Investor Presentation Peru

Investor Presentation
Peru
October 2015
1
Today´s Presenter
Alonso Segura Vasi
 Alonso Segura Vasi is the Minister of Economy and Finance for the Republic of Peru.
 Previously, he was Chief of Staff at the Ministry of Economy and Finance of Peru.
 He has been Chief Economist and Head of Strategy at Banco de Crédito del Perú (BCP), Peru´s largest bank; Chief
Economist at Banco Wiese Sudameris (now Scotiabank Peru); Advisor to Executive Director for the Southern Cone
and Economist at the Financial Affairs Department at the International Monetary Fund; among other positions.
 He holds a Masters degree in Economics from the University of Pennsylvania, where he also pursued doctoral studies
(PhD (ABD)). He is an Economist from the Pontificia Universidad Católica del Perú (PUCP). And he holds
international certificates in investments (Chartered Financial Analyst-CFA) and risk management (Financial Risk
Manager-FRM).
 He has held teaching positions at the University of Pennsylvania, the Pontificia Universidad Católica del Perú and
Universidad del Pacífico in Peru. He is a Fulbright Scholar.
2
Key Highlights on the Peruvian Economy
1
2
3
3
Peru: A Decade of Economic Success
Peru: Strengths for a smoothed adjustment to a “new normal”
Risks and buffers
1
Peru: A Decade of
Economic Success
1 Peru is a country with a strong macroeconomic framework
1
5
Sound macroeconomic management and
strong policy framework
Efficient debt management
 Peru has delivered solid returns to
 Peru built significant buffers during the boom years
investors
Regional outperformer
 Buffers have remained strong even after the 2009
o
financial crisis, subsequent Chinese slowdown and
decline in commodity prices
 As a result, Peru remains better prepared than
regional peers to cope with external and domestic
shocks
o
Improving credit profile
o
Healthy debt maturity profile
o
Efficient and liquid curves at tenors
longer than 30 years
4
2
Healthiest balance sheet in its peer
group
Strong macroeconomic
fundamentals

 Fast growing economy with low inflation
rate versus international peers
 Modern economy with diversified
industries and less commodity dependent
 Driven by private investment
Peru’s public sector balance sheet is
the strongest in its peer group
o Low levels of government debt (gross
or net)
o
Liquid assets available for treasury
management
o
Ample access to capital markets
o
Low debt service
o
Moderate government deficits
 Open to international investors and trade
3
Strong pipeline of investments and
developing middle class to drive growth
 Strong pipeline of investments will drive future
growth and competitiveness
 Strategic Public Agendas (Competitiveness,
Diversification) aimed at lowering dependency
on commodity exports and increase resilience
to external shocks
 Growing middle class and working population
create revenue stability
5
1 Peru led the region in economic growth over the past decade
Structural changes allowed the outstanding
performance of the peruvian economy
GDP Per capita increased more than the
regional peers
GDP per capita Average Annual % Change
LA5: GDP per capita 2002-2014 (Index 2002=100)
3.5
210
2.9
3.0
190
2.5
2.2
170
2.0
2.0
1.6
150
1.3
1.5
130
1.0
0.5
110
0.2
90
0.0
Peru
World
1961-1990
LAC
World
LAC
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Peru
Brazil
1990-2014
Chile
Colombia
….and is among the top ten countries in terms of
wealth(1) increase
Real annual wealth growth rates 2000 – 2015 (%)
China
5.3
Norway
4.8
Malaysia
4.7
Peru
4.6
Colombia
4.5
Taiwan
4.4
Russia
4.1
South Africa
4.1
Sweden
4.0
New Zealand
4.0
0
6
1
2
3
4
5
(1) Wealth defined as the market value of financial assets plus non-financial assets (principally housing and land) less debts.
Source: World Development Indicators (WDI), IMF WEO October 2015, Credit Suisse - Global Wealth Report (October 2015).
6
Mexico
Peru
1 The outstanding performance was based on strong macroeconomic
fundamentals and policy continuity over 25 years
Low inflation rates…
…and a prudent fiscal policy…
2005 – 2014 average
Gross Public Debt 2014 (% of GDP)
65.2
61.3
7.4
49.8
44.3
5.5
4.0
4.2
3.5
2.9
20.1
20.1
15.1
1
…generates an attractive risk profile
Country Risk (bps), EMBI+ average. Jan 1– Oct 14, 2015
191
315
232
199
170
Peru
Chile
Peru
Mexico
Uruguay
Colombia
Brasil
Aa3
A3
A3
Baa2
Baa2
Baa3
AA-
BBB+
BBB+
BBB
BBB-
BB+
A+
BBB+
BBB+
BBB-
BBB
BBB
Worst
Mexico
7
4
5
6
Ranking
Colombia
Chile
3
Within a solid macroeconomic environment 2015
Better
222
2
Uruguay
Brazil
Source: Banco Central de Reserva del Perú (BCRP), IMF WEO/Fiscal Monitor (October 2015) and World Economic Forum 2015.
23
29
32
56
99
117
1 The institutional framework is a key ingredient for Peru´s performance
•
•
•
•
•
•
•
•
8
Fiscal Responsibility and Transparency Law of 1999
was the base for the new macro-fiscal framework,
strengthened in 2013.
The new macro-fiscal framework is based on cyclicallyadjusted public finances, following best practices in
resource-rich countries.
