48
Peru: Investment Opportunities March , 2014 Ministry of Economy and Finance
Peru: Investment Opportunities
March , 2014
Ministry of Economy and Finance
2
Outline
• Peruvian Outlook
• The future is based on today’s sound foundations
• Investment opportunities
• Strong macroeconomic buffers to come through external shocks
• Challenges & Reforms
Peruvian Outlook
Consensus Forecasts: LA6 GDP 2014-2015 (Annual % change)
Consensus Forecasts: LA6 Inflation 2014-2015 (% change, Dec/Dec)
Peru will continue leading macroeconomic performance among LA61/ economies in 2014-2015
1/ The LA6 countries refers to the six Latin American countries that have adopted a formal inflation targeting framework and have relatively more developed domestic capital markets. The list includes: Brazil, Chile, Colombia, Mexico, Peru, and Uruguay. Source: Consensus Forecasts, February 2014.
4
0
1
2
3
4
5
6
Peru Colombia Chile Uruguay Mexico Brazil
2014 2015
0
1
2
3
4
5
6
7
8
9
Peru Chile Colombia Mexico Brazil Uruguay
2014 2015
Past mistakes have helped us set up sounder policies in order to speed up economic growth…
Per Capita Real GDP Growth in the World
(% Change)
Source: IMF, WEO October 2013
5
ARG
BOLBRA
CHL
CHN
COLECU
JAM
MEX
PER
USA
URY
VEN
-8
-6
-4
-2
0
2
4
6
8
10
12
-8 -6 -4 -2 0 2 4 6 8 10 12
2000-2013
1981-1992
Did worse
Did better
45° line
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
TH
A
PE
R
PO
L
CZ
E
CH
L
CO
L
KO
R
ME
X
HU
N
CH
N
PH
L
BR
A
IDN
ZA
F
RU
S
TU
R
Minimun Maximun Inf lation target
0.0
1.0
2.0
3.0
4.0
PE
R
US
A
CA
N
EU
SW
Z
JP
N
NZ
L
GB
R
ISR
SW
E
NO
R
AU
S
Minimun Maximun Inf lation target
Today, Peru has one of the lowest inflation targeting rates similar to advanced economies
1/ Iinflation target of Indonesia, Thailand, Israel and Australia is calculated as average of minimun and maximun value. Source: Bloomberg.
6
Emerging Economies
with Inflation Targeting Regimes1/ (%)
Advanced Economies
with Inflation Targeting Regimes 1/ (%)
• Peru adopted the “inflation targeting regime” for the first time in 2002 • Inflation target allows low and stable inflation expectations • Low inflation permits de-dollarization of the economy • Low inflation keeps the consumer’s purchasing power • The capital market development requieres a strong currency
Investment has been a fundamental factor to explain economic growth in the last two decades
7
GDP and Private Investment (Average % change )
Total Investment LA61: 1990 (% GDP)
Total Investment LA61 : 2013 (% GDP)
1/ The LA6 countries refers to the six Latin American countries that have adopted a formal inflation targeting framework and have relatively more developed domestic capital markets. The list includes: Brazil, Chile, Colombia, Mexico, Peru, and Uruguay. Source: BCRP, MEF, IMF – WEO October 2013.
13.5
16.5
18.419.9 20.4
26.5
0
5
10
15
20
25
30
Uruguay Peru Brazil Colombia Mexico Chile
19.2 19.7
23.7 24.225.7
27.8
0
5
10
15
20
25
30
Brazil Uruguay Colombia Mexico Chile Peru
Growth after investment reached 25% of GDP (Annual % change)
-0,5
4,3
6,6
-0,3
6,3
12,5
-2
0
2
4
6
8
10
12
14
1983-1993 1994-2003 2004-2013
GDP Private Investment Year when
Investement to
GDP reached
25%
Avg. Growth of
the 5 next years
World avg. Growth
of the next 5 years
Peru 2012 6,0 3,4
Chile 1989 7,3 2,6
Taiwan 1980 6,4 2,9
Singapore 1980 5,9 2,9
Country
And the absence of inflationary pressures have resulted in high productivity gains
8
Total Factor Productivity Growth and Inflation1
(2000-2011)
Source: PENN WORLD TABLE, IMF, MEF.
