Peru govt given key to sovereign wealth fund

Bnamericas Published: Tuesday, December 22, 2015

Peru's government said it may resort to the country's sovereign wealth fund for the first time to help President Ollanta Humala finance infrastructure spending in his final year in office.

The board of directors in charge of the fund, which includes finance minister Alonso Segura, central bank president Julio Velarde and a representative of the cabinet chief's office, authorized the "temporary" use of up to 4.29bn soles (US$1.28bn). This is to prevent a drop in public spending in the face of dwindling tax revenues, the finance ministry said in a statement.

"The fiscal surplus is accumulated during years of high economic growth and strong international prices and is to be used temporarily during years of low growth and low prices for our metals..." the ministry said.

Peru's export revenue dropped 15.5% to US$27.9bn through October, led by an 11% decline in metals exports to US$15.3bn in the same period, according to the central bank. Peru, the world's third largest exporter of copper, zinc and tin, relies on commodities including natural gas, fishmeal and coffee for 70% of its export revenue.

The fall in revenues means Peru is headed for a 2.1% fiscal deficit this year and a 2.9% deficit in 2016, compared to a 0.3% deficit last year and a 0.9% fiscal surplus in 2013, the bank said in its quarterly inflation report.

The bank also cut its GDP forecast to 2.9% for 2015 from an earlier estimate of 3.1%, with the economy expected to then pick up speed, expanding at a pace of 4.0% and 4.8% in 2016 and 2017, respectively.

Economic growth next year will depend on how successful the next president is at eliminating bureaucratic obstacles to billions of dollars in infrastructure, mining and energy projects, economist Roberto Abusada said.

"It will all depend on what happens with private investment, and secondly what happens in the political arena," Abusada told Lima-based El Comercio. "Whether or not the winner has the will to exercise greater leadership that enables him to carry important reforms. The bureaucracy and state administration has reached such a critical situation that the only way out is for a reorganization and reordering of the entire administrative system."

Humala's government plans to increase the 2016 budget 6.6% to 138bn soles (US$42bn), including an additional 12.2% in infrastructure spending. Humala has invested a total 8.43bn soles (US$2.55bn) in 1,992 water projects since taking office in July 2011, according to the housing and construction ministry.

Humala, who is scheduled to step down in July 2016 following general elections in April, has awarded a record US$20bn in public-private partnership projects since 2011.

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