Peru’s Salomon Wisdom Wisps

Unlike the sharp securities selloff on Peruvian President Humala’s defeat of market favorite Fujimori six months ago, reaction was muted to the resignation of Prime Minister Salomon Lerner, a well-known business executive, as he tried to negotiate a settlement over anti-Conga mining protests and was overruled with declaration of a state of emergency and his replacement by a former interior minister and military officer in the Humala cloth. The entire cabinet was subsequently reshuffled in the fastest shakeup since democracy was re-established, as previous members of the centrist Peru Possible party exited altogether in condemnation of the government’s “militarization.” Over half the posts were reassigned, but Finance Minister Castilla stayed and defended the suspension of government transfers to the Cajamarca region where the disputed project is based on the grounds they could be diverted to demonstration support. New cabinet chief Valdes said open dialogue would be upheld with affected communities, with technocrats in charge to deal with environmental and compensation issues to preserve the multi-year $5 billion investment. A separate big mining venture, Yanacocha, with Newmont of the US and stock exchange heavyweight Buenaventura as partners, has been suspended on fresh land preservation and town social spending demands, saddling the index with a 20 percent loss after 2010’s record performance. However GDP growth should still come in at 6 percent, and the currency has been steady against recent global dollar resort with occasional central bank intervention. As the political maneuvering made headlines, the city of Lima continued on a road show to New York and other financial centers to promote a sub-sovereign bond issue with a high credit rating meeting with keen subscriber interest. In keeping with a “green agenda,” part of the proceeds will go toward a large park development in the capital.

In the Andean region populist leaders have backtracked on building and commodity initiatives encountering local criticism. In Bolivia, President Morales acquiesced to Indian blockage of a road scheme and Ecuador continues to press cases against oil multinationals in courts at home and abroad for alleged toxic dumping and other violations. GDP growth in the latter should be double the 2010 outcome at 7 percent on a double-digit public investment pickup, but the current account deficit persists at 2 percent despite this year’s petroleum windfall. The fiscal gap also remains in the 5 percent of GDP range and increasingly relies on Chinese official lending for coverage in the absence of external market access post-default. The sole honored bond comes due in 2015 as neighbors try to break a proven pattern of self-isolation.