(Adds comment from economic aide and Humala meeting Velarde from fifth paragraph.)
June 8 (Bloomberg) -- Peru President-elect Ollanta Humala should send “clear signals” to reassure investors about his economic policies after his June 5 victory triggered a sell-off of Peruvian assets, Finance Minister Ismael Benavides said.
Humala, 48, needs to focus on defining his economic policies after pledging early in his campaign to boost government control of the economy and unilaterally increase mining royalties, Benavides said. Benavides offered to accompany Humala’s team to meet overseas investors before the government’s term ends next month, a proposal that was rejected by Humala’s economic aide Oscar Dancourt.
“We’re leaving on July 28 and they’ll be here for five years,” Benavides said in an interview in Lima yesterday. “They’re the ones that need to give clear signals.”
Peru’s benchmark stock index plunged 12 percent, the most on record, June 6 on concern Humala, a one-time ally of Venezuelan President Hugo Chavez, will pursue market-unfriendly policies. The nation’s stocks, bonds, and currency rose today and yesterday as investors took advantage of the sell-off.
“It’s not necessary,” said Dancourt, who Bank of America- Merrill Lynch said may be a candidate for central bank chief, when asked about the offer to meet investors. “What we need now is to concentrate on the transfer from one government to the next, work on the different areas of national policy and not only on the economic sector.”
The government and central bank will boost liquidity in the financial system if there is a “substantial” withdrawal of funds in the coming weeks, said Benavides, who led Banco Internacional del Peru, the country’s fourth largest bank, from 1994 to 2007. The contingency plan includes measures such as lowering reserve requirements, he said.
“It’s important to put the private sector at ease since it has been the motor of investment,” Benavides said, adding that there hasn’t been a “massive” withdrawal of funds from the South American country. “People are watching and waiting.”
Dancourt said Benavides should have been more “prudent” in calming the market ahead of the election.
Humala is committed to maintaining existing macroeconomic, monetary and fiscal policies, said Dancourt, who is part of an economic team set up by the president-elect to design a plan for transition to government.
The government will likely post a budget deficit for a third straight year, Dancourt said. Benavides projects a 2011 budget surplus equivalent to 0.2 percentage points of gross domestic product.
Central Bank Job
Humala, a former army officer, said in an interview with CNN’s Spanish-language channel yesterday that he will meet with current bank chief Julio Velarde to decide whether he will keep his job. Bank of America said in its report yesterday that Dancourt poses more risk due to his “interventionist” stance in favor of capital controls and taxing inflows. The report said Humala’s Cabinet may include former deputy finance minister Kurt Burneo or economic consultant Raul Salazar as finance minister.
“We’re looking for figures who rather than party membership, have solid morals and generate confidence” among investors, Humala said in his first interview since winning the June 5 elections. “Velarde is a competent person who has done a good job over the years at his institution.”
Since being appointed in 2006 to head the central bank, Velarde, 58, has helped triple international reserves to a record $46 billion and raised lending rates to a two-year high to curb inflation, which has been the lowest in the region since 2006. He introduced measures including higher reserve requirements for bank deposits to rein in lending, which jumped 20 percent from a year earlier.
Peru’s economy expanded 8.8 percent last year, the second fastest pace in 16 years. Output slowed in the first quarter as companies froze investment projects before the election and government spending eased. The government last month cut its 2011 growth forecast to 6.5 percent from 7.5 percent.
Falling consumer prices, lower demand for credit and slowing economic growth justify a pause by the central bank at its meeting tomorrow, Benavides said.
Humala, who defeated Congresswoman Keiko Fujimori in the June 5 presidential runoff, said yesterday he’ll visit Venezuela and regional allies Bolivia and Ecuador as part of a international tour before taking office.
The current government’s proposal to raise the limit on private pension funds’ investment overseas to 50 percent from 30 percent shouldn’t be approved by congress, Dancourt said.
“I don’t think the bill was prudent,” he said. “You have to be careful about the effect these sort of things have on the exchange rate and the economy. I don’t think it should be approved.”
--With assistance from Alex Emery in Lima. Editors: Bill Faries, Harry Maurer
To contact the reporters on this story: John Quigley in Lima at firstname.lastname@example.org; Helen Murphy in Lima at email@example.com
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