Peru Raised to BBB+ by Fitch as Humala Draws Mine InvestmentJohn Quigley
Peru’s credit rating was increased one level by Fitch Ratings, making it the highest-ranked South American country after Chile, as the government cuts debt and mining investment fuels growth.
Peru’s long-term foreign-currency rating was raised to BBB+, or three levels above junk grade, with a stable outlook, Fitch said today in a statement. Standard & Poor’s raised Peru to BBB+ from BBB on Aug. 19. Moody’s Investors Service rates Peru at Baa2, two levels above junk, with a positive outlook.
President Ollanta Humala, a retired army officer who took office in July 2011, has maintained the previous governments’ “pragmatic approach” to private investment, allowing Peru to withstand slower global growth, Fitch said. Peru will probably post a fiscal surplus for a third consecutive year and cut public debt to the equivalent of 19 percent of gross domestic product from 20 percent in 2012, it said.
“Peru’s established track record of policy coherence and credibility as well as the sovereign’s fiscal and external financing flexibility underpin its strong shock absorption capacity,” the ratings company said.
The yield on Peru’s 7.125 percent dollar bond due March 2019 dropped nine basis points, or 0.09 percentage point, to 2.64 percent at 4:40 p.m. in New York, according to data compiled by Bloomberg. The sol depreciated 0.4 percent to 2.765 per U.S. dollar.
During an unsuccessful 2006 presidential bid, Humala accused foreign companies of looting the country and said he would renegotiate contracts. By the 2011 election, he had toned down his rhetoric, vowing to respect contracts and keep South America’s sixth-largest economy open to trade and investment.
This year’s drop in prices for copper and gold, the country’s biggest exports, has dimmed the outlook for private investment. The economy expanded 4.3 percent in August, the second-slowest annual pace since 2010.
Slower growth prompted Humala to sign laws to reduce bureaucratic delays to mining investment and modernize the civil service. He met with investors in the U.S., Indonesia and Thailand this month as the country seeks bidders for a portfolio of $15 billion in infrastructure projects.
Companies plan $57 billion of mining investment in Peru, according to the Mines and Energy Ministry. Metals accounted for 56 percent of Peru’s exports in the first half of this year.
Though the pace of Peru’s expansion will slow to 5.4 percent this year, from 6.3 percent in 2012, the country continues to outperform BBB ranked economies, such as Brazil, Panama and South Africa, Fitch said. It rates Chile A+.
“Continued pragmatism under the Humala administration and a steady progress on reforms suggests that the risk of a marked departure of economic policies has reduced,” the company said.
Finance Minister Miguel Castilla said the higher rating will reduce overseas borrowing costs for the government and local companies.
“This is clearly good news amid all the uncertainty in international markets,” Castilla told reporters in Lima. “It ratifies the country as an attractive destination for investors, who are now being more discerning about they go.”