During 2000-2011, Total Factor Productivity grew at an average annual rate of 1.6% (among the highest in Latin America), with an average annual inflation rate of 2.6% (among the lowest in Latin America).
BOL
BRA
CANCHL
CHN
COL
CRI
DOM
ECU
HKG
IRQ
IRN
JPN
KOR
KAZ
MEX
PER
PHL
SRB
RUS
TUR
UKR
USA
URY
VEN
-1
1
3
5
7
9
11
13
15
17
19
21
23
-3 -2 0 2 3 5 6
Ave
rage
Infl
atio
n (
%)
Total Factor Productivity Growth
1/. Effective tariff = (value of total revenue Ad Valorem CIF / total CIF import value) * 100. 2/. Tariff dispersion = standard deviation. Source: MEF.
Peru has a market-oriented macroeconomic policy
9
Evolution of Nominal, Effective and Dispersion Tariff 1, 2
16,3
3,2
12,3
1,2
0
1
2
3
4
5
6
7
8
9
0
2
4
6
8
10
12
14
16
18
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Tarif f dispersion (right axis)
Nominal tarif f
Effective tarif f
A sustained trade liberalization policy.
30,9 %
26,3 %
21,6 %
18,0 %
1,0 %
0,3 %
US$ 12.7 billion
Asia
(30.5%)
US$ 0.4 billion
Oceania
(0.9%)
US$ 0.2 billion
Africa
(0.5%)
US$ 10.1 billion
North America1
(24.1%)
US$ 8.4 billion
LAC
(20.1%)
US$ 10.1 billion
Europe
(23.9%)
International integration with the rest of the world fosters trade and investment
10
Peru: Over US$ 41 billion of Total Exports to the World in 2013 (US$, % of total exports 2013)
Trade agreements foster investment and business
1/ Without Mexico. Source: BCRP, MEF, MINCETUR.
Peru has implemented trade agreements with USA, UE, People’s Republic of China, Republic of Korea, Mexico, Canada, Chile, Singapore , Costa Rica and Panama.
Peru has signed agreements with Japan and Thailand.
Peru is under negotiation with: Honduras, El Salvador, Turkey and others.
Peru has some form of preferential access to 73% of the world GDP (92% of world trade), and after signing the TransPacific Partnership it will be 75% of the world GDP (93% of world trade).
Economic growth has generated greater upward social mobility and smaller social gaps
Source: MTPE, INEI ENAHO, IDB - Technical note. Middle Class in Peru: quantification and recently evolution. .
11
Peru: Real Income (Index 2004=100)
More adequate employment (Metropolitan Lima,% of total employment)
80
90
100
110
120
130
140
2004 2006 2008 2010 2011 2012
36.7%
58.7
16.4
25.8
6.0
0
10
20
30
40
50
60
70
Total poverty Extreme poverty
2004
2012
Poverty and Extreme Poverty (% of population)
Peru: Middle class and Emerging middle
(% of population)
48.7
27.8
24.8
21.2
25.9
48.9
0.6 2.1
0
20
40
60
80
100
120
2005 2011
High Class Middle class Emerging Population Poor
Middle class
From 25.9% to 48.9%
63
37
30
35
40
45
50
55
60
65
Nov-jan03 Aug-oct05 May-jul08 Feb-apr11 Nov-jan14
Adequate Employment Underemployment
2000 2012 2013-2016
Lima Chimbote Ayacucho
Arequipa Cusco
Trujillo Iquitos
Cajamarca Moquegua
Chincha Tarapoto
Huánuco Tacna
Huancayo Pucallpa
Chiclayo Cañete
Piura Huaral
Juliaca Pisco
Barranca
… which have boosted household consumption throughout the country
Source: ACCEP.
12
Shopping Center Expansion by Cities
2000-2016
Shopping Centers 2000-2013
(Number by region)
7
14
3031
3
22
28
0
5
10
15
20
25
30
35
2000 2005 2012 2013
Lima
Provinces
However, high growth is not yet reflected in Price to Earnings ratios
13
Source: Bloomberg (As of 02.28.2014)
• Projected Price Earnings ratios for the Peruvian equity market index are lower than that of other emerging market economies.
• High growth is not yet reflected into prices.
• Opportunity for local and foreign investors.
