Improved political outlook drives Peru’s ECR ranking boost

Peru’s overall ECR score has increased to 57.5 since March 2012, boosting its rank by five places to 47 in Euromoney’s Country Risk Rankings, overtaking Spain, South Africa and Ireland. Peru’s ECR score has improved by 1.7 points since the start of the year, to 57.5.

The improvement puts Peru’s ECR score comfortably ahead of the Latin American average of 45.2. It is the fourth-best overall country risk performer in Latin America, behind Brazil, Chile and Colombia, and second best for economic risk in the region after Chile. This in part reflects its healthy GDP growth rate of 5.2% for Q1 2012, which is above the LATAM average of 3.9%, according to the IMF World Economic Outlook (April 2012).

The sovereign’s ECR score for economic risk has risen on the back of a large quarterly trade surplus that is keeping the government’s finances in good shape. In ECR’s government finances indicator, which measures a country's' overall fiscal strength, experts raised their scores for Peru from 6.6 for June 2011 to 7.1 for July 2012. This has placed it second highest in the region in ECR’s government finances indicator.

A recent Global Markets Newsletter published by FM Capital Partners Ltd attributes this to strong domestic consumption growth, relatively higher export dependence on US and China and maintaining inflation close to the targets of their central banks. According to Peruvian news agency Andina, Peru's trade surplus is expected to increase to $2.2 billion in the second quarter of 2012 from $2.1 billion in the first quarter. 

source: (euromoneycountryrisk.com)

Decreased political risk, against the backdrop of a general election in April last year, has been another key factor in Peru’s ECR score increase. Its post-election political score for June 2011 stood at 49.0, rising marginally to 49.9 in December 2011 and again to 51.7 for June 2012. Scores across all political sub-factors have increased since Q1 2012, bar information access/transparency, which remains unchanged at 5.8 points. Yet economic risk at 68.1 remains significantly higher than its political and structural indicators, which stand at 51.67and 51.4 respectively.

Decreased political risk, against the backdrop of a general election in April last year, has been another key factor in Peru’s ECR score increase. Its post-election political score for June 2011 stood at 49.0, rising marginally to 49.9 in December 2011 and again to 51.7 for June 2012. Scores across all political sub-factors have increased since Q1 2012, bar information access/transparency, which remains unchanged at 5.8 points. Yet economic risk at 68.1 remains significantly higher than its political and structural indicators, which stand at 51.67and 51.4 respectively.

source: (euromoneycountryrisk.com)

The improvement puts Peru’s ECR score comfortably ahead of the Latin American average of 45.2. It is the fourth-best overall country risk performer in Latin America, behind Brazil, Chile and Colombia, and second best for economic risk in the region after Chile. This in part reflects its healthy GDP growth rate of 5.2% for Q1 2012, which is above the LATAM average of 3.9%, according to the IMF World Economic Outlook (April 2012).

Additionally, proactive fiscal policies implemented by the central bank have so far helped shelter Peru from the contagion of the eurozone debt crisis. Sustainable interest rate levels at 4.5% and falling bond yields have proved helpful in raising capital and attracting investment. According to Camilo Perez Alvarez, chief economist at Banco de Bogotá: “The Central Bank of Peru is really active in controlling exchange rates and they are trying to protect their local economy from the effects of an oil appreciation rate which is happening in Brazil and Colombia. The CBA is flexible and can easily reduce interest rates, whilst the government has been implementing stringent fiscal policies to keep inflation low. This should help it to provide stimulus if needed in the wake of an external shock.” Peru’s interest rate currently stands at 4.5%, gradually increasing from its 2008/09 record low.

This article was origninally published by Euromoney Country Risk