CHALLENGES FACING PERU S NEW GOVERNMENT ADMINISTRATION. Ambassador Felipe Ortiz de Zevallos

Transcription

1 CHALLENGES FACING PERU S NEW GOVERNMENT ADMINISTRATION Ambassador Felipe Ortiz de Zevallos

2 Alan Garcia s inaugural speech One of the goals of this administration is to set the conditions for Peru to achieve investment grade, the set of financial conditions that allows a country the access to less expensive capital (July 28, 2006)

3 Agenda Investment grade Set of conditions Peru s situation Further steps

4 Investment grade is a financial concept Quality of a company's or country s credit The company or country must be rated at "BBB" or higher by main international rating organizations to be considered an investment grade issue Investment grade D DD DDD C CC CCC B BB BBB A AA AAA

5 Peru s has been improving its risk classification since 2001 but still hasn t reached investment grade Date 31 Aug 2006 Foreign currency BB+ 18 Nov 2004 BB 18 Apr 2001 BB- 14 Oct 1999 BB Source: Fitch Ratings

6 Latin America sovereign bonds Classification of Risk Rating Organizations Moody's S&P Fitch Colombia Ba2 Ba2 Ba2 Ba2 Ba2 BB BB BB BB BB BB BB BB BB BB Venezuela B3 Caa1 B2 Caa1 Caa1 CCC+ B- B B B+ B B- B+ B- BB- Argentina Ca Caa1 Caa1 Caa1 B3 SD SD SD B- B DDD DDD DDD DDD B Brasil B1 B1 B1 Ba3 Ba2 B+ BB- BB- BB- BB B BB- BB- BB- BB Chile Baa1 Baa1 Baa1 Baa1 A2 A- A A A A A- A- A- A- A México Baa2 Baa1 Baa2 Baa2 Baa2 BBB- BBB BBB- BBB BBB BBB- BBB- BBB- BBB BBB Perú Ba3 Ba3 Ba3 Ba3 Ba3 BB- BB BB BB BB BB- BB BB BB BB+ Uruguay B3 B3 B3 B3 B3 B- B- B B B B- B- B B B+ Source : Latin Focus, Moody's, Standard & Poor's, Fitch Ratings, Bancóldex, Deutsche Bank Chart taken from Liliana Rojas presentation (Center for Global Development) for the Grupo APOYO annual meeting, September 2006

7 Set of conditions for a country to achieve investment grade Economic conditions Social environment Politics and institutions

8 Peru has been improving its macroeconomic performance Real GDP growth (%) Inflation (%) Gov debt (% of GDP) Net external debt/ Current external receipts Source: BCRP, Fitch Ratings

9 Growth, investment rates and terms of trade has grown in the last years Growth Drivers (% change) Source: BCRP, Fitch Ratings Investment GDP Terms of Trade

10 Peru has started showing surplus on public budget and on external transactions PUBLIC BUDGET BALANCE (% GDP) BALANCE OF PAYMENTS (% GDP) 8,0 6,0 4,0 2,0 0,0-2,0-4,0-6,0-8,0 I III I III I III I III I III I ,0 2,0 1,0 0,0-1,0-2,0-3,0-4,0-5,0 I III I III I III I III I III I Source: BCRP, APOYO Consultoria

11 Peru s debt ratios has been decreasing and even surpassing BBB median 250 Net External Debt (% of Current External Receipts) 60 General Government Debt (% of GDP) Peru BB median BBB median Peru BB median BBB median Source: Fitch Ratings Sovereign Comparator

12 Peru s current social environment High approval level of short-term decisions People s credibility on President Garcia s keeping promises adequate Social conflicts and violent demonstrations still a concern. Conflict at local, not at national level

13 Confidence and Employment APOYO S CONFIDENCE CONSUMER INDEX INDICCA URBAN EMPLOYEMENT RATE IN COMPANIES OF 10 OR MORE EMPLOYEES F A J A O D F A J A O D F A J A O D F A J A O E A J O E A J O E A J O E A J O E A J O E A J Source: APOYO Consultoria Source: MTPE Lima Metropolitana Provincias

14 Political environment Good start of new administration without political disturbance High expectations across socio economic levels (57% approval; 24% disapproval) Diversity in cabinet appointments pointing toward a continuity of the macroeconomic policies Congress has shown adequate performance, but could become a threat on future economic policies

15 In the coming years Peru has to strengthen its institutions March 19, 2006 October 16, President A. Garcia Executive Branch Legislative Branch Judicial Branch 10 0 President Alan Garcia Executive Branch Legislative Branch Judicial Branch Approve (%) Disapprove (%) Indifferent (%) Approve (%) Disapprove (%) Indifferent(%) Source: APOYO Opinion y Mercado

16 Specific efforts on institutions Decentralization process Focus on Judicial Branch (94% of Peruvians think that a reform is necessary). High level of corruption threats business stability.

17 According to Fitch, next steps for Peru for improving its rating scale Reduction in net public external debt Maintenance of prudent macroeconomic settings Deepening of fiscal reforms Continuation of export and economic diversification Strengthening of political institutions Progress on improving social development conditions