Political Risk Latin America Blog @PolRiskLatam

Julio Velarde to Stay On at Peru Central Bank for Five Years, Humala Says

Posted in News and Articles, Political Risk by politicalrisklatam on July 18, 2011

by John Quigley for Bloomberg, July 18th, 2011.

Peru’s President-elect Ollanta Humala said Central Bank President Julio Velarde will remain in his post for another five-year term to help maintain economic stability.

Velarde accepted an invitation to stay on after his term ends July 28, Humala said in an interview with Lima-based America Television yesterday. Velarde has led the central bank “well,” he said. Humala said he’ll announce ministerial posts July 20.

“Our commitment is to provide macroeconomic stability and stability in monetary policy, which Julio Velarde is going to do,” Humala said. “We’re sending the right messages.”

Humala, who takes office July 28, is seeking to reassure investors concerned that his plans to raise mining royalties, increase Peru’s minimum wage and enlarge state companies may crimp private investment fueling the region’s fastest growth of the last decade. The $153 billion economy expanded at the slowest pace in 15 months in May as companies reduced spending while waiting for the 49-year-old former army rebel to announce his economic policies.

The Lima General Index of stocks has fallen 13 percent this year amid concern Humala’s plans to introduce a mining windfall tax will endanger $42 billion of investment in mine expansions. The yield on Peru’s benchmark 7.84 percent sol-denominated bond due August 2020 has risen 36 basis points, or 0.36 percentage point, to 6.30 percent this year, according to prices compiled by Bloomberg. (continue reading… )


Will Peru Take on the Narco-Traffickers?

Posted in News and Articles, Political Risk by politicalrisklatam on July 6, 2011

by Latintelligence, published in conjunction with Latin America’s Moment at the Council on Foreign Relations.

As Peruvian President Elect Ollanta Humala prepares to take office at the end of the month, the worries focus on his economic policies. Will he be another Chavez, nationalizing industries, or a Lula, balancing market friendly macroeconomic policies with broader social programs? The fears have led to a rollercoaster month in the stock market, which sank a record-breaking 12.5 percent the day after Humala’s election, only to bounce back one day later. Rumors of Humala’s plans for the mining industry, private pension funds, and even the free trade agreement with Peru and Colombia abound.

Receiving less attention is how Humala will manage security issues— and particularly narco-trafficking.  According to this year’s United Nations Office on Drugs and Crime (UNODC) World Drug Report, Peru is now virtually tied with Colombia as the largest supplier of cocaine in the world. And with skyrocketing cultivation come the more nefarious elements of organized crime. Evidence suggests Mexican cartels are working with local criminal groups and some say moving into Peru themselves, spurring a precipitous rise in drug-related violence in recent years.

Throughout the campaign Humala promised voters a tough on crime, or ‘mano dura,’ approach. He talked about centralizing anti-drug strategies into one agency — a High Commission on Drugs. More controversially, he supported a role for local militias in the fight against narco-traffickers. Recently he met with Colombian President Juan Manuel Santos to talk about bilateral counternarcotics cooperation.(continue reading… )

Peruvian Elections In The Rearview Mirror: An Investor’s View

Posted in News and Articles, Political Risk by politicalrisklatam on June 24, 2011

by PineBridge Investments for Latin American Venture Capital Association, June 2011.

Ollanta Humala’s victory in Peru’s presidential elections is without doubt a defining moment for the country. Not only does it underscore an important disconnect between urban and rural realities, but it also proves that the overall level of growth seen in Peru has not yet trickled through to more localized areas of the country’s economy, in spite of the 100% growth in per capita income over the past decade.

Download the full article here.

Statement by Ambassador Ron Kirk on the Passage of Peru’s Forestry and Wildlife Law

Posted in News and Articles, Political Risk by politicalrisklatam on June 21, 2011

published on the Office of the United States Trade Representative, June 2011.

“Yesterday, the Peruvian Congress passed a new Forestry and Wildlife Law. This law sets out key reforms called for under the United States-Peru Trade Promotion Agreement (PTPA) Annex on Forest Sector Governance aimed at combating illegal logging and illegal trade in wildlife. Passage of this law is the result of significant work and extensive consultations with Peru’s indigenous and local communities, and represents a milestone in Peru’s implementation of its PTPA environmental commitments. We welcome passage of this important law and look forward to continuing to work with the Government of Peru to further implement its PTPA commitments.

