Finance Minister of the Year, Latin America 2015
Countercyclical policies are helping Peru out of the commodity rut
Copper, one of peru’s principal exports, was already three years into a price slump when Alonso Segura Vasi took office as Peru’s finance minister in September 2014. Immediately, the metal entered another even sharper fall that has taken it to lows not seen since 2009.
It was something of a baptism of fire for Segura, a former chief economist at BCP, Peru’s largest bank, who had a tough act to follow after replacing Luis Miguel Castilla. Castilla had been a highly popular official and figure of stability as finance minister while other cabinet posts frequently changed under President Ollanta Humala.
“Markets liked Luis Castilla a lot but the government’s credibility has remained high under the new minister, which you can see with the very stable behaviour of the dollar curve versus other Latam credits,” says Alvaro Vivanco, Latin American strategist at BBVA in New York.
After an absence of more than 2½ years, Peru has also made its presence felt in the bond markets. The government issued in October 2014, March 2015 and August 2015, raising both nuevo sol and dollar notes.
“In the bond market Peru’s execution has been excellent; they have issued at the right time and have kept several lines of funding open,” says Vivanco.
The sovereign’s latest issue in August may have surprised some with its timing — it was in the middle of the holiday season. But DCM bankers have since praised Peru’s shrewdness for anticipating the severe volatility bout that hit EM debt markets in September.
That Peru has been able to increase debt issuance without causing concern is in part thanks to the fact that — unlike most of its neighbours — the country had been running fiscal surpluses during the boom times. This left it with far greater space to react and Vivanco believes that “Peru has done a very good job in implementing countercyclical fiscal policies”.
Indeed, while most other Latin American countries suffer from public spending cuts, Segura has guided growth to above 3% for the first two quarters of 2015 and the month of July.
“Peru’s government has been very proactive with the measures it has taken to help the economy counter the effect of low commodity prices, on both a macroeconomic and microeconomic level,” says Juan Lorenzo Maldonado, economist at Credit Suisse.
GDP growth has so far been driven by an increase in mining production, while there is disappointment that public investment has decreased as new regional and local governments settle in.
But there are hopes that Segura’s determination to reduce red tape could help to change this.
“There have been real efforts to increase public sector investment at the national, regional and local level as well as several fiscal stimulus initiatives that should help growth dynamics in the coming months,” says Maldonado.—Oliver West