Peru Set to Be The Fastest Growing Economy of Latin America in 2009

In the late eighties and early nineties   , I traveled often to Peru to analyze the macroeconomic situation of the country. Most Peruvians I interacted with were negative about the prospects of the country .After decades of economic decline and years of rising terrorism, they had very good reasons to be negative .At the time, “a pessimist was indeed a well informed optimist”. The most eloquent expression of Peru’s decadence was Mario Vargas Llosa‘s fatalist quote: “when did Peru get screwed up?” .These were the words of a central character in his 1969 masterpiece “Conversations in the Cathedral.”  The mood has improved markedly since the nineties – along with successful economic reform   – but at any hint of crisis, local or international, pessimism looms again high in the horizon.

In fact, there is very little to feel optimistic about nowadays anywhere .The shock-waves of the meltdown at the epicenter of the world’s finances, alas, have touched all countries and all pockets. Although we may have already seen the worst in financial markets, the effects on falling production and unemployment lay ahead. For 2009, the IMF now projects recession in the US, the European Union, and Japan and drastic deceleration in developing countries. For the world economy as a whole, the IMF sets growth at 3% but with risks the downside. Investment banks forecast world growth at between 1% and 2 %.

However, not every country has fared equally .Some have shown resilience and others vulnerability. Peru ranks high among the former .The stability of the exchange and interest rates has not required much central bank intervention and banks and corporates have stayed afloat. The yields on Peruvian bonds bought and sold by international investors –a gauge of country risk – have stayed close those of Mexico and Brazil, and at times even below   ; by and large yields have kept below 10 %.   Not bad at all in markets where heightened apprehension and risk-aversion are kings.

Furthermore  , international agencies forecast  that Peru will  continue to grow at a fast pace in 2009  .As can be seen in the table below,  the IMF  recently  increased the growth estimate for Peru in 2009   from 6% in April to  7%  in October  . Last week, Morgan Stanley (MS) published a less rosy picture, and in my view a more realistic one. MS estimates that Latin America would grow at half the rate estimated by the IMF: 1.5% versus 3.1 %.  In what the IMF and MS agree is that in 2009, Peru will be the fastest growing economy in the region. In MS’s calculations, Peru would grow at 4%; still more than double the rate of growth of any of the other large economies of the region.

Several reasons weigh heavily in these projections. First, Peru’s resilience to the current meltdown. Second, Peru’s track record of economic reform. Third, the strong pipeline of FDI projects, totaling US$ 36 billion for 2009 -2011 – many of which under execution. And forth, budget slack for countercyclical policies in the form of supplemental public investment and social expenditures. That slack owes to the sterilization of the commodity boom –Peru exports inter alia minerals – by the Central Bank and the Peruvian Treasury from 2005 to 2008   . In that period, the budget was brought into a surplus of 3% of GDP per year and the Central Bank accumulated a flow of US$ 16 billion (or 13% of GDP) of international reserves via open market purchases.

During the last two months, nevertheless, headline news and commentary in Lima have focused on two “negatives”: the crash of the Peruvian stock exchange and the related losses of the private administrators of pension funds (or AFPs as the acronym in Spanish goes   ) .AFPs are allowed to invest about one third of total assets in equities, and these are now value impaired. As of late October, the loss had reached US$ 3.5 billion in a consolidated balance sheet of US$21 billion .Undoubtedly, if stock prices were not to recover in the coming months or couple of years, the loss could cause hardship for future pensioners and/or strain to the government purse. History tells us, however, that stocks eventually bounce back. The rebound of Peruvian stocks during the last week has been particularly strong: about 30%.

In assessing Peru’s performance on these two “negatives”, one has to gauge them against relevant international benchmarks   .   In September, the largest insurance and pension company in the world, AIG, collapsed and the US government had to come up with money to the rescue. Likewise, the Argentine authorities jumped to nationalize pension companies so as to forestall default on its sovereign bonds. In parallel, stock markets have fallen everywhere .And the list of external calamities goes on and on.  In comparative terms, Peru’s downside has been relatively limited.

Press and pundits in Lima – with few exceptions here and there – have lost a once- in- a -lifetime opportunity: cheer up the relative strength of the Peruvian economy in the midst of unprecedented global weakness.