“The United States has worked closely with Peru over a period of two years while it developed legal provisions to strengthen forest sector governance as called for under the PTPA Annex on Forest Sector Governance. In addition to passage of the Forestry and Wildlife Law, the Government of Peru has made other unprecedented changes to its legal and regulatory regimes to implement its commitments under the Annex, including amending its Criminal Code to increase penalties for forest, wildlife and environmental crimes and assigning ecological police officers and prosecutors to regions in Peru. It also created a Ministry of Environment to take the lead on natural protected areas and to assume other important environmental duties.

“We look forward to working closely with the Government of Peru as it works to fully implement the Annex on Forest Sector Governance.” (continue reading… )

Humala: We Wait

Posted in News and Articles, Political Risk by politicalrisklatam on June 16, 2011

by Christopher Sabatini for Americas Quarterly Online, June 15th, 2011.

The election guessing game in Peru has ended and now the Humala guessing game has begun: Will Ollanta Humala be the Peruvian equivalent of Venezuela’s Chávez or Brazil’s Lula? The answer, on which may hang Peru’s torrid rates of economic growth—among the highest in the region—and web of free-trade agreements with everyone from China to the  United States, has become a parlor game for investors and observers, as we all watch whom Humala nominates to his cabinet. More than the people he chooses to populate his first round of appointments, the answer may actually lie in his formation as a military officer.

When he first ran for president in 2006, Humala professed his admiration forVenezuelan President Hugo Chávez; he even campaigned in the trademark-Bolivarian red tee shirt. Only five years later, the one-time lieutenant colonel who led an uprising against former elected autocrat President Alberto Fujimori, claimed he was a moderate leftist in the mold of former Brazilian President Luiz Inácio Lula da Silva, who embraced markets and foreign investors and reduced poverty.

It’s not hard to understand why he shifted role models. In the intervening five years, President Chávez has gone from the leader of an anti-American bloc of countries during the years of President George W. Bush to the head of the most dysfunctional economy in the region, with rates of inflation this year likely topping 25 percentand an economy that, even with the spike in oil prices, will be one of the last to rise out of the region’s post-recession torpor. In contrast, President Lula, by hewing to a course of fiscal stability, appointing confidence-instilling technocrats and supporting both foreign investors and Brazilian companies, has both kept Brazil on a path of stable economic growth and—combined with innovative social policies—reduced the number of the Brazilian poor by up to 38 million. No mean feat. (continue reading… )

Peru’s next president urges vigilantes to fight drug trafficking

Posted in News and Articles, Political Risk by politicalrisklatam on June 15, 2011

by Hannah Stone for The Christian Science Monitor, June 14th, 2011.

To improve the security of Peruvians in far-flung parts of the country, President-elect Ollanta Humala has pledged to ‘protect and empower’ citizen self-defense groups. Is that a good idea?

President-elect Ollanta Humala has worked hard to build his image as a moderate, moving away from the more nationalist and left-wing positions he had been associated with in the past. His stances on drugs and security policy fit with those backed by Washington, and he has called for greater cooperation on drug policy with the US, as well as with Peru’s neighbors.

In another key move, he rejected a recent paper on drug policy that argued for decriminalization, stating that such a policy would be very dangerous for a country that is the world’s second-biggest exporter of cocaine.

Mr. Humala seems keen to acknowledge the scale of the challenges posed by drug trafficking in Peru, saying that he will create a ministerial post to head a presidential commission, charged with drafting an anti-drugs strategy. He has also called for a “mano dura” or “iron fist” approach to crime. (continue reading… )

Peru Stock Exchange Operator’s Shares Plunge After Colombia Merger Delay

Posted in News and Articles, Political Risk by politicalrisklatam on June 15, 2011

by Helen Murphy for Bloomberg, June 14th, 2011.

Shares in the operator of the Lima stock exchange plunged 11 percent after the company announced a delay of its merger with its Colombian counterpart to give Peru’s new government time to consider details of the accord.

Bolsa de Valores de Lima SA (BVLBC1) fell 11 percent to 10.18 sols at 1:15 p.m. New York time while Bolsa de Valores (VALORES) de Colombia SA, which operates the Bogota exchange, fell 2 percent to 42.20 pesos, a three-week low.

The BVL and BVC, as the exchanges are known, said in a joint statement yesterday the postponement allows them to provide information on the project to President-elect Ollanta Humala’s administration “before it is finalized.” The merger plan won’t be altered, the statement said. (continue reading… )

Job One for Humala – Prove he is a Democrat

Posted in News and Articles, Political Risk by politicalrisklatam on June 15, 2011

by Meenakshi Krishnan for Center of Strategic and International Studies, June 13th, 2011.

