Weekly Report - 23 August 2012 (WR-12-33)

PERU| Long term bonds upgraded. On 16 August ratings agency, Moody’s upgraded its rating of long term foreign and local currency denominated Peruvian government bonds from Baa3 to Baa2 with a positive perspective. Moody’s explained that the upgrade reflected a number of relevant factors such as: a reduction in political risk, a continuous and robust economic growth, a solid fiscal performance, improvements in the government’s debt indicators and a reduction in the country’s exposure to foreign denominated debt. The agency highlighted Peru’s GDP growth of 6.9% in 2011, its fiscal surplus of 1.8% of GDP and drop in the GDP/debt ratio to 21.2% as substantial improvements in relation to 2009, the last time that Peru’s rating was increased, when growth was 1%, the fiscal deficit was 1.5% of GDP and the GDP/debt ratio was 26%. Moody’s said that the perspective is positive as “investor confidence has recovered after it fell following the presidential elections and the country has managed to post a solid annualised growth rate of 6% in the first half of the year despite the deteriorating global economic environment”. It added that “although President Ollanta Humala has tried to increase the government’s focus on social inclusion, since he took office he has shown a commitment to maintaining prudent fiscal and macroeconomic policies… contrary to fears that his policies would lead to fiscal deterioration”. Moody’s said that the rating could be increased even further this year if, among other things, Peru is able to overcome important structural deficiencies linked to its weak institutions and strengthen its ability to resolve social conflicts constructively. These are the two main challenges on which the Humala administration must concentrate.

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