Estimated Equity Price Earnings Ratio 2014
Estimated Equity Price Earnings Ratio 2015
BRA PER COL
IDN POL CHL
IND MYS
MEX
PHL
5
10
15
20
2,0 3,0 4,0 5,0 6,0 7,0
Pri
ce E
arn
ing
s R
ati
o
2015 GDP Growth (%)
BRA PER
COL IDN POL CHL
IND
MYS MEX PHL
5
10
15
20
2,0 3,0 4,0 5,0 6,0 7,0
Pri
ce E
arn
ing
s R
ati
o
2014 GDP Growth (%)
The future is based on today’s sound foundations
Peru will converge to its potential growth rate of 6.0% in the coming years
15
Gross Domestic Product (Annual % change)
F: Forecast Source: BCRP, MEF.
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F
6%
1/ Production includes leaching. 2/ Estimates by U.S. Geological Survey, Mineral Commodity Summaries,2013. Source: MEF Forecast.
Copper production will double by 2017
Estimated Copper Production to 20171
(Thousands of MT)
16
Copper Production 20122
(Thousands of MT) Copper: Production to Reserves Ratio 20122
1,240
5,370
Peru Chile
1.6%
2.8%
Peru Chile
Projects Start Date (e)Investment
(MM US$)2011 2012 2013 2014 2015 2016 2017
A. Extension
Antamina 12Q4 1,200 20 175 175 175 175
Cerro Verde 16Q2 4,400 170 200
B. New
Antapaccay 12Q4 1,473 70 160 160 160 160
Toromocho 14Q3 3,500 135 220 275 275
Constancia 15Q2 1,708 50 80 90
Las Bambas 15Q2 5,200 255 315 315
Quellaveco 17Q1 3,300 90
Extensions and New Projects Production 90 470 860 1,175 1,305
Total Production 1,235 1,299 1,389 1,769 2,159 2,474 2,604
Positive feed-back loop through a stronger middle class and a favorable "demographic window“ …
Source: INEI, HSBC - Consumer in 2050. The rise of the EM middle class.
17
1.61.5
1.41.2
1.10.9
0.5
0.2
-0.4
-1.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
IND PER COL MEX BRA ARG USA CHN GER JPN
Per capita real income Vs. consumer spending - 2011 (US$ constant 2005 PPP)
Increase in working age population
(Change % average annual, 2010-2020)
Rate of child and elderly dependency
(%)
Favorable Window of
Opportunities
0.8
0.5
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
Brazil
TurkeyMalaysia
MexicoPoland
Saudi Arabia
PeruChina
IndiaIndonesia
3 000 6 000 9000 12 000 22 000
Rapid changes in consumption
patterns happen in this incomes
Colombia
Chile
Real income per capita
Consum
er
spendin
g
3,000 6,000 9,000 12,000 22,000
… with a better educated labor force to accelerate productivity growth
18
Improvements in elementary school performance 1/ (cumulative change 2007-2013, % points)
1/ Based on 2° grade students. Source: MINEDU.
17,1
9,6
-3
-4
-14
-5,6
Reading skills
Math skills
Unsatisfactory In progress Satisfactory
2/ Source: World Bank, 2014. “Social gains in the balance. A fiscal policy challenge for America Latina & the Caribbean”, February. The Human Opportunities Index measures how individual circumstances can affect a child Access to basic goods and services, in this case, education.
Human Opportunities Index (HOI) 2/
(Index)
… that will support a faster income growth…
Per Capita GDP PPP
(2005 Constant PPP Dollars)
Source: World Bank, WDI.
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
World
LAC
Peru
19
Projection
… and speed up the catching up process
Shopping Centers 2013 (per million of inhabitants)
20
Manufacturing Exports 2013 (US$ Billion)
Source: ACCEP, Acecolombia, Ministries of Commerce, Central Banks, Felaban, ARAPER, ACARA, ANAC,TRADEMAP.