14 Responses to "Peru Set to Be The Fastest Growing Economy of Latin America in 2009"

  1. mark turner   November 11, 2008 at 6:56 am

    Tell all that to the 40% of Peru’s population that lives on less than U$2 per day. It’s very easy to criticize local press and say they are unduly negative when your experience of Peru is to “visit” and stay in those nice hotels in Miraflores.

    • Guest   November 14, 2008 at 9:34 am

      As a peruvian, you need to undertand that we need to grow at a 9-8% rate during the next 20 years to reduce that 40% to 3% or 5%. We are doing that and we will continue to do that during the next years. Btw, there is nothing wrong about staying in a nice hotel in Miraflores, let’s work together, hand to hand and build the country that we deserve, it’s going to take years but we are on the right path.

  2. mark turner can suck me   November 11, 2008 at 4:25 pm

    Great article, giving credit where credit is due. Good observations.Mark Turner can suck my scrotum. Poverty rate may be high asshole, but strong growth changes that, just look at China and how they’ve reduced the poverty level through strong growth. Following your moronic analysis, tell India’s seven cagillion people below the poverty line any good news and see if they don’t eat your sorry ass.Lago speaks the truth. From 1996 through 2004, if you went to any local news site that had an online survey, I don’t care what the question was, the result was always 91% NO, 3% yes. Peruvians are pessimistic by nature and genetically incapable of optimism due to sever social inequities and historical setbacks in a country where the national passtime was shooting itself in the foot. But finally shit is going the right way (real investment rates have surged over the past few years, formal employment is finally taking off, the government is a net foreign creditor, government debt is de-dollarizing as is the financial system, growth is starting to trickle down, etc.). Peru has to follow the path of growth and responsible economic policies and that poverty rate will fall faster than Mark Turner spits out retarded and incomplete analysis.

  3. Guest   November 15, 2008 at 5:32 pm

    Oh, come on Mark Turner, enough of your anti-IFI or anti-Western rhetoric. Ricardo makes a valid point. Since when does the local press in Peru or many other LA countries have the the true interests of poor people in mind when writing their stories. It could easily be driven by politics or a way to make some money by bad mouthing the major Western powers/major IFIs. Look, local press in many other countries (in LA and even China) that are economically growing at similar rates as to that seen in Peru yet have similar rates of poverty (and have had them) are not as negative about their countries economic situation. Something fishy does seem to be going on in Peru. Quit being so ideological and be open to different interpretations of the facts. Also, as an Equities Analyst, I’m sure you also stay in Peru’s nicest hotels and eat at the nicest restaurants in Arequipa, so don’t try to use that garbage on Ricardo.

  4. Ronnie, NYC   November 15, 2008 at 5:40 pm

    The tone of Turner’s comments gives the impression that he thinks he is the expert on the political economy of Peru and that all other reasonable analyses are inferior or flat out wrong. Has he ever worked for a major international financial institution? He’s not in the same league as Lago. Lago’s credentials are impressive and his analyses seem to have also been balanced and based on facts – not driven by ideology. I think I sense a little bit of jealously from Turner – he’s being outdone.

  5. Gilbert Fine   November 18, 2008 at 12:10 pm

    I agree, great piece!Not too sure about Mr. IncaKola’s Mark Turner though…He hides behind a lame nome de plume and pushes fishy mining investment chips in Peru.Hah! What a hypocrite.Mining in Peru is an industry mostly fueled by foreign investment. Ill famed for human rights abuses and poisoning entire populations of mothers and children in mining hellholes like La Oroya, and others all over Peru.See FORBES top 10 most polluted in the world, on you Mr. CacaKola!For more on this turd’s slanted Latin American views visit,

