Peru to Buy Back as Much as $2 Billion in Bonds

Peru will buy back as much as $2 billion in international bonds next month, more than initially planned, and the treasury will begin purchasing dollars to stem the sol’s appreciation, Finance Minister Luis Castilla said.

Peru’s sol gained 5.7 percent last year, the best annual performance since 2009, even after the central bank bought a record $13.9 billion in the spot market to soak up excess greenbacks. The currency reached a 16-year high this month.

“The great challenge we have right now is how to deal with the entrance of capital into our country that’s making the currency stronger,” Castilla said in an interview in Davos, Switzerland. “We aren’t opting for capital controls at the moment. The central bank can continue intervening aggressively.”

Peruvian officials are studying which securities to target in the buyback and will seek to purchase $1 billion to $2 billion in foreign debt, he said. Castilla in December had said Peru would purchase as much as $1.5 billion of foreign debt.

Peru’s central bank ruled out using capital controls to stem the sol’s gain. Nations from Russia to Chile have warned of another currency war to curb the appreciation of emerging-market currencies as investors from developed markets plow money into higher-yielding assets.

Silver, Copper

Peru is the largest producer of silver in the world and third-largest in copper. Record foreign investment is fueling the surge in the sol.

“The appreciation corresponds principally to fundamentals, like foreign direct investment,” Castilla said. “Speculative money is not the main reason, like in other markets.”

Peru’s economy expanded 6.3 percent last year and will grow at a similar pace this year, as exports rebound and internal demand continues to grow at about a 9 percent pace, he said. The budget surplus was 2 percent last year and will be about 1 percent this year, according to the minister.

The yield on Peru’s dollar bond due in August 2020 has dropped 190 basis points to 3.8 percent in the past year.

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