IMF Christine Lagarde Visits Peru | A Little Further South

This week, Christine Lagarde of the IMF is visiting Peru & is meeting with the Peruvian President and economic leaders. She spoke this week:

IMFs Lagarde Expects Growth to Continue

From El Comercio (Via Bing Translator)

“Peru has been having a decade of strong growth and we are confident that it will continue to grow, despite the slowdown of the world economy and the lower metal prices. We have spoken with President Humala on the need that Peru implement tax and structural reforms recommended by the International Monetary Fund”, said Christine Lagarde at Government Palace.

IMF & World Bank to Meet in Peru 2015

On the other hand, the Managing Director of the IMF said that the Peru will be the center of the global economic debate in October 2015, when the annual meeting of the IMF and the World Bank takes place in Lima.

Between 5 and 12 October of next year Lima will host the meetings of Governors from both multilateral agencies, event which will bring together some 10,000 participants. Lima is the third Latin American city that will host this important event, after Mexico (1952) and Rio de Janeiro (1967).

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While the IMF seeks to calm investors, the real trend is becoming more obvious:

Exports Falling

From Gestion: (Via Bing Translator)

In the ten months of the year, traditional exports amounted to US $22,209 million, registering a fall of 16%, which means a reduction in value of US $4,209 million, said the center of trade foreign (CCEX) of the Chamber of Commerce of Lima (CCL).

Peruvian Sol Continues Decline, Slower Growth Expected

Yesterday the Peruvian Sol fell to another 5 year low vs the dollar. Meanwhile economic growth estimates are being lowered (and will be revised lower again soon – author)

From Gestion: (Via Bing Translator)

The Peruvian economy will register an economic growth of 2.8% in 2014, according to the new estimates of the Economic Commission for Latin America and the Caribbean (ECLAC). This figure represents a correction downward since the entity expected (as of) last August an expansion of 4.8 percentage points. (Note the large drop!)

Introducing the report “Balance preliminary of the economies of America Latin and the Caribbean”, Alicia Ibárcena, Executive Secretary of ECLAC, said that this year Latin America will reach its weakest growth in five years to report a rate of 1.1%. 2.2% of regional progress was expected in August.

Unexpected Surprises on the Horizon

Another economic shock such as occurred in 2008 is not being prepared for, and when the financial chickens come home to roost, the dollar will initially strengthen and many dollar denominated loans in emerging nations will default. This will set up a further loss of liquidity & also result in even slower economic growth.

The Latin American “miracles” of Mexico, Columbia, Chile & Peru will be shown to be in large part funded by hot money inflows from outside, and when that money just as quickly exits, there will be considerable pain. Expect surprise drops in exports, imports & GDP.

My prediction is that economic growth in Peru for 2015 will be closer to .5-1%. The Peruvian Sol will return to a range of between S./3.05 – S./3.15 within the next 6 months, which will be a large surprise for the mainstream media & a blow to those who have borrowed in dollars. I expect to see a long awaited cooling in the real estate bubble, and a sharp uptick in the numbers of delinquent residential and commercial loans.

While world economic leaders paint a rosy picture, the reality is that the wheels are coming off of the world economic cart, and the emerging nations will be the earliest to feel the reversal of fortune.

Peru has a younger population, most of whom have not witnessed a big economic slowdown in recent memory. As home prices have reached nosebleed levels here, the government has continued to fund & support this enormous bubble. When that bubble implodes, not only will many be hurt, but it will also cause a crisis in the banking sector & big losses to government guaranteed loans. A loss of confidence will ensue.

This week Peruvian President Humala and Christine Lagarde were discussing “structural reforms.” What that will mean when the economy doesn’t perform as planned remains to be seen. Austerity in Peru? 2015 should be an interesting year….

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