Wall Street Vet Turned Peru Leader Pushes Credit Revolutionby and
Fresh from China visit, former banker is in NY for UN meeting
Says Peru has ‘less baggage’ than Argentina and Brazil
Seven weeks after assuming office, Peru’s President Pedro Pablo Kuczynski is trying to lure investors by touting an economic agenda of boosting credit, repairing inefficiencies and reducing the nation’s reliance on copper.
The president, a 77-year-old Wall Street veteran and former finance minister, is making his first official visit to the U.S. this week. He is pitching Peru as a land of opportunity, contrasting it with neighboring Brazil, which is suffering its worst recession in a century, Argentina, regaining slowly from years of economic malaise, and Chile, facing a faltering recovery.
"We have a lot less baggage" than Brazil and Argentina, Kuczynski said Monday at Bloomberg headquarters in New York. "We have modest inflation -- less than 3 percent -- and we have no net debt to speak of either."
Kuczynski’s visit to New York, where he will speak before the United Nations General Assembly and meet with fellow Latin American leaders, follows a week-long trip to China. That visit, his first as head of state, was a departure from his three predecessors’ inaugural trips to the White House, and signaled a pivot to Asia.
The president said Chinese companies expressed enthusiasm toward his proposal to build a $2 billion to $3 billion coastal railway project to serve the Lima metropolitan area, and that China will begin importing Peru’s "grape-sized" blueberries in November.
The former banker took office July 28 after winning a knife-edge runoff vote against Keiko Fujimori by about 40,000 votes. Business confidence soared and bonds rallied after Kuczynski laid out plans to recalibrate Latin America’s fastest-growing major economy by attracting foreign investment and accelerating infrastructure projects and lowering taxes.
Peru will seek to refinance as much as $6 billion of its $45 billion debt after yields on its dollar debt fell to an almost four-year low this month.
"We’ve got to take advantage of that, we’d be crazy not to,” Kuczynski told Bloomberg Television’s Tom Keene during the visit. "We’re not going to shift so much into domestic debt but into better international debt."
Fujimori has not spoken to him since the election, but her party, which controls Congress, has so far been cooperative. Kuczynski expects to obtain legislative powers within the next month to rule by decree for 120 days in order to fast-track his economic program. He enlisted a Fujimori ally to head a reform of the tax agency.
That battle is far from over. Absent from Kuczynski’s New York entourage this week is Finance Minister Alfredo Thorne, who stayed in Lima to review the national budget, while other members of the president’s cabinet continue to push for legislative powers.
Perhaps of greater long-term concern to Kuczynski is placating a leftist camp emboldened by the presidential campaign of Veronika Mendoza. The Cusco-based former congresswoman, who eventually endorsed the president, catered to a supporter base that has openly criticized his mining agenda and appeared neck-in-neck leading up to the nation’s first-round vote.
Peruvian investor anxiety increased the second-most in the world year-to-date through June 10, trailing only the U.K. on Brexit-related fears. Following Kuczynski’s victory, Peru’s one-month implied volatility reversed -- declining 3.1 percentage points, the most among Latin America’s major economies. Peru’s sol will strengthen 1.2 percent against the dollar in the fourth quarter, the only South American currency projected to appreciate, according to forecast spot returns based on analysts’ predictions compiled by Bloomberg.
The president said the bond swap would be positive for the local currency and added that while the copper market is nearing its bottom, it will take time for prices to recover. He plans to drive down the sales tax from 18 percent and lighten profit taxes for Peru’s smallest companies while doubling domestic credit to more than 60 percent of GDP within four years.
Peru plans to use state-owned lenders including Banco de la Nacion to expand lending to small businesses and seeks to make it easier for foreign banks to invest in the country.
Watch Next: Peru's President Will Use a 'Credit Revolution' to Spark Investment
“There’s going to be a credit revolution in Peru,” Kuczynski said.
The government is disentangling delayed irrigation and airport projects to “get over the hump” in private investment, which has fallen for 10 consecutive quarters, Kuczynski said.
The president said his plan to lower sales taxes will cause a temporary dip in revenue but is needed to help combat evasion and won’t threaten the nation’s reputation for fiscal prudence.
He also called on South American nations to supply food and medicines to Venezuela to ease shortages.
Although his rise marks a decline in Latin American populism, Kuczynski still sees himself as a “people’s president,” someone who drives himself to the gym, does yoga with his cabinet and takes selfies with college students.
The Peruvian people "want a leader who isn’t going to grandstand and make long-winded speeches from the dais -- they want somebody they can talk to," he said.