Tourist Arrivals 2013 (Million of people)
Exports of Wood and Paper 2013 (US$ Billion)
Vehicle sales 2013 (Thousands of units)
Imports of Major Appliances 2013 (US$ per capita)
0
200
400
600
800
1,000
Peru Colombia Chile Argentina
0
20
40
60
80
100
120
140
160
Peru Chile Brazil
0
1
2
3
4
5
6
7
Peru Colombia Chile Brazil
0
1
2
3
4
5
Peru Brazil Colombia Chile
0
1
2
3
4
5
6
7
Peru Chile Brazil
0
5
10
15
20
25
30
35
40
45
Washing machine Televisions Computers
Peru
Colombia
Chile
Investment opportunities
Friendly environment for doing business (2nd place in the region)
Position Country
1 Chile
2 Peru
3 Colombia
4 Uruguay
5 Paraguay
116
162
88
126
161
115
43
135
34
42
181
Argentina
Uruguay
Bolivia
Brazil
Suriname
Guyana Venezuela
Colombia
Peru
Chile
Ecuador
109
Paraguay
Doing Business 2014 (Ranking)
22
Source: World Bank, Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises. Washington, DC:, 2013.
Wide range of investment opportunities
23
Agroindustry Lands with world-leading returns. Agricultural lands are going to increase by 350 000 ha the following years.
Fishing – aquaculture Long fishing coastline (3,080 Miles) and “water mirrors” which offer favorable conditions for the development of marine and inland aquaculture.
Tourism Important cultural destination, great potential for ecotourism and adventure tourism with 8 prioritized destinations.
Mining A polymetallc mining country. Peru is one of the most important metal reserve worldwide. 13.6% of the land is subject to mining concessions, and only 1.1% of the land is taken for mining exploration and explotation
Textile - clothing Recognized quality of pima cotton. 1st worldwide producer of South-American camelid fiber: alpaca and vicuña. “Full package" producer.
Real State The housing deficit affects 25% of households (over to 2 million). There are various financing house programs
Forest Presence of high biologic diversity and high value timber. 78.8 million ha. of natural forest.
Technology Services The lowest labor costs per operator, US$ 270, in Latin America, which accounts for 60% of operating costs in call centers.
Energy Great energetic potential: Ample availability of water resources and natural gas have allowed to meet the growing electricity demand.
Petrochemical Peru is the only sustainable source of natural gas in the South American Pacific area. Peru has oil fields that have not been explored yet (26.6 million ha).
Measures to speed up private investment
• Declares the execution of 69 infrastructure projects that are of national interest and great public importance and speeds up the acquisition of land for executing projects declared of public interest
24
Creation of a Special Committee on Public Investment Projects in Proinversion
Certification of non-existence of archeological objects
• Adjusts the term of issuance of the Certificate of Absence of Archaeological Remains, authorizations of water use and easement rights.
Expropriations
One-stop-shop for environmental impact studies (EIS)
Measures to facilitate investment, and tax reductions for investment in public goods
• Adoption of measures to strengthen competition and to penalize public entities and officials who generate bureaucratic obstacles, while at the same time providing incentives for speeding up projects as a part of the program to modernize municipalities, and
• Reduces tax liabilities in return for companies investing in public goods .
• Streamlines administrative procedures in environmental matters and reduces time for the approval of environmental impact studies.
Creation of a Specialized Investment Monitoring Team that depends only of the MEF
• Structuring and development of a project portfolio with high economic and social impact.
• It is of national interest and priority the promotion and streamline of private investment.
Improving PPP framework to promote investment
25
Modification of the former Law on Public-Private Partnership (PPP) that seeks principally to:
• Extend coverage: The amendment extends PPP’s coverage to a broader set of projects, specially to those related to applied research, technology and services.
• Unclog processes: The amendment also reduces bureaucratic barriers with the aim of speeding up the development of new PPP projects.
• Increase Support: The MEF and PROINVERSION will support Public Entities in the identification of PPP projects.
• Strengthen Transparency: The amendment creates a National Registry Office that will store all PPP contracts and their modifications.
Source: BCRP, MINEM, PROINVERSION, Apoyo Consultoria, PERUPETRO.