  6. Godofredo Arauzo   January 11, 2009 at 6:53 pm

    POLLUTION TO THE OROYA CITY PERÚThe years 2006 and 2007 the Blacksmith Institute have accomplished a research about the cities more contaminated to the world and arrived to the conclusion that the Oroya city was between the 10 cities more polluted of the world and, the environment Graffiti 2008 said that is between five more pollute too to the world. This qualifications are benevolents; according to my researchs to many years who I am publishing, the Oroya city is the most polluted to Peru, Latin America and of the world and every day is being more polluted: lead in blood in children in the Ancient Oroya in average 53.7 ug/dl ( DIGESA 1999); pregnancies women 39.49 ig/dl ( UNES 2000), new borns children 19.06 ug/dl, puerperal 319 ug/100 grams/placenta ( Castro 2003) and workers 50 ug/dl ( Doe Run 2003).Top lead in blood accepted 10 ug/dl; present day is 0 ug/dl ( Pediatric of Academy to USA)When the Oroya city was in hands to the CentroMin eliminated only by the upper chimney to 167.500 meters, in average by day in tons: sulfur dioxide 1000, lead 2500, arsenic 2500, cadmium 40, particulate matter 50 and so on, more 24,000 to toxis gas product to the incomplete combustion of the coal, without count it is eliminated by industrial incinerator y by the 97 smalls chimneys, it is estimated 15,000; overall 45,000 tons for day (PAMA . El Complejo Metalúrgico de la Oroya, 1996); other research say that by this chimney only eliminate overall 119¨917,440 tons too every day to a velocity to 8.7 meters by second ( Chuquimantari C. Yauli-La Oroya Minería y Ciudades Empresas Pág. 57, 1992)Doe Run envoy every three months the concentrations of the heavy metals to the Ministry to the Energy and Mines and with the sames datums Ceverstav have demostrated the pollution was increased; for example the sulfur dioxide it have increased in near to 300 %, by increment to the production (Cederstav. La Oroya no Espera 2002The American Association to the Environment say that the environmental quality to the Oroya it is serious deteriorated since that Doe Run was owner and the same enterprisedeclared that the concentrations of the heavy metals gas is ncreased in the air: lead 1160 %, cadmium 1990 % and arsenic 6006 % (Portugal, et al. Los Humos de Doe Run 2003)

  7. Cesar   February 26, 2009 at 12:37 pm

    These guys here highlighting as much as they can, all the negative things and downsides, and with that trying to hide at the same time, all the progress and achievements of the Peruvian Economy during the last decade, look like they do that in purpose to try to make Peru looking bad, when somebody reads the bullshit they write.Is somebody paying these guys to write this? Who are you guys? Wether you are Peruvians or not, let’s be honest recognizing the great achievements of Peru in the last years and at the same time, and for the Peruvians: Let’s work hard to beat the remaining challenges.As one of the previous comments mentioned before, we are on the correct path to development and nobody can deny 9% GDP growth in 2008 is simply great! Like China, this is impressive.Peru has a good future, and strategic geo-political location in South America, plenty of natural resources and diversity of weathers. Its population at all levels, is starting to enjoy the benefits of this growth and not too far in the future, the face of the country will be changed. The ones who today write these lines, will live to see this change.The future of Peru is promissory and with hard work we will make it good.

  8. Anonymous   April 1, 2009 at 1:25 pm

    I am peruvian, 20 years living in USA because I married a new yorker in Peru…I didn’t have the need to come here to make money as my family always had it…Well, when I go to Peru to visit my whole family, is nice, the food also good but the stupidity of the limenos is something I can’t deal with…Peru economy will grow, yes,but the peruvians have to stop being stuck up and racist…this will help greatly to Peru’s economy, you give everyone equally chance(and rights) to succeed! I am white btw, half italian…but I’ll like to see some black people in the richest cities of Peru…we are all equal. YES, I THINK AS AN AMERICAN, I AM CHRISTIAN TOO!

  9. Guest   May 18, 2009 at 12:02 pm

    Anonymous, you should try to go to Peru and give the blacks and indigenous your family’s money…since more likely than not it was made at the labor/expense (underpayment) of those you are trying to stick up for….or you can go back and teach in rural areas…or form a non-profit in Lima to re-educate limenos on how to not be so “class conscious” like your buddies in NY (are you preaching the same thing in midtown manhattan about renting to people from harlem? its everywhere…..not just Lima…

  10. Pituco   May 18, 2009 at 12:22 pm

    I remember the days when the beaches around miraflores were some of the best in that area. Unfortunately, little by little people from poor towns started migrating to the capital and completely fucked them up – bringing pots, pans, garbage to the beach…ruined them. Now we have to travel over an hour to get something decent. Thats why Limenos don’t exactly love the indigenous! Cholo de mierda…

  11. Anonymous   June 2, 2009 at 1:17 am

    To Pituco: Por que no te vas del paìs? …remember the song.

  12. oviedo   June 23, 2009 at 6:25 pm

    Pituco is correct. Peruvians have a right to be angry at their lifestyle being destroyed by ignorance. Cholos suck.

  13. Guest   July 2, 2009 at 4:54 pm

    Strangely enough, Peru isn’t set to be the fastest growing economy in Latin America in 2009.That honour now goes to Bolivia.Go figure.