Peru: García plans to go deep in soles

Almost non-existent a decade ago, Peru’s capital markets have flourished over the past five years, with the government and big companies such as US copper miner Phelps Dodge finding ample demand for bonds. Now the new government of president Alan García, which took office on July 28, aims to develop the markets further. There are plans to allow smaller companies to raise cash, develop a secondary mortgage market to unleash new funds to redevelop slums, and encourage pension funds to invest in productive industries, not just in sovereign bonds. “Deepening the local market in soles is going to be one of the pillars of our economic policy,” says García’s chief economic aide, Enrique Cornejo. “Our resources aren’t being put to work via the markets.” The barriers to smaller Peruvian businesses are daunting. Because many companies cannot meet the listing requirements of the Bolsa de Valores de Lima, Peru has launched only four initial public offerings with a total value of $40 million in the past 15 years, despite strong economic growth. The business sector is severely undercapitalized, with a total of $7.5 billion in debts, or around 10% of Peru’s GDP. A change in that situation is crucial to Peru’s long-term development, as small and medium-size companies generate 40% of GDP and three-quarters of all jobs in the country. However, these companies’ financing costs are up to 2.5 times those of big corporations.