Broad investment pipeline for the short and medium term
26
Mining Region
Las Bambas (Xstrata Copper) Apurimac
Cerro Verde extension (Freeport-MacMoran Copper) Arequipa
Toromocho (Chinalco) Junin
Constancia (Hudbay) Cusco
Marcona extension (Shougang) Ica
Hydrocarbons
Block 67 (Perenco Peru Petroleum Limited) Loreto
Block Z-2B (Savia Peru) Piura
Block 88 (Pluspetrol Peru Corporation) Cusco
Block Z-1 (BPZ) Tumbes
Energy security and southern gas pipeline (Called) Cusco, Arequipa, Moquegua
Gas distribution system extension (Calidda) Lima, Callao
NGL & gas pipeline extension (TGP) Cusco
LNG Supply System for the Domestic Market (Called) Lima
Mass use of natural gas (Gas Natural Internacional/
Consorcio Promigas - Surtigas)Nationwide
Electricity
Chaglla Hydroelectric – 406MW (Odebrecht) Huanuco
South energy node of Peru (Samay I and Enersur) Arequipa, Moquegua
Cerro del Aguila Hydroelectric – 402MW (Inkia Energy) Huancavelica
Molloco Hydroelectric – 300MW (Corsan /Engevix/Enex) Arequipa
220 kV Moyobamba – Iquitos transmission line (Called) Loreto, San Martin
Cheves Hydroelectric – 168 MW (SN Power) Lima
500 kV Mantaro – Marcona – Socabaya – Montalvo
transmission line (Electrical Interconnection - ISA)
Huancavelica, Ica, Arequipa,
Moquegua
Infrastructure
Metro of Lima & Callao – Section 2 (Called) Lima, Callao
Muelle Norte port modernization (APM Terminals) Lima
New international airport of Chinchero (Called) Cusco
Longitudinal de la Sierra road – Section 2 (Consierra Section 2) Cajamarca, La Libertad
Via Parque Rimac (OAS S.R.L.) Lima
Vias Nuevas de Lima, rehabilitation of highways (Odebrecht) Lima
Main works and conduction of drinkable water supply for Lima (Not called) Lima, Junin
WWTP & Outfall La Chira (Acciona Agua/GYM) Lima
Matarani port extension (Tisur) Arequipa
Yurimaguas port terminal (Hidalgo and Hidalgo) Loreto
Chavimochc irrigation project (Called) La Libertad
1710 - 1770 MHz and 2110 - 2170 MHz (Blocks A and B) Band
(Movistar and Americatel)Nationwide
National Optical Fiber Backbone Network (TV Azteca-Tendai) Nationwide
Agriculture
Telecommunications
Investment projects aim to reduce infrastructure gap and increase productivity
27
• Salaverry Port Terminal: US$ 130 millions. • San Juan de Marcona Port Terminal: US$ 139
millions. • General San Martin Port Terminal: US$ 110
millions.
Source: PROINVERSION
Airports Ports
Transportation
• Transcontinental Railroad Brazil-Peru (Atlantic-Pacific): US$ 280 millions.
• Road Panamericana Sur: Ica-Frontier with Chile:
US$ 60 millions.
• Cusco International Airport : estimated investment of US$ 420 millions.
Peru, an investment destination for miners
Peru 2012: Share of global mining production (Rank)
Only 20% of the potential mining territory has been exploited.
Peru is a polymetallic country , with proven mineral reserves (gold, copper, silver); besides there are also non-metallic mineral deposits to exploit.
Source: Morgan Stanley. U.S. Geological Survey , U.S. Department of the Interior.
28
22,2%
11,2%
8,9%7,2%
6,3%
4,2% 4,1%
Plata(1ro)
Cobre(3ro)
Plomo(4to)
Zinc(3ro)
Estaño(6to)
Oro(8vo)
Molibdeno(4to)
In a global context of decreasing metal prices and increasing costs …
Sources: Morgan – Stanley, PwC analysis
29
0
20
40
60
80
100
120
2012 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
-10%
-5%-8%-7%
-14%
-13%
-14%
-3%
Global Mining Capital Expenditure 2012/2020e
(US$ billion)
PWC Index of Revenues and Operating Costs (2006=100)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2006 2007 2008 2009 2010 2011 2012
Revenues Operating costs
… Peru exhibits important business opportunities
30
Electricity Cost for 2020
(cUS$/kWh)
Source: Wood Makenzie.