Recently, the first Independent Fiscal Council was
created, strengthening the transparency and the
institutional framework of fiscal management.
Central Bank is an autonomous and independent entity.
Monetary policy is conducted under an Inflation
Targeting scheme with FX flexibility.
Legal reserve requirements and exchange rate swaps
are amongst other instruments available to the Central
Bank.
Peruvian legislation gives the same treatment to local
and foreign investors.
No restriction on profit remittances and dividends.
1 Sustainable economic growth has been driven by consistent capital
accumulation
 Private investment has shown to be a key driver of
GDP growth
Private investment has driven GDP growth
Average Annual % Change
1983-1993
12.3%
1994-2003
2004-2014
 Peru is currently a regional leader in terms of
capital accumulation: as a % of GDP up from
6.3%
6.0%
having one of the lowest levels in the 90’s
4.3%
 This trend should continue with investment in
large-scale infrastructure and mining projects
(0.3%)
(0.5%)
GDP
Private Investment
Investment in Peru rose from record lows in 1990…
…to lead the region in terms of capital accumulation
Total investment as % of GDP - 1990
Total investment as % of GDP - 2014
27.2%
26.2%
24.4%
20.4%
Chile
9
Brazil
20.4%
Mexico
22.1%
19.9%
Colombia
Source: BCRP, IMF – WEO (October 2015).
13.9%
13.5%
Peru
Uruguay
Peru
Colombia
Uruguay
21.9%
Mexico
21.5%
Chile
20.0%
Brazil
1 Global integration fosters trade and investment
Peru: Total Exports 2014
% of Total Exports 2014
USD 8.6 billion
North America (1)
(22.5%)
USD 9.2 billion
Europe
(24.1%)
USD 11.2 billion
Asia
(29.4%)
USD 8.6 billion
LAC
(22.4%)
USD 0.3 billion
Africa
(0.7%)
USD 0.3 billion
Oceania
(0.9%)
 Peru has implemented Free Trade Agreements (FTA) with the United States, the European
Union, People’s Republic of China, Republic of Korea, Mexico, Canada, Chile, Singapore, Japan,
Thailand, Costa Rica, Panama, among others
 There are currently ongoing negotiations with Honduras, El Salvador and Turkey
 Peru already has some form of preferential access to countries that represent 73% of the world
GDP (92% of world trade).
 Recently, Peru subscribed the Trans-Pacific Partnership (still to be ratified by the Congress of
each of the 12 partners).
10 (1) Not including Mexico.
Source: BCRP, MEF, MINCETUR.
1 Peru has reduced its risk profile and is an investment grade country
Recently, Moody’s, S&P and Fitch confirmed Peru’s
investment grade rating
LatAm: Sovereigns Rating (1)
Long Term Debt in Foreign Currency
• September 30, 2015: Fitch confirms BBB+ rating
for Peru with stable outlook
• August 28, 2015: S&P confirms BBB+ rating for
Peru with stable outlook
• August 25, 2015: Moody’s confirms A3 rating for
Peru with stable outlook
Country
Moody's
Chile
Peru
Mexico
Colombia
Panama
Uruguay
Brazil
Paraguay
Bolivia
Ecuador
Venezuela
Aa3
A3
A3
Baa2
Baa2
Baa2
Baa3
Ba1
Ba3
B3
Caa3
S&P
AABBB+
BBB+
BBB
BBB
BBB
BB+
BB
BB
B
CCC
Fitch
A+
BBB+
BBB+
BBB
BBB
BBBBBB
BB
BB
B
CCC
Sovereign Rating Evolution
Long Term Debt in Local Currency
Long Term Debt in Foreign Currency
A3 29
Moody's
Baa1
27
S&P
A3 29
Moody's
Baa1
27
S&P
Fitch
Fitch
Baa2
25
Baa3
23
Baa2
25
Investment grade
Investment grade
Baa3
23
Ba121
Ba121
Outlook
Ba219
Outlook
Ba219
S&P
Stable
Stable
Fitch
Moody's Stable
Ba317
Ba317
B1 15
2001
2003
2005
2007
11 (1) Ordered by Moody’s rating.
Source: S&P, Fitch, Moody’s.
2009
2011
2013
S&P
Stable
Stable
Fitch
Moody's Stable
2015
B1 15
2001
2003
2005
2007
2009
2011
2013
2015
Economic growth has resulted in increases in adequate employment,
1 reduced of poverty rates and a growing middle class
Creation of Adequate Employment
Poverty reduction was greater than in other LAC’s
inflation-targeting countries
% of working population in Lima
% of population lifted out of poverty
Adequate Employment
65
Underemployment
64
60
25
20
55
15
50
10
45
5
40
36
35
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0
Peru
Colombia Brazil
2000-13 2002-13 2001-13
Peru was among the fastest inequality-reducers in
the region
Middle class has expanded
% change in Gini coefficient, 2004-13
% of Total Households (Urban Peru)
LAC
average
2000-13
Chile
2000-13
Mexico
2000-12
0
2004
-2
A
2014
B+C
D
-4
0.4%
-6
-8
29%
E
Middle Class
2%
44%
-10
44%
-12
Mexico
Colombia
LAC
Brazil
Honduras
Paraguay
El Salvador
Dom. Rep.
