The Economy of Peru

The world may not agree on many issues, but one thing that everyone agrees on is the global economy. It’s been a waking nightmare over the last 18 months. Large economies like the Japan, Germany, the U.S. and the U.K., have been in a major league slump and it’s not over yet. Even the ever growing economy of Australia has taken a beating and may be on the brink of a recession. There are some exceptions; China and India have felt a shock from the economic earthquake, but are still performing exceptionally well given the worldwide cracks that have developed in existing investment opportunities.

The Western Hemisphere has suffered extensive damage. Canada and the U.S. are trying to dig out from their self created debacle; Brazil seems to be gaining momentum, but stable Chile, reforming Argentina and hard luck Mexico seem to be fighting off a recession. But there is one country that is outperforming its larger and richer neighbors by doing what it does best. Peru faced the global economic hurricane and almost weathered the storm without a scratch; the stock market did take a hit in 2008, but has more than doubled this year. Investment firms are now creating investment packages so Americans can invest in the market, because Peru’s financial system is sound and the government is making excellent economic choices that are producing stellar financial returns.

Peru is the number one producer of silver and fishmeal and is the third largest producer of tin, copper and zinc. It’s the world’s fifth largest gold producer and has the huge Camisea natural-gas field. High world prices for minerals and the demand for natural gas has been a cash cow for Peru over the last seven years and the economy continues to grow. The sound leadership of Alan Garcia and the excellent management tactics of the Peruvian central bank, which continued to raise interest rates in 2008, proved to be wise choice. The government saved $32 billion in foreign currency in 2008, instead of spending it. Peru had a $3.3 billion budget surplus in 2008. At the end of 2008, Garcia announced a stimulus package that increased government spending by $3.2 billion and promised to instigate $10 billion in future economic measures. The central bank’s action to curb inflation left room for plenty of rate cuts. This year Peru has reduced its lending rate from 6.5% to 2%.

Those astute measures have resulted in a 0.9% growth in Peru’s economy and the GDP is expected to grow by as much as 3% this year. Even though exports have decreased by 15%, the stimulus package has offset that loss by increasing internal demand.

The news that the global economy is ending has had a huge impact on Peru’s stock market. Peru’s stocks outperformed world stocks in the first half of 2009 and are up more than 100%. In June of this year, U.S. investors were allowed to participate in this Peruvian success for the time and after the first five weeks of trading, ishares, which is an exchange-traded investment fund, was up 8.3%.

 Investors are taking the plunge into Peru’s stock market in a big way. That activity can be a warning sign that the cat is out of the investment bag and is disappearing in the shadow of other global opportunities, but people who know the market and have witnessed what positive leadership and a grass roots approach to financial stability can do, say that the real glory days of Peru’s stock market may be just around the corner.