Is Peru as good as it looks?
IMF credit line brings into question robustness of country’s economy.
In October, president Alan García announced that Peru would come through the economic crisis stronger than it entered it. Analysts also continue to back it.
Although Peru’s economic growth rate has slowed markedly since 2007 when it hit 9%, and 9.8% in 2008, it is still expected to reach 3.8% this year. Inflation has dipped and surged in line with oil prices but is forecast to be 2% by the third quarter. The country’s international investment position has continued to strengthen. Between the end of 2005 and the end of September 2008 net international liabilities fell from 33% of GDP to 23% ($29 billion).
Peru is the third-most-dollarized economy in Latin America, behind only Bolivia and Paraguay. Foreign-denominated debt accounts for 60% of the total, down from 75% in 2005, and since mid-2007 Peru has been a net external creditor. The country has maintained an agenda that includes lowering trade barriers and upholding a strong legal framework, creating a healthy environment for foreign investment to increase by more than 50% since 2002.
Peru’s relatively healthy financial position has shielded it from the worst of the crisis. So far things look rosy. Assuming the country stays this way, Peru will emerge from 2009 stronger.