Uruguay
Ecuador
Bolivia
Peru
-14
Emerging lower class
36%
27%
18%
Households : 4.2 mm
Households : 6.0 mm
12 Source: Instituto Nacional de Estadística e Informática (INEI), World Bank (PERU: Building on Success. Boosting Productivity for Faster Growth) and Apoyo Consultoría.
1 Peru is in stronger footing than peers to weather shocks
In the cluster of good business environment and solid
growth in the region
… and low financial needs
Business Environment vs growth 2015-2016 (1) (Score, Annual % change)
Business Environment
Public debt vs growth 2015-2016 (% of GDP, Annual % change)
80
Colombia
Peru
70
Chile Mexico
Uruguay
Brazil
60
Public Debt
Uruguay
Ecuador
Brazil
Argentina
Bolivia
Venezuela
50
Argentina Mexico
Venezuela
Colombia
40
Bolivia
Ecuador
30
Peru
20
Chile
10
0
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
-7
Economic Growth
Mean of forecasted economic growth for the years 2015 and 2016.
13 (1)
Note: the size of the countries depends on the importance in the region.
Source: IMF, World Bank (Doing Business Database), Consensus Forecasts (September 2015).
-6
-5
-4
-3
-2
-1
0
1
2
Economic Growth
3
4
5
6
7
2
Peru: Strengths for a
smoothed adjustment
to a “new normal”
2 Global conditions: a strong and persistent shock
China: GDP
Copper Prices
Annual % change, 4 quarters moving average
4 quarters moving average of cUS$/lb
11
Crisis period 2008Q2-2010Q3
Slowdown period 2010Q3-2015Q2
Crisis period 2008Q2-2011Q3
Slowdown period 2011Q3-2015Q3
450
400
10
350
9
300
8
250
7
cUS$ 239 lb
October 14, 2015
200
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Number of Quarters
15 Source: Bloomberg.
1
2
3
4
5
6
7 8 9 10 11 12 13 14 15 16 17
Number of Quarters
2 Latin America faces a complex economic scenario
2009 - 2013
2014 – forward
Negative
Positive
Liquidity
High
In line with lower
demand
Asset prices
Assets appreciation
Driven by weaker
fundamentals
Commodities prices
Extraordinarily high
Lower and volatile
Chinese growth
Very high, driven by investment
Real interest rates
16
Lower, driven by consumption
(in transition)
However, Peru will keep an average growth rate at around 4.7% in the 2016-
2 2018 period, leading the region
Peru’s economic performance
Peru will lead economic growth in the region
GDP (Annual % change)
GDP 2016-2018 (Average annual % change)
5
10
4.7
9
4
8
7
3
6
2.7
2.8
3.1
3.2
Mexico
Colombia
5
2
4
3
1.2
1
2
1
0
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Brazil
Uruguay
Chile
Note: The LA6 countries refers to the six Latin American countries that have adopted a formal inflation targeting framework and have relatively more developed domestic capital
17 markets. The list includes: Brazil, Chile, Colombia, Mexico, Peru, and Uruguay.
Source: Forecasts MEF, IMF – WEO (October 2015)
Peru
2 Peruvian economy will be boosted by 4 drivers in the near-term
1. Mining: Copper production will reach historically high levels
2. Infrastructure projects: will soon begin construction phase
3. Household consumption: a fast growing middle class will sustain a
growing demand for goods and services
4. Strong macroeconomic policies: fiscal and monetary policies will
smooth the adjustment process to a “new normal”
18
2 Mining: Production will reach all-time highs
GDP mining and copper production
Copper production
(Annual % Change)
(Index 2014=100)
GDP mining
25
Copper
24.6
168
22.5
20
176
135
15
13.0
10.4
10
100
110
10.5
7.5
5
0.7
0
(2.1)
-5
2014
2014
2015
2016
2017
Toromocho
2015
Constancia
2016
2017
2018
Cerro Verde Expansion
Las Bambas
•
Metallic mining production will continue growing due to increases in copper production.
•
Higher copper production will be driven by increases in Toromocho and Constancia
projects, and the entering of production from projects like Cerro Verde and Las Bambas.
•
By 2018, these projects will represent 46% of the total copper production.
19 Source: INEI, MEF estimates.
2 Mining: Competitive advantage
Electricity Rates to industrial customers 2015(2)
Copper: cash cost(1) 2014
(US$/lb)
(cUS$/kWh)
Zambia
2.11
Australia
Panama
El Salvador
Chile
Colombia
Uruguay
Average
Bolivia
Guatemala
Costa Rica
Ecuador
Mexico
Brazil
Peru
1.87
Canada
1.77
U.S.
1.68
Average
1.62
Congo
1.58
Russia
1.55
China
1.52
Chile
1.50
Brazil
19% below
average
1.35
Peru
1.31
0.0
0.4
0.8
1.2
1.6
2.0
2.4
23.0
14.8
12.7
12.3
11.8
11.7
11.5
10.5
10.3
9.6
33% below
average
8.1
7.9
7.8
0
5
10
15
20
Copper: Labor costs(3) 2014
(US$/Man hours)
Australia
Canada
USA
Chile
Average
Argentina
Brazil
Indonesia
Zambia
Congo
Russia
Peru
Mexico
China
46
36
33
20
15
11
9
8
8
7
7
6
58% below average
5
2
0
10
20
30
40
50
Includes costs of mining, crushing, concentration, overhead and freight.
