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Peru's capital market at risk after ruling on pension withdrawals

Bnamericas Published: Thursday, October 06, 2022

The Peruvian capital market may face new restrictions after the decision of the constitutional court to declare legal the withdrawal of funds from the private pension system (SPP). 

The financing of large projects – infrastructure, mining and energy, among others – is at risk, analysts say, as pension fund managers (AFPs) have invested in these sectors. 

The ruling comes after congress authorized the withdrawal of up to US$4,600 per pension fund contributor during the pandemic. "Around 60bn soles [more than US$15bn] have been withdrawn. AFPs now manage 110bn-110bn in assets. The capital market has been significantly reduced," Víctor Fuentes, head of Peruvian economics thank tank IPE, told BNamericas.

According to the banking and insurance regulator, the mining, industry, energy, and construction sectors represent around 18% of the investments managed by the SPP.

Fuentes said rulings like that of the constitutional court usually set precedents and would give impetus, mainly from congress, to allow new withdrawals from the system. "In addition to distorting the savings system, the potential impact on the capital market is very large," he added.

Hugo Perea, head of research at BBVA Perú, agreed the smaller amount of funds available would complicate the financing of infrastructure projects. "Private funds are part of national savings and have financed long-term investments. The profitability of the last 20 years has been positive," Perea told BNamericas.

The financing of the government itself could also be threatened. "The AFPs invest in treasury bonds. Due to lower demand, the interest rate paid rises and that affects the budget. It gives them less room to spend not only on infrastructure but also on social programs," said Perea.

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