A former consultant to the World Bank, he wrote a chapter on Latin America and East Asia trade strategies in a 2008 book titled “Growth and Development in Emerging Market Economies.”

Former Businessman

Lerner is a former deputy trade minister and businessman who managed Humala’s campaign while Herrera served as mining minister under ex-President Valentin Paniagua.

“Humala understands that these types of appointments are necessary to tackle the deficit of trust that hangs over him,” said Alvaro Vargas Llosa, a senior fellow at the Independent Institute in Washington.

Louis Maccini, who advised Castilla on his thesis at the Baltimore-based university, said in a phone interview that his former pupil “has a way of communicating with people who aren’t so in tune with economics.”

Since Velarde was reappointed July 17, the yield on the nation’s benchmark 7.84 percent sol-denominated bond due 2020 has fallen 6 basis points to 6.232 percent, a four-month low, at 9:52 a.m. New York time today, according to prices compiled by Bloomberg. Lima’s General Stock Index has gained 11 percent.

`Perfect Understanding'

Cesar Perez, a managing director at Celfin Capital SA in Santiago, Chile, said Castilla has “a perfect understanding of finance and micro-economic needs” while future mining minister Herrera “will give comfort to Peru’s key sector, which is the backbone of the economy.”

While Humala’s appointments are likely to please investors, they may anger supporters in his Nationalist Party who are pressuring him to fulfill earlier pledges to rewrite the constitution, unilaterally boost mining royalties and renegotiate free trade agreements, said Vargas Llosa.

“If he makes those changes we will end up badly,” said Teullet.

Humala narrowly defeated Congresswoman Keiko Fujimori in a June 5 runoff by pledging to better distribute Peru’s mining wealth to help the nation’s heavily-indigenous poor, who were slower to benefit from economic growth that averaged 5.6 percent a year over the past decade.

Spending Boost

He said he plans to boost spending on pensions, education and child care through a windfall tax on gold and copper mining companies that won’t make Peru less attractive to foreign investment. Peru is the world’s third-largest copper and zinc producer.

As much as $42 billion in planned mining investment may be derailed if Humala changes investment rules, Southern Copper Corp. Chief Executive Officer Oscar Gonzalez Rocha said June 14. Peru’s economy expanded 8.8 percent in the first quarter from a year earlier after growing 9.2 percent in the fourth quarter.

The country’s next energy and mining minister “will have to be a great communicator to be able to negotiate changes to oil and gas contracts,” said Cesar Gutierrez, an energy consultant and former president of state oil company Petroperu. “Any negative changes will be taken as general policy and will discourage future investment.”

To contact the reporters on this story: Helen Murphy in Lima at hmurphy1@bloomberg.net; Alexander Emery in Lima at aemery1@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

ABB wins major greenfield hydro project In Peru

Canadian-based ABB, a leading power and automation technology company, announced it has recently won a major power generation order to provide power equipment and electrical engineering support for the Cheves greenfield hydropower plant in central Peru, which will benefit thousands of Peruvians. 

ABB to provide power equipment and engineering for Cheves hydropower plant in Peru; region will benefit from greater reliability, relief from voltage fluctuations, power cuts

Cheves is a 2 x 84 megawatt hydropower project located in the provinces of Oyon and Huaura in Peru. This project is scheduled for completion by November, 2013.

"The award of this project to ABB reflects the trust our customers have in the strong project management and engineering capabilities of our team in leading full scope Water-to-Wire projects, and it continues our success in the region," said Gary Shaw, vice president and general manager, Power Generation, ABB Canada Inc.

He added the once commissioned, electricity consumers in the region will benefit from significant improvements in reliability and relief from voltage fluctuations and power cuts common to the area.

ABB will provide engineering services and power equipment to Empresa de Generacion Electrica Cheves S.A, which is a special-purpose hydropower generation company in Peru, and 100 percent owned by SN Power of Norway.

The company is executing the project, leading a consortium among ABB Canada Inc., Rainpower Norway and Jeumont Electric out of France; which is providing a complete "Water-to-Wire" solution for the hydro power plant.

ABB is providing the complete electrical balance of plant (eBoP) systems including GIS substation, generator breakers, medium-voltage and low-voltage switchgear, step-up transformers, plant controls, protection system and other electrical auxiliaries. The consortium's scope includes the installation and commissioning of equipment.

The consortium provided a competitive commercial proposal and a superior technical proposal.

ABB is a leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact.

The ABB Group of companies operates in around 100 countries and employs about 124,000 people. The company's North American operations, headquartered in Cary, North Carolina, employ about 18,000 people in multiple manufacturing, service and other major facilities. (Andina)

Today in Peru

Julio Velarde to Stay On at Peru Central Bank for Five Years, Humala Says

Peru’s President-elect Ollanta Humala said Central Bank President Julio Velarde will remain in his post for another five-year term to help maintain economic stability.