20 (1)
(2) Considers industrial customers, it means customers which bought more than 500 thousands kW per hour. To 2Q2015.
(3) Considers labor relations, hiring and firing practices, pay and productivity country's ability to retain and attract talent, the effect of taxation on the incentive to work, and others.
Source: Cochilco, Osinergmin, BTG Pactual “Peru mining tour: for projects, survival of fittest” (2015).
25
2 Infrastructure: Surge of infrastructure investments through PPPs
PPP awarded by ProInversion(1)
2014
(US$ Millions, VAT included)
Southern Gas Pipeline Line 2 of the Metro of
Lima and Callao
US$ 5,794 million(2)
US$ 6,783 million
20 projects
US$ 19,627 million
2015
Goverment’s
goal
Chinchero International Moyobamba - Iquitos
Airport - Cusco
Powe Transmission Line
US$ 775 million
US$ 589 million
41 projects
US$ 9,730 million
15 projects
US$ 6,094 million
2 projects
US$ 66 million
Aug.06-Jul.11
Aug.11-Jul.12
2013
2014
Nov.13
Dec.13
4G Band Nationwide Southern Energy Node
US$ 1,202 million
US$ 826 million
Aug.12-Dec.13
“Longitudinal de la Sierra”
Highway -Section 2
US$ 651 million
2014-2015
In the current administration, 29 PPP projects have been awarded, they add up to more than
US$ 20 billion
21 (1) Updated to 10.05.2015.
(2) The amount of potential investment in the project is assumed.
Source: ProInversion.
Infrastructure: Projects awarded will boost public and private
2 investment
Investment in Infrastructure Projects(1)
Gross Capital Formation of the General Government
(US$ millions)
(% participation)
Infrastructure
10,000
Mining
Public investment
100
9,000
6.6
8,000
PPP
17.3
80
7,000
6,000
60
5,000
93.4
4,000
40
82.7
3,000
2,000
20
1,000
0
0
2010
2011
2012







2013
2014
Line 2 of the Metro of Lima and Callao
Southern Gas Pipeline
Talara Refinery Modernization
Chavimochic Irrigation Project - Stage III
Majes Siguas Irrigation Project - Stage II
Mantaro-Montalvo transmission line
South Energy Node of Peru (Puerto
Bravo Thermal Power Plant)
 Carhuaquero-Moyobamba transmission line
 Longitudinal of the Sierra Highway – Section 2
 Broadband Installation (4 regions)
•
2015
2016
2017
Average 2006-14
Average 2016-18
 Carapongo substation
 Azangaro-Puno transmission line








Chinchero International Airport - Cusco
South energy node (Ilo Thermal Power Plant)
Moyobamba-Iquitos transmission line
Machupicchu-Tintaya transmission line
Planicie-Industriales transmission line
General San Martin Port Terminal
Dv. Quilca-La Concordia Section
Expansion of Jorge Chavez Airport
Portfolio is consistent with medium-term fiscal envelope.
22 (1) Includes public and private investment of infrastructure projects in many sectors (transportation, irrigation, electricity, telecommunication, hydrocarbon transport and sanitation). Talara
Refinery Modernization is considered because it´s a project of national interest.
Source: ProInversión, Osinergmin, Ositran, APOYO Consultoria, companies, MEF forecast and MMMR 2016-2018.
2
Infrastructure: The Peruvian Government has taken measures to reduce
“red tape”, delays and overruns as well as perfect existing legal framework
Infrastructure
Infrastructure
Regulation of Tax Credits for Public
Infrastructure
Promote regional/local public investment
projects with private sector participation.
Promote, encourage and boost public investment
Reallocate unused budget resources within the three
government levels.
All sectors
Infrastructure
Archeological Intervention Regulations
Optimize the process to obtain the Certificate
of Nonexistence of Archaeological Remains
and the Archeological Monitoring Plan.
May. 14
Modifications to the Water Resources Law
Facilitate the granting of water use rights
for investment projects.
Infrastructure
Modifications of the PPP Regulations
Optimize admission, evaluation, and prioritization
processes for co-financed unsolicited proposals.
New PPP Regulation
Regulation of new PPP Law
Mar. 14
Jul. 14
Infrastructure
Modification to the PPP Law
Improve the PPP legal and
institutional framework
All sectors
Measures to facilitate and accelerate
investment
Reduce transaction costs and eliminate
perverse incentives in the setting of fines.
Oct. 14
Nov. 14
Dec. 14
Jan. 15
May 15
Mining Hydrocarbons
Environmental Regulations
Modernize and optimize regulations
applicable to investment projects in
exploration and exploitation phases.
Mining
Measures for Mining Activities
Reduce unnecessary requirements to authorize
mining exploration and exploitation
All sectors
Promotion of Investments for Economic Growth and
Sustainable Development Law
Improve environmental easement and expropriation
procedures. Strengthen the Investment Oversight Team
within the Ministry of Economy and Finance.
23 Source: MEF, National Congress.
Delegation of legislative powers to the Executive
Branch
Promote and speed up public and private
investment, including PPP and tax credits for public
infrastructure mechanisms.
All sectors
Infrastructure
Jan. 14
Infrastructure
Measures for land and property acquisition
Accelerate the direct acquisition and expropriation
of property, transfer of state-owned property and
utility clearance processes.