Copper and Gold Cash Cost 2012
(cUS$/lb & US$/oz)
Peru generates around 60% from
hydro and 35% from natural gas
Chile generates
20% from diesel
14.1
12.1
9
8.8
7.8
7.5
7.4
6.6
6.1
5.3
2.6
Congo
Chile
Mexico
Australia
Argentina
USA
Zambia
Peru
Mongolia
Canada
Kazajastan
Other potential sectors to invest
31
Seasonal windows in the most important markets.
The current cultivated hectares used for agroexports are expected to double as a consequence of large irrigation projects in portfolio.
Main projects
• Chavimochic Project (3rd stage): US$ 500 millions.
• Hydroelectric Exploitation of Majes-Siguas: US$ 800 millions.
There are proven and potential reserves until 2028 of around 35 000 Cubic Feet.
Main projects
• Gas pipeline to Trujillo (Natural Gas): US$ 1 770 millions. • South energy node: US$ 1 534 millions.
Source: PROINVERSION
Agrobusiness Hydrocarbons
Strong macroeconomic buffers to come through external shocks
Sounder fiscal policy, relative to LATAM and EM
33
2013: Fiscal Balance and Public Debt (% GDP)
Source: BCRP, IMF, MEF.
0
10
20
30
40
50
60
70
80
-6,0 -5,0 -4,0 -3,0 -2,0 -1,0 0,0 1,0
COL
PER
CHL
MEX
ARG
BRA
CHN
RUS
IDN
THA
MYS
ZAF
TUR
Fiscal Balance 2013 (% of GDP)
Public
Debt 2013 (
% o
f G
DP
)
Better macroeconomic environment (among the top 20 in the world)
Source: World Economic Forum - Global Competitiveness Report 2013 – 2014.
Peru: Ranking in the WEF Macroeconomic Environment pillar
Wo
rse B
ett
er
34
59
78
6763
75
52
2120
10
20
30
40
50
60
70
80
90
2006 2007 2008 2009 2010 2011 2012 2013
• This position in the ranking is due mainly to improvements in key macroeconomic variables such as: o Government Budget Balance o General Government Debt o Gross National Savings o Inflation
Better fiscal performance than the average Baa1 and Baa2 countries in the last decade
35
Overall Fiscal Balance 2013 (% of GDP)
Overall Fiscal Balance 2003-2013 (% of GDP)
Public Debt 2003-2013 (% of GDP)
Public Debt 2013 (% of GDP)
Source: Moody’s.
…allowed us to build up strong Macroeconomic buffers
36
Peru: Net International Reserves1/
(US$ Million) Net International Reserves 20131/
(% of GDP)
1/ In the case of Peru, updated to February 21, 2014. 2/ As of February 2014. Source: BCRP, IMF, Central Banks.
1113 14
17
31.5
0
10
20
30
40
Colombia Mexico Chile Brazil Peru
8,180
17,275
65,062
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2000 2006 Feb-14
15% GDP
19% GDP
31.5% GDP
Peru: Fiscal Stabilization Fund2/
(US$ Million) LATAM: Public Debt 2013
(% of GDP)
336 485
1 807 1 814 2 114
5 626
7 169
8 590
10 053
0
2 000
4 000
6 000
8 000
10 000
12 000
2006 2008 2010 2012 2014(e)
4,6% GDP
68
52
44
32
19
13
0
10
20
30
40
50
60
70
80
Brazil LatinAmerica
Mexico Colombia Peru Chile
Capital flows are mainly long term and aim to finance investment
1/ (Short-Term External Debt + Currently Maturing Long-Term External Debt + Total Nonresident Deposits Over One Year)/Official Foreign Exchange Reserves Source: Moody’s, BCRP.
Net Foreign Direct Investment 2013 (% of GDP)
External Vulnerability Indicator 20131
(% of Total External Debt to Foreign Int’l Reserves)
Peru: Annual Inflow of Capital (% of GDP)
Peru: Balance of Payments (% of GDP)
37
-6
-4
-2
0
2
4
6
8
10
12
2001 2003 2005 2007 2009 2011 2013
Current account
Financial account
3,4
0,1
-0,2
7,2
0,3
-0,2
5,4
-0,6-1,0-2
-1
0
1
2
3
4
5
6
7
8
Private long-term Public Short-term
Average 2000/07 Average 2008/12 2013
19,6 20,929,4
57,6
94,1104,2
0
20
40
60
80
100
120
140
160
180
Brazil (Baa2)
Peru (Baa2)
Russia (Baa1)
Mexico (Baa1)
Chile (Aa3)
Kazakhstan (Baa2)
Average Baa1
Average Baa2
5,7
5,0
2,7 2,7
1,8
0,10
1
2
3
4
5
6
Kazakhstan (Baa2)
Peru (Baa2)
Chile (Aa3)
Brazil (Baa2)
Mexico (Baa1)
Russia (Baa1)
Average Baa1
Average Baa2
Less exposure to volatility in commodity prices
Sources: IMF, 2012, “Fiscal Frameworks for Resource Rich Developing Countries”, May. IDB, 2013, “Rethinking reforms, How Latin America and the Caribbean Can Escape Suppressed World Growth”, March.
