Peru’s plan to pay down foreign debt as part of an effort to stem the currency’s rally will focus on the repayment of multilateral loans rather than bonds, Finance Minister Miguel Castilla said.
The $2 billion program, part of a bigger $4 billion effort to curb the sol’s four-year rally, would only include the repurchase of bonds “if the pricing makes sense,” Castilla said in an interview in New York. Peru will purchase dollars in the local market to repay the loans.
Peru’s sol reached a 16-year high this month even after the central bank bought a record $13.9 billion in the spot market in 2012. The currency was little changed at 2.5615 per U.S. dollar at the close in Lima.
Nations from Russia to Chile have expressed concern over the appreciation of their currencies as investors from developed markets plow money into higher-yielding assets.
“The expansive policies in the U.S. and Europe are not taking in consideration that there’s an undesirable collateral effect,” he said. “The strengthening of the currencies in emerging markets can have damaging effects if it’s not managed adequately.”
To ease the appreciation of the sol, Peru may also increase the percentage of assets that local pension funds can invest abroad to 34 percent from 32 percent as soon as next month, Castilla said.
Peru will also add $1.5 billion to $2 billion to a contingency fund as part of the plan to stem the currency’s appreciation, he said. The government can draw money from the $7 billion fund if a natural disaster or other type of crisis threatens domestic growth.