Jul. 15
Aug. 15
Sep. 15
All sectors
Licenses for operation of businesses
Simplify procedures for the issuance of operation licenses
All sectors
Elimination of red tape
Identify and eliminate bureaucratic barriers that may be illegal
and/or unnecessary.
Infrastructure
Promote private investment in PPP and other modalities
Consolidate various laws to promote private investment.
Organize processes and roles of all stakeholders to speed up the
implementation of investment projects
Promote “Public Works in Lieu of Taxes”
Allow the National Government to use this mechanism for
investments in Culture, Environment, Sanitation and Sports
infrastructure projects.
2
Household consumption: Consolidation of the middle class expected to
continue
Urban Peru: Socioeconomic structure
% of Households
A
2004
Higher class
(A)
0.4%
B
C
D
E
2014
2021
2%
3%
Consolidated
middle class
(B)
4%
13%
16%
Emerging
middle class
(C)
25%
31%
36%
Emerging lower
class
(D)
44%
36%
31%
Lower class poor
(E)
27%
18%
14%
Households : 6.0 mm
Households : 7.7 mm
Households : 4.2 mm
24 Source: Apoyo Consultoría
Household consumption: Middle class will boost the demand of goods
2 and services as it happened in other countries in the region
Average
Consumption of
Mobile Data per User
Shopping Centers
Vehicle Sales
(per million inhabitants)
(per thousand inhabitants)
Banking System
Credits
134
3
17
50
34
5
23
79
22
4
7
37
11
2
6
32
x12
x2
x4
x2
(Thousands of terabytes)
Number of times
Peruvian demand may
increase
(% of GDP)
25 Note: Updated to the first half 2015 for the average consumption of mobile data per user (Telefonica Movistar in different Countries). For other indicators, information available at 2014.
Source: Telefonica Movistar in different countries, FELABAN, ARAPER, ACARA, ANAC, ACCEP, Acecolombia, TRADE MAP.
Household consumption: Demographic bonus as a driver to boost high-
2 skills labor force in the following years
Young adult people are going to sustain the labor
market
Rate of child and elderly dependency %
1.0
0.9
0.8
0.8
0.7
0.6
0.5
0.5
0.4
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0.3
Academic characteristics: Post Secondary
Education
(% of total)
Labor characteristics
(% of total young adults)
2009
2014
Dependent employment
54
61
Young adults
47
Permanent employment
57
74
Head of household
37
26 Source: INEI and Ipsos Marketing.
2014
2
Strong macroeconomic fundamentals and a smoothed adjustment process to
the “new normal”
2008
2015
(Before international crisis)
(New international environment)
Inflation
(%)
6.7
3.7
International Reserves
(% of GDP)
26
31
Credit Dollarization
(% of total credit)
51
32
Public Debt
(% of GDP)
26.9
22.9(1)
Public External Debt
(% of GDP)
16.8
11.1
Fiscal Stabilization Fund
(% of GDP)
1.6
4.7
27 (1) Including partial pre-financing of 2016.
Source: IMF WEO October 2015, MEF, BCRP, Consensus Forecasts (September 2015).
Fiscal Policy: Peru has built a sound fiscal position in comparison to its
2 peers to bridge a transition to a new normal
Fiscal Balance 2004-2014
Fiscal Balance 2014 vs. LatAm Peers
% of GDP
% of GDP
0,0
5.0
Peru
Average A3
Average Baa1
3.0
(0.3)
-1,0
1.0
(0.3)
-1.0
-2,0
Average A3
(1.5)
(1.8)
-3,0
(2.1)
-3.0
(3.7)
-5.0
-4,0
Average Baa1
-5,0
-7.0
-9.0
-6,0
-11.0
-7,0
(4.6)
1
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(A3)
(Aa3)
2
(Baa2)
3
(A3)
4
(6.2)
(Baa3)
5
Public General Government Debt 2004-2014
Public General Government Debt 2014 vs. Peers
% of GDP
% of GDP
70
70
60
Peru
Average A3
Average Baa1
55.9
60
65.2
Average Baa1
49.8
50
50
41.1
44.3
Average A3
40
40
30
30
20.1
20
20.1
20
15.1
10
10
0
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
28 Note: “Average A3/Baa1” represents average of relevant metrics for countries with an A3/Baa1 rating.
Source: IMF, Moody’s, MEF.
1(Aa3)
2(A3)
3(Baa2)
4
(A3)
5
(Baa3)
Fiscal Policy: Peru has built a sound fiscal position in comparison to its
2 peers to bridge a transition to a new normal
Average Fiscal Balance 2009-2014 and Gross
Public Debt 2014
Fiscal Stabilization Fund
% of GDP
% of GDP
5
PER
1
4.7
3.3x
4
0
3.6
3
-1
-2
2
-3
1
-4
0
1.4
2009
-5
0
10
20
30
40
50
60
2012
70
Gross Public Debt 2014
Change in Gross Public Debt 2014 vs 2009
% of GDP
25
Change in Gross Public Debt
 Emerging Economies
 Countries with A3 credit rating (Moody's)
increase in gross public debt
15
9.3
9.1
8.7
5.8
5.4
5
4.5
4.0
2.1
0.3
0.2
-1.8
-5
decrease in gross public debt
-7.1
29 Note: *A3 represents average of relevant metrics for countries with an A3 credit rating (Moody’s).
Source: IMF, Moody’s, MEF.
