Peru’s Economic Proposals Positive for Credit, Moody’s Says

Peru President Ollanta Humala’s proposals to shore up private investment amid an export slump would pave the way for faster growth and bolster the country’s creditworthiness, according to Moody’s Investors Service.

The measures, should they be enacted, will increase the potential for expansion in the medium to long term and provide an immediate boost for business confidence, Moody’s analyst Jaime Reusche said in a report issued today.

Peru will relax environmental rules for oil and gas projects, streamline bureaucracy and reduce labor overheads, according to proposals in draft legislation unveiled by Humala on June 11. The push comes as the economy heads for a fourth straight year of slower growth while a 6.8 percent drop over the past year in the price of copper, the nation’s biggest export, damps mining investment.

“The authorities are tackling a bunch of the longstanding issues that perhaps were neglected in previous governments,” Reusche said by phone from New York. “It certainly is favorable for the country’s credit profile.”

Moody’s will probably decide before the end of the year whether to raise Peru’s rating, he said.

The New York-based company raised Peru’s credit rating in 2012 to Baa2, the second-lowest investment grade. It maintains a positive outlook on the rating, Reusche said.

Economic activity rose 2 percent in April from a year earlier, the slowest in five years, as mining and construction output fell, Peru’s statistics agency said yesterday.

GDP Forecast

Moody’s expects Peru’s economy to grow 5.2 percent this year, compared with 5.8 percent in 2013. The median forecast of analysts surveyed by Bloomberg is for gross domestic product to increase 5.3 percent this year and 5.6 percent in 2015.

The government will send the package to Congress this month, and lawmakers probably won’t water down the measures, according to Reusche. The government’s low debt and fiscal surplus means it has room to increase spending to boost growth if necessary, he said.

Peru will cut public debt to 18 percent of GDP this year from 20 percent in 2013, the lowest in the Americas after Chile and Paraguay, according to the International Monetary Fund.

“They have that space, but their focus doesn’t seem to be on easing fiscal policy unless it’s on important infrastructure development,” Reusche said. “They’ve opted for tackling structural bottlenecks to growth. That seems like a very prudent strategy that is likely to bear fruit.”

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