Commodity Revenue (% of total GDP, Average 2006-2010)
Estimated impact on total revenue caused by a fall of 25% in commodity prices
19
17
11
8
7
6
4
Venezuela
Trinidad & Tobago
Bolivia
Mexico
Ecuador
Chile
Peru
- 4.5 - 4.0 - 3.5 - 3.0 - 2.5 - 2.0 - 1.5 - 1.0 - 0.5 0.0
Argentina
Colombia
Peru
Chile
Mexico
Venezuela
Trinidad & Tobago
Bolivia
Ecuador
Percent of potential GDP
38
Which make us less vulnerable to disruptions in foreign capital flows
Note: Index consists of : (Short-term external debt + Currently maturing long-term external debt + Total nonresident deposits over one year) / Official foreign exchange reserves. Source: Moody’s Sovereign Statsbook (November 2013).
External Vulnerability indicator (Baa1 to Baa3 countries)
(%)
39
Releasing external accounts from funding pressures
40
Emerging Countries: Dependence on short-term capital vs. exchange rate depreciation
Source: BBVA Research, MEF.
China
Korea
Malaysia
Philippinas
Peru Brazil
Mexico
Thailand
ChileIndia
Turkey
-8
-6
-4
-2
0
2
4
6
-10 0 10 20 30
Exte
rnal
fin
an
cin
g g
ap
(C
A+
FD
I)
(avera
ge 2
Q12 -
2Q
13,
% o
f G
DP
)
Current exchange rate vs dec-12, %
(positive : depreciation)
De
fic
itC
A >
F
DI
Commitment to follow international banking standards strengthens the financial system
41
Non-Performing Loan Ratio – December 2013
(%)
Liquidity of the banking system (% of GDP)
Bank Solvency: Total Capital Ratio (%)
Global capital ratio1 (%)
8.0 7.58.5 7.2
13.7
17.7
0
2
4
6
8
10
12
14
16
18
20
22
Commercial Banks Financial Companies
Pre-crisis (2006-07)Crisis (2008-10)Post-crisis (2013-12)
SBS1=10%
Basel=8%
13.7
6
8
10
12
14
16
2006 2007 2008 2009 2010 2011 2012 2013
Banking Law (10%)
International Standard (8%)
36
10
15
20
25
30
35
40
06Q4 07Q4 08Q4 09Q4 10Q4 11Q4 12Q4 13Q4
2.1
2.1
2.9
3.4
4.8
0 2 4 6
Peru
Chile
Colombia
Mexico
Brazil
1/ In Article 199 of the Banking law (Law 26702) indicates that the effective equity of the companies must be greater than or equal to 10% of the Assets and Contingent Total Risk-Weighted. Source: BCRP, SBS.
Prudential macro policies moderated credit expansion
42
Source: SBS, BCRP.
The Central Bank (BCRP) and the Superintendency of Banks (SBS) have actively applied macro-prudential policies to limit the expansion of loans in U.S. dollars and encourage their substitution by Nuevos Soles.
Domestic
currency
Foreign
currency
First residency (fixed rate) 90 80
First residency (variable or mixed rate) 80 70
Other mortgages 70 65
Loan-to-Value Ratio
Mortgage type
Credit to the Private Sector
(Annual % change)
SBS: Prudential Loan-to-Value Ratio
(%)
13.7
2.1
23.4
-10
0
10
20
30
40
50
60
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Total
Domestic Currency
Foreign Currency
BCRP:Reserve Requirement Ratio in Domestic
Currency (%)
30.0
12.5
0
5
10
15
20
25
30
35
Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14
Averaged Required
Marginal
As a consequence, financial costs goes down due to higher credit ratings
1/ Sorted by Moody’s rating. Source: S&P, Fitch, Moody’s.