Peru
Uruguay
Brazil
Malta
EM
Malaysia
LA6
Latvia
Mexico
Lithuania
Colombia
-15
Chile
Average Fiscal Balance 2009-2014
2
2014
Fiscal Policy: Public debt management has brought down external and
2 financial risk exposure
Public Debt Composition by Type of Debt
Public Debt(1) Composition by Interest Rate
% total of debt
% total of debt
3.1
10.8
2.9
3.4
80.5
81.2
16.6
15.4
2009
1H2015
29.5
50.4
48.4
89.2
70.5
49.6
2004
2009
External
48.5
2004
1H2015
Variable
Internal
Fixed
Public Debt(1): Average Term to Maturity
Gross interest payments
Years
% GDP
Inflation indexed
Brazil
6.1
Iceland
3.5
Turkey
2.8
South Africa
Colombia
13.3
11.4
Poland
2.0
2.0
Lithuania
2009
1H2015
30 (1) Refers to medium and long term public debt
1.6
Latvia
Peru
1.1
Indonesia
1.1
Chile
Source: BCRP, MEF.
2.2
Mexico
7.24
2004
2.2
1.2
0.4
Fiscal Policy: Confidence in strong fundamentals was reflected in a
2 recently successful issuance of global bonds
Issuance and demand for global bonds
(August 18, 2015 placement)
LatAm: 2016 financing needs
USD Billion
% of GDP
18
16.5
16
14
12
10.9
10
8
6
4
6.2
5.3
3.8
2
0
 Investor confidence was reflected in the successful placement of global bonds in August 18, 2015
with bonds oversubscribed more than four (4) times.
 Strong demand was reflected in the achievement of the lowest coupon rate in the history of the
Republic, despite a relatively volatile scenario in the financial markets (midst of Chinese
devaluations).
31
Source: IMF, Bloomberg, Consensus Forecasts (August, 2015), Latin Focus, MEF.
2.9
Monetary Policy: Solid macroeconomic buffers shield against exogenous
2 shocks
Net International Reserves have increased by more
than 6 times
Peru has the highest international reserves in the
region with respect to GDP and imports
USD billion
International Reserves September 2015
61.9
InternationalReserves/
Reserve/GDP
International
GDP (%)
International
Imports (Months)
InternationalReserves/
Reserve/Imports
31
19
16
15
9
10.2
6
2003
Peru
Mexico
Chile
Colombia
In addition, the Central Bank has instruments
to stabilize the monetary and financial sector:
USD millions
2010
8,963
2011
3,537
2012
13,179
2013
5
2014
-4,208
2015 1/
-6,943
1/ Oct 14, 2015.
7
Oct 12, 2015
Net purchases in the FX market
32 Source: BCRP.
14
•
•
•
•
Direct currency market intervention to
reduce exchange rate volatility.
Certificates of deposits and refundable
certificates of deposits to provide liquidity
in national currency.
FX currency Swap to affect the interest
rates market expectations.
It has high levels of reserve requirement,
which could be reduced to provide market
liquidity.
2
Monetary Policy: In an uncertain external environment, authorities have reduced
FX volatility but following and upward trend in line with fundamentals
Exchange Rate Volatility
Change in Exchange Rate(1)
(Standard deviations above average, %)
(%)
25
22.4
100
Depreciation Sept. 2015 vs. Jan. 2011
Appreciation Jan. 2011 vs. Mar. 2003
92.4
90
20
80
16.3
13.6
15
11.5
10
73.7
70
60
12.2
50
9.2
49.2
41.2
40.2
40
32.6
46.3
36.3
32.6
26.1 26.7
30
5
20
13.3
10
0
Peru
Mexico
Chile
Uruguay
Colombia
Brazil
0
Brazil
Colombia Uruguay
Peru: Multilateral Real Exchange Rate Index
(Base 2009=100)
115
110
105
100
95
98
Average
Jan 1991- Sep 2015
94
90
85
80
75
Jan-91 Feb-94 Mar-97 Apr-00 May-03 Jun-06 Jul-09 Aug-12 Sep-15
33 (1) In the case of Mexico, the period of appreciation corresponds March 2009 vs. March 2003.
Source: Bloomberg, BCRP.
Chile
Mexico
Peru
2 Solvent and liquid Banking Sector resilient to shocks
The banking system remains strong
..and with low risk among countries in the region
Banking System: Return On Equity – ROE March 2015 (%)
Banking System: Non- Performing Loan Ratio June 2015 (%)
6
28
23.9
24
4.8
5
20
18.1
17.8
4
15.5
16
3.1
3
13.0
12
2.2
2.4
Chile
Peru
3.3
2
8
1
4
0
0
Peru
Chile
Colombia
Brazil
Mexico
Mexico
Brazil
… and Banks liquidity remain above regulatory
requirements
The coverage ratio is high in Peru
Non- Performing Loans and Coverage ratio (%)
300
Colombia
3.0
NPL Coverage Ratio (right axis)
Non-Performing Loans (NPL, left axis)
250
2.5
200
2.0
150
1.5
100
1.0
Liquid assets to Short-Term Liabilities (%)
