Peru’s hardline left-wing government has focused on the bond issue after attracting investors

Peru Update

Peru may have recently elected a left-wing president, but its finance minister says foreign investors have shown so much interest in buying bonds that the government may consider a new issue to satisfy their hunger.

The Andean nation warned the market in June when it elected its most radical president. On the way to the campaign, Pedro Castillo, a primary school teacher and union worker in a remote Andean village, promised massive nationalization, revision of government contracts, and rewriting of the constitution.

But after taking charge, Castillo accepted his message and handed it to Pedro Frank, an academic economist who briefly served as his finance minister at the World Bank. This week, two men toured the U.S. to win over suspected investors.

“I think the meetings [in the US] It has been helpful to allay their suspicions about the political landscape, which some were concerned about, this is their main concern, ”Frank told the Financial Times. “I think the explanations we’ve given have strongly allayed investors’ suspicions.”

Castillo played his part. Wearing his trademark wide straw hat, the president told a business audience in Washington: “We are not here to intimidate investors. Invest in Peru with confidence without doubt and fear.

Frank said he and Castillo had a close working relationship and their message about the importance of private investment in the United States was so well received that Peru did not need to tap into the international market again this year, it could do so now.

“It’s possible that we see an opportunity that suits us, in which case we’ll take it,” Frank said. “… there seems to be a lot of appetite among buyers for Peruvian bonds, it was quite clear … we all had meetings.”

Graham Stock, a sovereign debt strategist at Bluebe Asset Management’s emerging market, said he would take such claims “with a pinch of salt” because investors willing to increase exposure in Peru could always buy in the secondary market, where the country has not performed well recently.

“It is generally expected that Peru will issue in the near future … and I think there will be reasonable demand,” he said. . “

Nonetheless, Frank’s message of moderation has begun to win over some of Peru’s key investors, the world’s second-largest copper producer. Richard Adkerson, boss of Freeport-McMurray, said this week that he was “encouraged” by recent meetings with Castillo and BHP executives and praised the government’s “strategic” approach.

Peruvian investors who have witnessed the day-to-day political unrest in Lima with cabinet members who have been fired or resigned and linked to Maoist guerrillas are less confident. “It’s hard to believe anyone would invest in Peru this time. . . .Continues, ”said a businessman.

Peru’s economy was crippled in 2020 by a long lockdown that reduced GDP by 11.1 percent but failed to control the coronavirus. The IMF forecasts growth of .5.5 percent this year, and the Congressional Franc forecast shows that the budget deficit will narrow to about 7.7 percent this year, down from 8 percent last year.

“Financial stability should not be something left or right,” Frank said. “It’s something reasonable, it’s good economic management. Such as keeping inflation low.”

Where Castillo’s government wants to differentiate itself, he adds, Peru’s tax collection rate is too low to increase public investment in infrastructure.

“We want a tax reform, tax evasion, increase revenue and thus education, health, basic infrastructure in rural areas, in the Andes and the forests, where there will be a greater effort to create greater inequality, greater inequality and greater poverty,” Frank explained. Did. “This is our change agenda.”

Wealth is not in the tax program and the focus will be on improving collection rather than increasing the rate of contribution to income tax change. In the case of mining, contracts will not be renegotiated but there will be an initiative to levy taxes at higher global prices.

Investors liked what they heard from Frank, but their biggest concern about the finance minister was that “he is not the one who called the shots,” said a senior banker with experience in Peru. “He is the best in that cabinet. . . But can he stop the bad ideas that have arisen from this government?

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