Rich pull their money out of Peru for fear of new government

Peruvian authorities may not yet be ready to declare leftist Pedro Castillo the winner in last month’s presidential elections, but the wealthy will not wait for the official announcement.

Most the country’s rich withdraw their money from local accounts and send it abroad at a rate rarely seen in an economy that for decades was among the most stable in Latin America.

A small mutual fund company in Lima, Faro Capital says its clients have withdrawn half of all their money before the election and in the month that has elapsed since it. The big fear, as Faro investment director Fernando García says, is that Castillo imposes restrictions on purchases of dollars and euros Peruvians, just like Argentina and Venezuela have done in recent years.

Whether it’s justified or not – Castillo’s chief economic adviser insists the anxiety is overblown – this concern drives the rich to get their money while they can.

The exodus contributed to the fall of the sun by 8.4% since the first of the two ballots took place in April, making it the worst performing currency in emerging markets, despite repeated central bank intervention in the foreign exchange market to support it.

These interventions, along with a decrease in dollar deposits in local banks, have reduced Peru’s foreign exchange reserves – the hard currency that forms a country’s financial safety net – over the past three months.

Under the mattresses

At a press conference last month, Julio Velarde, longtime chairman of the country’s central bank, attempted to clarify that not all money lost in foreign exchange reserves – about $ 9 billion, or about 11% of the total – had not necessarily left the country.

Part of him said he also hides under the mattresses of people at home. The comment didn’t really help the feeling, if that was the intention. The benchmark Lima stock index plunged 0.6% that day, closing a sharp two-week drop that made the Peruvian market the region’s second-fastest contraction this year. Peruvian dollar bonds posted negative returns of 6.5%, only worse than those of Colombia, Argentina and Lebanon.

According to Paul Rebolledo, CEO of Tandem Finance, a company that prepares students for CFA (Certified Financial Analyst) certification exams, the profile of the Peruvian investor is very conservative and nervous.

Allegations of fraud

In the second round of elections, on June 6, Castillo got 50.1% of the vote, against 49.9% for Keiko Fujimori, the conservative free-market candidate of choice for investors. The announcement of the the end result was delayed for weeks after what Fujimori alleged fraud, although the United States and the European Union said it was a fair election.

Much of the task of calming nervous Peruvian investors falls on Pedro Francke, a former World Bank economist whom Castillo named his chief economic adviser last month.

Francke has said time and again that Castillo is not an extreme radical and that comparing him to the late Venezuelan leader Hugo Chávez is a mistake. Part of that post was for Castillo to indicate that he planned to keep Velarde as head of the central bank. The announcement sparked a brief rally in Peruvian assets.

“I would say the fears are unwarranted,” Francke said in an interview, “but you have to be respectful of the positions people have.”

Vladimir Cerrón, the Marxist neurosurgeon who heads Castillo’s Peru Free party in Congress, has also toned down his speech in recent days, saying in a tweet that his party respects the right to private property.

Peru has already been in this situation. In 2011, the election of Ollanta Humala, a former left-wing army officer, raised similar concerns among investors. However, Humala moderated his positions once in power and the markets stabilized. But the anguish of the Peruvian elites is more palpable this time.

Luis Ferreira, director of investment strategy at EFG Capital International, a Miami-based fund management firm that serves clients in Latin America, says despite working there for 20 years, it’s now different. because you see a very high level of worry, people liquidating positions, trying to get out.

MF CP