70
Foreign Currency
Domestic Currency
60
48.7
50
40
30
20
50
0.5
0
Jan-09
0.0
Jan-10
Jan-11
Jan-12
Jan-13
34 Source: ASBANC, FELABAN, Central Banks.
Jan-14
Jan-15
Aug-15
10
0
Jan-09
23.6
Minimum Ratio in Foreign Currency (20%)
Minimum Ratio in Domestic Currency (8%)
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Aug-15
Solvent and liquid Banking Sector resilient to shocks
2
Bank Solvency above International Standards
Reserve Requirement Ratio in Soles and Dollars
Total Capital Ratio (%) as Defined by Basel
As % of total obligations subject to legal requirements
15
80
14.3
14
Average required USD
Average required PEN
70
13
Marginal USD
Marginal PEN
70.0
60
12
50
11
Banking Law (10%)
40
36.7
10
30
9
International Standard (8%)
8
20
10
7
6
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
6.6
0
Aug-10
Aug-15
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Increasing Levels of Credit in Peruvian Nuevos Soles (PEN) vs. US Dollars (USD)
Credit Breakdown (%)(1): PEN vs. USD
80.5
78.2
76.0
72.9
70.0
30.0
65.6
34.4
58.4
40.8
53.9
55.3
57.0
59.2
61.8
67.3
53.2
2012
2013
2014
Aug
2015
44.3
48.6
2007
2008
2009
2010
2011
Percentage of Credit in Soles
21.8
24.0
27.1
2000
2001
2002
2003
2004
2005
2006
Percentage of Credit in Dollars
Source: BCRP.
44.7
41.6
19.5
35 (1) End of Period numbers
55.7
46.1
43.0
32.7
46.8
38.2
51.4
Strong external position due to increase in mining production, diversification
2 of non traditional exports and capital flows towards infrastructure projects
Current Account Balance (International standard)
Financial Account
% of GDP
10
% of GDP
8
Others
Trade Balance
Investment Income
Current Account Balance
8
6
Portfolio investment
Long-term loans
FDI
Others
Financial Account
6
4
4
2
0
2
-2
-4
0
-6
-8
-2
2003-2007
2008-2014
2015
2016-2018
2003-2007
2008-2014
2015
Non Traditional Exports
Business exporters – number of businesses
Market destination– number of countries
7,905
7905
179
4,709
4709
149
2002
36 Source: BCRP, MEF.
2014
2002
2014
2016-2018
2
Structural reforms and policy measures aimed at boosting potential growth
WEF 2015: Barriers to conduct business in Peru
(As Percentage of Total Answers)
18.7 Axis 1 and 3
Inefficient government bureaucracy
Restrictive labor regulations
16.6 Axis 1 and 3
Corruption
14.1
Regulations and tax rates
11.5 Axis 3
Inadequate supply of infrastructure
9.9 Axis 2
Policy instability
7.4
Crime and theft
6.8
Inadequately educated workforce
6.8 Axis 1
Access to financing
2.5
Poor work ethic in national labor force
2.0
Insufficient capacity to innovate
1.9
Poor public health
1.0
Others
0.7
0
5
10
15
20
•
Axis 1: Human Capital
•
Axis 2: Infrastructure
•
Axis 3.: National Productive Diversification Plan, Agenda of Competitiveness, “red tape”
+ Social Inclusion (more equitable growth / social cohesion)
37 Source: WEF (2015), The Global Competitiveness Report 2015-2016.
2
•
Structural reforms and policy measures to boost potential output
Axis 1: Human capital




Civil Service (SERVIR Law).
Magisterial Reform Law.
Reduction in transaction costs associated with labor inspections.
Higher resource allocation in Education and Health.
Public Budget in Education
Civil Service Development Index
(% of GDP)
(Change in Civil Service Development Index between 2004-2013)
30
3,8
+106%
27.0
25
23.0
3,5
20
16.0
3,2
14.0
15
2,9
13.0
10
8.0
7.0
6.0
5
2,6
5.0
Brazil
Honduras*
Uruguay
Colombia
Costa Rica*
*Change between 2004-2012.
** Change between 2004-2015.
Source: Inter-American Development Bank, MEF.
Chile
38
Nicaragua*
Main policy measures in Education:
 Implementation of Magisterial Reform Law
 Improving Educational Infrastructure
 National Scholarship Program and student loans–PRONABEC.
Paraguay*
2016
Panama*
2013
El Salvador*
2010
Peru**
2,3
0.0
0.0
Mexico
1.0
Guatemala*
1.0
0
2 Key actions towards an improvement in productive diversification
39
•
Promotion of new growth engines for the economy
•
Reinforcement of Technology Innovations Centers (CITEs) and
strengthening the Production Institute of Technology (ITP)
•
Implementation of a National Quality Policy
•
Implementation of a National Innovation Policy
•
Development and promotion of modern industrial parks
•
MSMEs financing cost reduction
2
Measures in order to increase productivity and diversification
R+D+i: Deduction Factor on taxable base1/
Who makes the project?
Technology Innovations Centers (CITE)
Deduction
(%)
Company
175
National Research Center
175
Foreign Research Center
150
1
3
4
Saving for a large company according to R+D+i
4
(% of income tax)
1
100
2
89.0
90
80
4
70
11
60
50
2
37.5
40
3
30
20
Number of CITEs.
