Hope for poverty reduction in Peru

Peru’s Prime Minister Jorge del Castillo yesterday announced that half a million Peruvians have “escaped from the shadow of poverty” thanks to the country’s sustained economic development.

He stated that the country’s overall level of poverty has dropped from 48% to 44% of the population, while recognizing that some regions are harder hit – for instance, 88% of people in Huancavelica region live below the poverty line.

To help address this problem, which is shared by neighboring Andean regions such as Ayacucho, he announced a new law that relaunches Agrobank, a state-run entity that offers credit to small-scale farmers to help them develop their income.

Peru defines poverty as the economic inability to maintain an adequate food intake.

Machu Picchu train company fined under monopoly law

The Trans-Andean Railway Company, responsible for rail transport to Machu Picchu, has been fined over $185,000 for operating an illegal monopoly. The company has also been ordered to cease its practice of refusing to sublet trains and other equipment that it rents from the state.

According to its contract, it is obliged to rent these units to other companies that wish to operate rail service along the route. The only rental contracts that it has accepted in the past were to its own subsidiary Peru Rail, while it rejected applications by any company that was not linked to it.

This landmark ruling, the first of its kind in Peru, is hoped to bring in new completion for transport along the route, and reduce prices for tourists travelling between Cusco and Machu Picchu.

Peru’s economic risk hits new low

Peru’s economic risk rating dropped on Friday from 1.00% to 0.97%, as calculated on the JPMorgan EMBI+ rating. This is the first time in the nation’s history that its rating has dropped below 1%.

The Emerging Markets Bond Index Plus is a rating of the difference in value between a Peruvian government issued bond and an equivalent bond issued by the US treasury, so is an accepted measure of the probability that a country fail to meet its obligations. A low rating means that the country is seen as “safe” by international investors.

This drop in risk is likely to encourage a large number of international financiers who only consider investing in countries with a rating of under 1%.

Peru’s international credit score is given as BB+ by two of the three main agencies, Fitch Ratings, Standard & Poor’s and Moody’s – just one step away from the top level ratings in the A category.

Many analysts consider it likely that Peru will reach the “investment level” soon, which is expected to result in a flood of foreign investment. A risk rating of under 1% and a credit score of A are the key components necessary for this to happen.

Peru Reserve Bank chief: stock exchange volatility down to inexperienced investors

Julio Velarde, the President of Peru’s Central Reserve Bank (BCRP) yesterday blamed recent instabilities of the Lima Stock Exchange (BVL) on the influx of a large number of inexperienced investors, drawn in by the indices’ high yield this year, who then panicked when prices started to drop. He estimated their total investment at around US$500 million.

“People without much experience on the exchange were jumping in, buying up the stocks that had already experienced a lot of growth this year. They bought when the stocks were highly valued, and when the indices started to drop they started to panic and moved to sell out,” said the finance director.

He attributed part of the recent sudden drop of the exchanges indices to this mass selling by small investors, who had been attracted by the exchange’s growth; but described the recent drop as a readjustment that is already over, and not indicative of a slowing in overall growth. He pointed out that the BVL has grown by 168% in the past twelve months, with 42% increase so far in 2007 alone.

Lima Stock Exchange breaking records for growth

By midday today the Lima Stock Exchange (BVL) had already broken records for growth on a single day, with the General Index (IGRA or IGBVL) increasing by over 7.8% — more than enough to offset yesterday’s catastrophic fall. The Selective Index (ISEL or ISBVL) rose by 8.25% in the same time.

On a day that seems to be bringing further rises in international metals prices, the mineral sector is recovering very fast from the heavy losses experienced over the past few days, with investors hurrying to buy into what seems to be the start of a new upsurge.

UPDATE: By early afternoon, the General Index was showing growth of 8.35% and the Selective Index 8.50% today. Some analysts were talking of a 10% increase by close of trading.

See also:
President Garcia: economy as solid as a rock
Lima stock exchange back in the black, with furious trading and staggering increases
Record losses on Lima Stock Exchange

President Garcia: economy as solid as a rock

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President Alan Garcia stated today that he expect the Peruvian economy to grow by 7-8% this year, due to an increase in local consumption and foreign investment, rather than due to the increases in world metal prices that have bolstered the economy in the first quarter but which are due largely to external factors.

Calling the economy “real, material and productive”, he said that Peru’s projected economic growth for 2007 is the highest in Latin America.

He added that the government’s reduction in customs tariffs at the beginning of the year has brought a heavy influx of machinery and capital goods, with first quarter import figures up 40% on 2006.

He referred to this growth as a sign of active investment and increased production capacity, which he expects to be reflected in generation of employment.

The economic growth has occurred despite low inflation rates of around 1%, so the President described the economy as “not heating up”.

He also cautioned against taking the last weeks’ drops in the Lima Stock Exchange (BVL) as indicative of a long-term downturn – a prediction that seems to have come true already with today’s very solid gains on the trading floor.

Lima stock exchange back in the black, with furious trading and staggering increases

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In the first few hours of today’s trading on the Lima Stock Market (BVL), a powerful rallying of investors has led to an increase in the indices that effectively wipes away yesterday’s spectacular losses. By noon the General Index (IGRA or IGBVL) was up 7.26% on yesterday’s close, while the Selective Index (ISEL or ISBVL) of the top fifteen companies traded had put on 7.82%.

A return to calm in Far Eastern markets and a positive outlook on the New York markets have led investors to regain confidence after yesterday’s catastrophic fall, and brisk morning trading could now spell the end of the two-week doldrums that have affected the Peruvian exchange.

Among the major winners, Volcan zinc looks set to recover from its heavy losses yesterday, while sugar, rum and biofuel company Pomalca is once again surging ahead, with a 14.49% gain in the first few hours of today’s trading.