Humala Victory Won’t Derail Colombia-Peru Exchanges Merger, Echeverry Says
Both nations’ stock indexes fell last week after Humala, a one-time ally of Venezuelan President Hugo Chavez, beat market- friendly rivals to qualify for a June 5 runoff. Humala has pledged to seek a new constitution and to redistribute wealth, stoking speculation he will expand state control over Peru’s economy. Bolsa de Valores de Colombia (BVC) SA, which in January said it was acquiring 64 percent of its Peruvian stock exchange counterpart, fell 7.2 percent last week, the biggest such decline since October, 2008.
Humala could “prove the markets wrong” as former President Luiz Inacio Lula da Silva did in Brazil, Echeverry said yesterday in an interview in Washington, where he’s attending a meeting of the International Monetary Fund. Peru’s next president will work to preserve gains made by the country’s companies and economy over the past decade, he said.
“We believe that this is an achievement that will be guarded by any government, and of course we would like to hear that from any government,” said Echeverry.
Lima’s benchmark General Index fell 8.9 percent and Colombia’s IGBC Index fell 3.1 percent last week on concern a Humala presidency would jeopardize $50 billion of mining, energy and infrastructure investment that Peru expects to fuel 6.5 percent growth over the next five years. Peru, the world’s second-largest producer of copper, saw its economy expand 8.8 percent last year.
Bogota-based BVC said in January it was acquiring 64 percent of the Bolsa de Valores de Lima, or BVL, for an undisclosed amount. The combination will create the fourth- biggest market in Latin America after Brazil, Mexico and Chile with the total value of stocks listed at $293 billion, according to data compiled by Bloomberg.
The merged exchange, which will also integrate trading with Chile, aims to boost liquidity, enable portfolio diversification and allow the addition of new financial instruments. Joint trading at the integrated three-nation Andean exchange, known by its Spanish acronym MILA, begins May 30, and Echeverry said the “dream” is to attract 300 mostly medium-sized companies to list from Colombia by 2014.
“We have confidence in the merger, we have confidence in the future of capital markets between Chile, Peru and Colombia,” said the 48-year-old Echeverry, who has a doctorate in economics from New York University. “The most important thing is that whoever wins in Peru shows a commitment to sound macro and micro economic management.”
Humala, after winning 32 percent in the first round of balloting April 10, said he would consider a proposal drafted by former Finance Minister Pedro Pablo Kuczynski, who placed third, which urges respect for the constitution and the free-market system. Humala will face in the runoff Congresswoman Keiko Fujimori, daughter of jailed former President Alberto Fujimori, who trailed behind Humala with 24 percent of the vote.
Humala, who in 2000 led soldiers that seized and occupied for a week a mine owned by Phoenix-based Southern Cooper Corp., also has pledged to renegotiate a free-trade agreement with the U.S. signed by President Alan Garcia.
Echeverry ruled out a swap of peso-denominated bonds that come due in May. Colombia has about 10 trillion pesos ($5.5 billion) worth of securities known as TES coming due next month.
Echeverry said he would prefer to avoid controls on capital inflows, though refused to rule them out. Colombia risks attracting new speculative capital as near-zero interest rates in the U.S., Europe and Japan coupled with Colombia’s new investment grade rating from Standard & Poor’s lure inflows.
“We don’t close any doors because, as I said before, if you reach your pain threshold, you react,” said Echeverry. “But so far we have been below our pain threshold.”
Colombia has stepped up efforts to curb a rally by the peso, which has gained almost 32 percent against the U.S. dollar over the past two years. The government last year eliminated most tax exemptions on foreign borrowing and delayed repatriating $1.5 billion held overseas, most of it dividends from state oil company Ecopetrol SA.
The measures, imposed Oct. 29, helped weaken the peso 1.7 percent through the end of March, the biggest decline among the region’s currencies after Argentina’s peso. Since then, the peso has gained 4 percent, the biggest gainer during that period among 25 emerging-market currencies tracked by Bloomberg.
BNP Paribas, in a note to clients last week, said the peso remains “significantly undervalued” and is set to outperform its peers. The currency, which strengthened beyond the 1,800 pesos per U.S. dollar threshold last week for the first time since October, could climb to as high as 1,760 per U.S. dollar, BNP said.
The central bank has been buying at least $20 million daily in the spot market since Sept. 15.
Echeverry said he’s confident the U.S. Congress will approve a free trade agreement this year after Colombia agreed to strengthen labor provisions that President Barack Obama requested to move the long-stalled agreement forward. If it isn’t, then Colombia will stop pushing for the deal, he said.
In the meantime, Colombia is broadening its trade agenda, he said. The government is engaged in talks to deepen economic cooperation with Mexico, Chile and Peru — all of which sit on the Pacific Rim, share Colombia’s investment grade rating and are negotiating or already have free trade agreements amongst themselves and with the U.S.
Brazil, the region’s biggest economy, is more difficult to penetrate because it has higher tariffs. Echeverry said he has asked Brazilian Finance Minister Guido Mantega to “open up their markets so that the role they play in Latin American becomes tangible for all of us.”
“We have to trade more sell more and buy more from Brazil,” he said.
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