5.4
10
5
2
0
1.0
5.0
R+D+i expenditure (% of sales)
10.0
1
 There are 12 CITEs at the moment; 2016 goal: 47
 The improvement is both: qualitative and quantitative.
40
Source:Apoyo Consultoria and PRODUCE.
1/ Deduction factor applied on taxable base per each sol spend in R+D+i.
Recently, we have passed 33 Legislative Decrees in order to boost
productivity
2
A - Administrative simplification
•
Single window procedure: Facilitates the integration of public sector procedures and services
•
Technical inspections: Simplifies procedures/permits on technical inspections on buildings
•
Unique procedure system: Creation of a software as a new tool to facilitate procedures
•
“Red tape”: Strengthening authority powers for identification and elimination of barriers
B - Investment promotion
•
PPP: New Public Private Partnership framework
•
“Tax Credits for Public Infrastructure” (OxI): Precisions and enhancing of OxI scheme in all gov. levels
•
Expropriations: New framework for acquisition, expropriations and interferences
•
Sanitation: Improves efficiency on groundwater management
•
Urban habilitation and buildings (LD 1225): Facilitation of permits for housing access
•
Energy access: Improvement in electric energy access
•
Electric coverage: New investment mechanisms to improve electric coverage and quality
•
Cultural heritage: Promote the private sector participation in the cultural heritage management
C – Productive Diversification
•
Factoring: Financing through factoring operations for small and medium enterprises
•
Technological innovation centers-CITE: Strengthening the CITE to consolidate achievements
•
Aquaculture: Legal framework and promotion for sustainable development of aquaculture
•
Industrial parks: Develop modern and international competitive industrial parks
•
MIPYME fund: Boost innovation, technology transfer and quality of micro, small and medium companies.
D – Trade Facilitation and market efficiency
•
Customs: Introduction of best international practices in customs management
•
Anti-competitive practices: Strengthening the powers of authorities
41
E - Financial deepening
•
Real state investment funds-FIRBI: Tax incentives to promote real state investment funds
•
Real state capitalization scheme: Promotion for a new scheme that facilitates access to housing
•
Rental housing: New rental housing schemes with buy option and leasing
2 Strategic Integration will help us increase productivity
New opportunities based on
Trans-Pacific Partnership
 12 members of TPP account around 40% of the
world´s GDP.
 Five new FTAs and improved conditions with
others.
The Pacific Alliance
 Joint
promotions
of
infrastructure
investment
(scale).
 Comprehensive financial and capital markets
integration.
 Mechanisms to foster integration to global value
chains.
 Disaster management risk -policy mechanisms.
 Fiscal transparency.
 Simplified access procedures.
Peru’s accession to OECD will serve
as a trigger for structural reforms
 Improve on public governance issues.
Competitiveness Indicators – Gaps against other countries
Values between 1 (worst) and 7 (best)
Peru
Chile, Mexico and Colombia
OECD
Technological readiness
 Bolster “microeconomic” reforms: institutionality,
informality, innovation, among others.
 Country Program with the OECD will help us to
close those gaps.
Infrastructure
Innovation
Institutions
Higher education and training
Business sophistication
Health and primary education
1
2
42 Source: WEF-The Global Competitiveness Report 2015-2016.
Note: GDP PPP per capita was used as a weighting factor to find the average of values for OECD and Chile, Colombia and Mexico countries. .
3
4
5
6
7
3
Risks and buffers
Peru has important buffers to deal with a challenging international
3 environment
Consideration
China slowdown
Potential
concern
4
Risk
 Lower commodity prices
 Lower demand for Peruvian exports
 Increase in risk perception
Mitigant





Comparatives advantages in mining
Strong pipeline in mining projects (production phase)
Investment through PPPs will support growth prospects
Low fiscal revenues from mining (1.1% of GDP in 2014)
Ongoing Productive Diversification Plan
 Increasing tradable production in the following years
Deterioration in
macro external
accounts
(mining)
3
 Widening of current account and trade balance deficits
 Headroom for policy intervention
 Strong stock position (Liabilities position of bonds and
total external debt 32% of GDP in 2014)
 Rate hike anticipated for a long time, reaction should be
mild
Upcoming rate
hike
2
 Rising funding yields due to rate hike
 Potential loss of access to capital markets
 Concerns about intervention and continued
FX volatility
1
“overvaluation”
 Potential for drastic correction if outlook worsens
 Investment grade rating: healthy debt profile, strongest
balance sheet
 Strength of financial/banking system
 Financial sector is low (Loans equiv. to 37% of GDP in
2014)
 Peru’s RER is in line with fundamentals
 Dollarization of banks’ loan portfolio is at historically low
levels
 External position better than peers
 Peru´s Central Bank has buffers to confront this
scenario.
 Fiscal space generated in previous years
 Low net debt allow a more efficient assets & liabilities
Fiscal deficit
1
 Fiscal impulse shows expansionary stance
 Partially financed with capital markets operations
management
 Strong commitment with rules based macro-fiscal
framework
 Ample space to increase fiscal revenues (20% of GDP)
44 Note: Full moon (i.e., 5) represents the strongest factors keeping investors from investing in Peru’s debt; on the other hand, an empty moon (i.e., 0) implies lower expected level of
concern.
Source: JP Morgan, MEF.
Investor Presentation
Peru
October 2015
45