MercoPress. South Atlantic News Agency

Peru considers rescuing debt to cool inflow of capital and currency appreciation

Minister Castilla also wants national debt with a larger content of local currency

Peru is considering the anticipated cancelling of public debt to drain ‘dollars’ from the market and impede the sustained appreciation of the local currency, Sol, said Economy minister Luis Castilla. This would be the first step for a new liabilities management approach to extend in time the maturing of Peruvian bonds and other debt papers.

“We could promote measures such as advancing re-payment of certain government credits which we consider too onerous, and which will also be a way of helping to counter the inflow of foreign capital”, said Castilla.

The minister said that for the moment he could not advance the volume of debt to be rescued nor identify creditors because “we’re in the midst of assessing the whole picture”.

Peruvian government debt (foreign and domestic) stands at 36.6bn dollars equivalent to almost 20% of GDP, of which 20.5bn sovereign bonds in foreign currency according to the latest release from the central bank.

The anticipated payment to creditors would add to recent measures from the central bank such as the increase of technical reserves in the financial system in an attempt to cool the money market and contain the appreciation of the local currency in an economy which has been growing at full steam for several years running.

So far this year the Sol has appreciated 3.71% against the US dollar but in the last decade it represents 26.4%, mostly because of the solid fundamentals of the Peruvian economy a great exporter of commodities which has been growing on average for several years at 6.4%.

“We think we have opportunities to address debt which is above the average of our yields, and consider anticipated repayment”, underlined Castilla, who added that another goal is to expand the Peruvian debt content of local currency from 50% to 60%.

“The other is to extend the average maturing of the national debt which now stands at 13 years, and that we would like to see a few more years added. But at the moment I can’t advance any further details because, as I said, we are in the assessment period”, concluded Castilla.