Peruvian Growth Rebounds

Yo-Yo

Peruvian growth bounced back as surging mining, fishing, banking and construction helped the economy expand at an annual rate of 5.7% in February. It comes as a relief for investors worried by a slowdown last year that saw growth drop to 5% from 6.3% the year before. The question now is if Peru, which was one of Latin America’s fastest-growing economies, can sustain its recent success.

Can it keep it up?

The bad figures in 2013 seem to have shaken President Ollanta Humala’s government and encouraged it to enact pro-growth reforms. Obviously some of the problems are linked to global conditions. For example, the slowdown in growth is partly linked to falling Chinese demand for Peru’s commodity exports, with revenues for exports falling by 16% in January 2013 compared to the same month the previous year.

But other factors are domestic. For example, mining and energy firms have complained about unduly burdensome environmental permits delaying projects. To that end Peru’s new Minister for Energy and Mines, Eleodoro Mayorga, has promised to cut the need for permits in areas that aren’t deemed ecologically sensitive. Another big issue is community relations – for example, Canadian miner Newmont’s plans for proposed $5billion goldmine have been stalled by protests from angry local residents. So Mayorga is also taking a look at improving the ‘prior consultation’ process that governs community approval for projects. Both steps would be encouraging for international investors. Moreover Mayorga has hinted that there is more to come, referring to a “package of measures”.

Attracting foreign capital

Another way that Peru hopes to drive growth is by boosting investment. Thanks to following strict orthodox macroeconomic policy for the last twenty years the country’s finances are in sturdy shape. Debt stands at just 18% of GDP, while much of the debt has been re-profiled into longer-term or locally-denominated securities, which reduced the country’s exposure to the caprices of international debt markets. Peru is now keen to use this financial muscle to implement a series of massive infrastructure projects. The second line of the Lima Metro will be constructed for $6bn, while around $7.5billion will be spent on upgrading a state-owned refinery and building a gas pipeline. If you missed out on these bids don’t worry – a further $12billion of further infrastructure works are set to be awarded to the private sector this year.