Peru Should Seek Haven From Fed in Sol Bonds, Minister Says

  • Higher U.S. rates are a threat to Peru, finance minister says
  • Government proposes narrowing fiscal deficit in 2017

Peru should protect itself from the risk of rising U.S. interest rates by issuing debt in the local market to finance next year’s budget deficit, Finance Minister Alfredo Thorne told lawmakers.

Though the country could tap a $2.5 billion credit line from the World Bank to finance the budget gap, the government should opt for sol-denominated debt to protect itself from potential currency fluctuations, Thorne told the congressional budget committee on Wednesday.

“We have to anticipate the risks we’re going to face and the biggest risk we face is rate increases by the Federal Reserve,” he said.

Peru’s new government plans to boost spending 4.7 percent next year to support weak economic growth. To do that it needs to change the country’s fiscal transparency law to allow it to reduce the fiscal deficit at a slower pace than allowed by existing rules. The government’s proposals will increase public debt to 27 percent of gross domestic product from 25 percent now, Thorne said.

The budget committee approved the government’s draft legislation and the bill will be debated by the full floor of Congress on Thursday.