On June 28, Ollanta Humala will be sworn into office as president of Peru, winning a run-off election on June 5 by the slimmest of margins.  Having campaigned as a populist nationalist in the model of Venezuela’s Hugo Chávez in the past and then as a center leftist like Brazil’s Ignacio Lula da Silva, consistency is not his strong suit.  Thus, he will have to show he is ready to govern, as he now says, as a democrat-free marketeer who can help the poor without upsetting Peru’s recent economic success.

Oddly, Humala seems to have won over enough people by emphasizing his honesty, a quality that many feared in his opponent Keiko Fujimori, who said she would free her ex-president father Alberto from prison, convicted of corruption and human rights violations.

But Humala was no choirboy either. In the last days of the Fujimori presidency, he and his brother Antauro, led 40 soldiers in a brief uprising against their senior commander to protest Fujimori’s government.  And he once expressed sympathy for General Juan Velasco who took power by coup in 1968, nationalized industries, and sought closer ties with Cuba and the Soviet Union.

Earlier this decade, Humala was accused of human rights abuses as a military commander in the 1990s.   During the 2006 presidential contest, his connection with Venezuelan leader Hugo Chávez probably led to his loss.  Still, politicians can change their stripes.  Alan García’s disastrous first term almost put the country into bankruptcy.  In 2007, he came back to preside over one of the greatest periods of prosperity in Peru’s history.

This year’s campaign witnessed Humala’s reinvention. Initially, he proposed a platform that labeled market economics as “predatory” and backed nationalization of “strategic activities.” Yet, when he was in the runoff with the more conservative Fujimori, his advisers (including aides of former Brazilian president Lula da Silva) encouraged him to abandon authoritarian populism for a more “market-friendly model.” (continue reading… )

Peru banks/asset managers: A nervous wait

Posted in News and Articles, Political Risk by politicalrisklatam on June 13, 2011

by The Economist Intelligence Unit, June 10th, 2011.

It is too early to gauge the impact of Ollanta Humala’s election win on Peru’s fast-growing financial sector. But that won’t stop firms from worrying about what the radical nationalist might have in mind for them.

Something approaching panic gripped the main Peruvian stock exchange on Monday following a win by leftist presidential candidate Ollanta Humala in a runoff election on June 5th. Trading was suspended twice as the market plunged, and the main index ended the day down by more than 12%, the worst one-day sell-off in the market’s history.

Mining stocks led the rout as investors worried that Mr Humala would follow through on his stated intention to increase royalties. As far as financial firms, however, the new president has yet to give any indication that he will do anything specific to target banks, which have been booming along with the rest of the country over the last decade. Also, although Mr Humala has indicated that his government intends to make some changes in the pension system—currently dominated by private sector pension fund managers known as AFPs (administradoras de fondos de pensiones)—a law passed just before the runoff vote limits the degree to which the government can interfere with the system.

To paraphrase Franklin D Roosevelt, at the moment the only thing that Peru’s financiers have to fear is fear itself. Uncertainty over Mr Humala’s plans for the economy could lead to a pause in investment plans, impacting banks’ corporate loan portfolios. It could also lead to a move back toward the US dollar. So far, however, the financial sector’s key players are sitting tight. The AFPs announced that they did not participate in the stock market sell-off and were seeking buying opportunities. Indeed, the day following the sell-off, the market bounced back by nearly 7%. (continue reading… )

Humala calls US a ‘strategic partner’ and plans to discuss taxes with corporations

Posted in News and Articles, Political Risk by politicalrisklatam on June 8, 2011

by Merco Press News, June 8th, 2011.

Peru’s nationalist president-elect Ollanta Humala said on Tuesday he will chart his own course, described the US as a ‘strategic partner’ and promised to discuss with mining companies his plans to tax windfall earnings to pay for social programs.

Speaking with foreign correspondents Humala said the United States is a “strategic partner” and anticipated he will work with Washington to control the drug trade in the world’s top grower of coca, used to make cocaine.

At the same time, he said he would strengthen relations with countries in South America, he reiterated his interest in Mercosur and admitted Brazil is positioning itself as the region’s leader.

The former army officer added that the people he picks to lead the Finance ministry and other key cabinet posts in the fast-growing economy will be experienced.(continue reading… )