DRM Test 2 - 74

ANDEAN
ECONOMY

Andean governments are stepping up efforts co counter an economic
slowdown in their once booming economies. Most expect the decline to be
short-lived. By Lucien Chauvin

Beyond the boom

S

outh america’s three most
open economies have hit a rough patch.
Booms in chile, colombia and Peru have
started to lose their momentum, following
a drop in worldwide commodity prices and
expectations of tighter global liquidity.
export earnings have fallen and local
currencies have depreciated, in some
cases severely: Peru’s currency, for one,
plunged by more than 10% percent
against the dollar in the first eight months
of the year. Domestic demand has also
softened unexpectedly across the region,
particularly for durable goods. car sales
in colombia were down 23% in the first
quarter, although analysts expect an uptick
in the second half.
While growth in the three economies
is still enviable in global terms — chile is
projected to grow by 4.6%, colombia by
4% and Peru by 5.5% — authorities are now
scrambling to roll out measures to stimulate
growth, cut bureaucracy and boost longerterm prospects through infrastructure
spending.
Governments are also coordinating their
economic responses through the Pacific
alliance, a free-trade grouping launched in
June 2012 that includes the three andean
countries and mexico. officials from the
four nations met in late august to discuss
their approach to the new economic
headwinds. felipe larraín, chile’s finance
minister, noted that the difficulties
ahead included “a volatile situation in
international markets, a deceleration in
the emerging countries, such as china and

74 l atinfina nce.com - September/October 2013

india, and a gradual end to quantitative
easing” in the US.
Peru, the most reliant on mineral
exports, has been hardest hit by a decline
in commodity prices. export earnings have
fallen in the three countries, but while chile
and colombia posted trade surpluses in the
first part of the year, Peru had a $1.6 billion
deficit in the first two quarters. in the same
period in 2012, the country recorded a
surplus of $2.5 billion.
the decline is largely due to lower
mineral prices, which account for around
60% of export earnings. coffee exports,
which reached $1.5 billion in 2011, are also
sharply down after crops were decimated
by disease.
the drop in trade revenue is the reason
Peru’s economy will not replicate 2012’s
6.3% GDP growth. the forecasts today are
closer to 5.5%, and the trend is downward.
analysts and the country’s business
community, though concerned, expect the
decline to be short-lived. alfonso García
miró, president of the umbrella federation
of business associations, confieP,
attributes it to a fall in foreign trade. “it is
due basically to less chinese demand for
commodities, which is absolutely outside of
our control,” he says.
meanwhile a sharp drop in the sol
has caused alarm. the central bank has
intervened aggressively in the exchange
market to stem the decline. in a bid to boost
liquidity, in late august it cut the amount of
local currency banks must hold in reserve
by two points, to 17%. the bank is expected

MOVING FORWARD: Peru hopes to draw
$6bn in investment for a second metro line
in Lima

to hold interest rates at 4.25%, where they
have been since may 2011, for the rest of
the year.
Ratings upgrade
Yet even if minerals prices remain low, Peru
is well-positioned, says Richard francis,
director of sovereign ratings at Standard
& Poor’s. mining investment will double
copper production by 2015, and make
Peru the world’s second biggest copper
producer after chile. three big projects,
including Glencore Xstrata’s $5 billion las
Bambas, freeport mcmoRan copper &
Gold’s $4-billion expansion of cerro Verde
and chinalco’s $4 billion toromocho, will
start producing in 2014 and 2015.
investment and continued fiscal and
monetary stability create “pretty robust
growth perspectives when compared to
other emerging markets,” says francis.
“our basic assessment is that Peru is able to
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