Velarde accepted an invitation to stay on after his term ends July 28, Humala said in an interview with Lima-based America Television yesterday. Velarde has led the central bank “well,” he said. Humala said he’ll announce ministerial posts July 20.

“Our commitment is to provide macroeconomic stability and stability in monetary policy, which Julio Velarde is going to do,” Humala said. “We’re sending the right messages.”

Humala, who takes office July 28, is seeking to reassure investors concerned that his plans to raise mining royalties, increase Peru’s minimum wage and enlarge state companies may crimp private investment fueling the region’s fastest growth of the last decade. The $153 billion economy expanded at the slowest pace in 15 months in May as companies reduced spending while waiting for the 49-year-old former army rebel to announce his economic policies.

The Lima General Index of stocks has fallen 13 percent this year amid concern Humala’s plans to introduce a mining windfall tax will endanger $42 billion of investment in mine expansions. The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 has risen 36 basis points, or 0.36 percentage point, to 6.30 percent this year, according to prices compiled by Bloomberg.

Tripling Reserves

Since being appointed in 2006 to head the central bank, Velarde, 59, has helped triple international reserves to a record $47 billion and raised lending rates to a two-year high in May to curb inflation, which has been the lowest in the region since 2006.

Velarde, who holds a doctorate in economics from Brown University, introduced measures including raising reserve requirements for bank deposits to rein in lending. He increased the operating limit on pension fund managers’ investments overseas four times last year to help cool demand for the local currency.

Humala said he’ll seek to spur investment in the Andean nation’s mining and gas industries and will urge pension fund managers to invest in infrastructure projects instead of buying stocks or overseas assets.

To contact the reporter on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

Humala flies to Caracas to meet with Hugo Chavez

Peruvian president-elect Ollanta Humala flies to Caracas (Venezuela) tonight to visit President Hugo Chavez, who is receiving treatment for cancer, as well as hold a meeting with the Andean Development Corporation (CAF).

Humala will travel with his wife Nadine Heredia and a small delegation, reported his press office in Lima.

The meeting between Humala and Chavez will take place on Friday at 14:30 hours at the Palace of Miraflores.

Earlier, at 11:30 hours, President-elect Humala is expected to meet with CAF President Enrique Garcia.

Humala’s journey to Caracas will be short and his flight to Lima is scheduled for Friday at 16:00 hours. (Andina)

Today in Peru

Light and sound show covers Machu Picchu

Machu Picchu was lit at night for the first time ever late on Thursday to mark the 100th anniversary of the scientific discovery of the archaeological site.

A light and sound show directed by Peruvian theatre director Luis Llosa was staged at the famed ancient citadel, which was declared a Unesco world heritage site in 1983.

This 15th-century Inca city of carved stone structures, built high on an Andean mountain range in southeastern Peru, was introduced to the world by American explorer Hiram Bingham in July 1911.

Tonight's event also coincided with the four-year anniversary of the site being voted one of the New Seven Wonders of the World in a global Internet poll.

The festivities will continue on July 8th in Cusco with traditional dance competitions, parades, music and fireworks and will culminate in a concert on the evening of July 9th, boasting national and international artists.

Today in Peru

US Department of State confirms Humala-Clinton meeting

Peruvian President-elect Ollanta Humala will meet with US Secretary of State Hillary Clinton on Wednesday, during his official visit to Washington, State Department spokeswoman Victoria Nuland said Tuesday.

At a press conference, Nuland announced that the meeting will take place in the Department of State headquarters, in Washington D.C., though she did not confirm if Humala will meet US President Barack Obama.

“We welcome him gladly and we hope to continue strengthening our ties with Peru,” Nuland told reporters.

The trip marks the first top-level contact between the United States and the president-elect, who will take power on July 28.

As part of his agenda, Humala will also meet with the Secretary General of the Organization of American States (OAS), Jose Miguel Insulza.

Peru president-elect travels to US to meet with government officials

Peruvian President-elect Ollanta Humala left Tuesday morning to Washington to meet with Barack Obama government officials and other authorities like the Secretary General of the Organization of American States (OAS), Jose Miguel Insulza.

Before embarking on his trip, the leader of Gana Peru party noted that he was looking forward to this meeting as it will have an open agenda.

His arrival is scheduled for 20:35 hours and on Wednesday morning, Humala will have a meeting with Insulza, the main representative of the Organization of American States (OAS).

Afterwards, he will get together with representatives of the US Department of State and at 16:00 hours he is to have another meeting at the White House. The president-elect will return to Lima on Thursday evening.

So far, the press office of Gana Peru has not confirmed if Humala will meet with US president Barack Obama. (Andina)

Today in Peru