LATAM: Sovereigns Rating1
(Long term debt in foreign currency) Peru: Sovereigns Rating
(Long term debt in foreign currency)
“Peru's upgrade is underpinned by the strength of the sovereign's external and fiscal balance sheets, continued growth outperformance in relation to 'BBB' peers and a long track record of macroeconomic and financial stability. Peru's established track record of policy coherence and credibility as well as the sovereign's fiscal and external financing flexibility underpin its strong shock absorption capacity. “ Fitch. October 23, 2013.
43
15
17
19
21
23
25
27
2002 2004 2006 2008 2010 2012 2014
S&PFitchMoody's
Investment Grade
BB+
BB-
BBB
BBB-
BB
B+
Outlook
S&PFitch
Moody's
Stable
Positive
Stable
BBB+
Country Moody's S&P Fitch
Chile Aa3 AA- A+
Mexico A3 BBB+ BBB+
Peru Baa2 BBB+ BBB+
Brazil Baa2 BBB BBB
Panama Baa2 BBB BBB
Colombia Baa3 BBB BBB
Bolivia Ba3 BB- BB-
Argentina B3 CCC+ CC
Ecuador Caa1 B B
Venezuela Caa1 B- B+
Challenges & Reforms
Challenges ahead
1. Economic growth with social inclusion.
2. Quality human capital accumulation in order to achieve greater
productivity:
o Education
o Health
o Nutrition
o Gap closing
3. Diversify and add value to the extraction of natural resources.
4. Public Sector Modernization.
oAvoiding over regulation and regulatory uncertainty. o Effective public policy, administrative simplification and accountability.
5. Priority reforms:
o Effectiveness of decentralization
o Labor informality
o Security
6. Consolidating a long term vision: Peru 2050.
45
Major Reforms
• Reduces transaction costs in order to broaden the investor base and promote capital markets access for small and medium sized issuers.
46
SUNAT (Tax Collection Agency) Strengthening Act (Act No. 29816)
• Allows broader powers to better enable it to fight tax evasion and avoidance and to broaden the tax base.
Private Pension System reform Act (Act No. 29903)
• Revamps investment regulations to allow for better fund performance, as well as other regulations to expand coverage, competition and quality of service, in order to lower fees and increase pensions.
Securities Market Promotion Act (Act No. 30050)
Civil Service Act (Act No. 30057)
Government Procurement Act (SD No. 138-2012-EF, SD No. 16-2013-EF)
• Aimed at strengthening the Government Procurement Agency (OSCE) and to improving hiring procedures for public sector institutions.
• Introduces merit based evaluations for promotions and salary increases throughout the public sector in order to create a modern Civil Service.
New Fiscal Responsibility Act
• Introduces a expenditure rule based on cyclically-adjusted fiscal balance, sets new rules for subnational governments and improves transparency.
Pipeline of further structural reforms
• Technical Standards. Peru is reinforcing its National System for Quality. The purpose of this policy is to promote and ensure that Peruvian made products can meet international standards. One of the main objectives is to increase our products access to trade partner’s markets, who require compliance with these standards and technical requirements.
• Movable Collaterals. A Law Proposal for Movable Collaterals. It will enhance access to financing for companies whose main assets are movable collaterals (guarantees on machinery and equipment, etc).
47
Labor Market Reform
• Tools for improving the quality of human capital: Qualification system, improvements of the quality of the educational supply, improvement of human capital financing.
• Flexibility on costs of formality: Vacation period at the regional average, moderate severance pay and the compensation for working time at the regional average.
• Institutional improvement of the National Superintendence of Labor Control.
Stabilization Funds for Canon and Mining Royalty
• (FOCAR) intended to mitigate the volatility in the transfers to the Subnational Governments in order to improve the multiannual planning and the predictability of investments.
Normative Productive Package
Improvements in Public Acquisition Act
Customs Agency Modernization
• Simplifies customs operations and cut down on time and costs for the foreign trade operators.
• Has the purpose to enforce the efficient use of the public resources through management by results.
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